Afternoon tea (or tiffin) is going to get a whole lot more expensive, if world market prices for milk, tea and sugar are any guide. But the cost of the nice pastry, or toast (if it’s breakfast), won’t break the bank, or the baker.

Milk, tea and sugar prices are all at or near multi-year highs, while wheat prices, the world’s most traded grain, remains low as America harvests the second largest crop on record. Oil, gold, copper and iron ore may be capturing the headlines every day, but the real action has been well away from these publicity hoggers. Sugar hit yet another 28-year high this week of 24.24 US cents ($A 28 cents) a pound for raw sugar in New York as drought in India and heavy rains and a shortage of credit in Brazil restrict the size of the current harvest.

Tea crops in East Africa continue to disappoint, pushing prices higher: auctions in Mombasa, in Kenya, on Monday saw prices rise to be up 36% so far in 2009 as production from major countries could be down 10% or more. But the new drivers is the poor monsoon across India and Sri Lanka on top of the dry weather in Kenya, another major producer. This week’s auction saw prices hit $US3.97 a kilo, and forecasts that it will rise well above $US4 a kilo.

But the real shock is the way milk prices have soared in recent weeks. After hitting record prices last year of $US4750 a tonne for milk powder, prices fell sharply, especially in New Zealand, which is the world’s major exporter and the price setter. But the two most recent monthly auctions have seen prices rise 50%, with a 24% increase coming in the latest sale on Tuesday night.

Fonterra Co-op is the world’s largest dairy exporter and it says low supplies in New Zealand and Australia, plus the US, and a resumption of strong demand from Asian buyers, has seen prices surge to $US2800 a tonne for powder (which is how milk is traded internationally).

Milk powder prices had fallen to five-year lows in July as demand fell and the US and Europe offered subsidies to help their farmers export surplus product. Now demand has rebounded so quickly, prices have hit their highest levels in 12 months.

Wheat prices remain about $US4.87 a bushel, more than $US8 a bushel down on the all-time highs of February, 2008.

And what of coffee, which also goes well with milk, sugar and a snack? No movement, trading about $US1.20 a pound in New York.

Peter Fray

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