Expected to remain high throughout the year:

Milk prices hit record high

In China and elsewhere in Asia, chains such as McDonald's (MCD) and Starbucks (SBUX) are introducing unfamiliar taste buds to cheeseburgers and lattes, increasing the region's demand for dairy.

Rising costs of animal feed, shrinking European production and long-standing drought in Australia and New Zealand, the world's largest milk-exporting region, are also pushing up the price.

Paying more for milk is causing an uproar in Germany, where families consider providing children with an affordable glass of milk a fundamental right. It is also a concern for consumers in the U.S. and elsewhere in Europe.

Milk prices hit a record last month in the U.S., where consumers paid an average $3.80 a gallon, compared to $3.29 in January, according to the U.S. Department of Agriculture. It forecasts prices will remain high throughout the year.

Prices are likely to remain high worldwide until dairy farmers add more cows or shift production to powders, which are more easily traded than the liquid stuff.

International dairy prices increased 46% between November 2006 and April 2007, with milk powder prices increasing even faster, according to the Food and Agriculture Organization.

In China, milk consumption has soared along with rising incomes, a massive expansion of the dairy industry and the increasing familiarity with - and taste for - non-native foods among young urbanites.

China's growing love of dairy is a far cry from two decades ago, when the country was just opening up to foreign products and availability was limited to milk, yogurt and, on rare occasions, butter. The Dairy Association of China estimates consumption will rise by 15%-20% annually in the coming years.

In Germany, where milk prices are set annually after negotiations between producers and powerful retailers, retailers have been holding prices down to the tune of almost 15% since 2002. Since July, they've been paying producers an extra five to seven cents a quart after the producers threatened to take their milk elsewhere.

Since May, the price for a half-pound package of butter has gone up from $1.06 to $1.13 in Germany, while the price for a gallon of milk has increased from $3.20 to $3.60. Higher prices for dairy products have led to a flurry of condemnation.

FLEX NEWS.com