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The drought has sent the UN's Food and Agriculture Organisation's dairy price index soaring.
The FAO Dairy Price Index jumped by 22 points in March to 225, one of the largest recorded changes.
The overall FAO Food Price Index (FPI) also crept higher by 1% in March compared with a month before, driven mainly by the 11% increase in dairy. Dairy products carry a 17% weight among the various commodity prices included in the calculation of the overall FPI.
The price surge is caused by hot, dry weather in Oceania, which has led to milk production falling off steeply and a concomitant reduction in the processing of dairy products in the region, the FAO says.
The dairy prices used in the Price Index calculation are based on the exports of New Zealand, as it is the world's largest dairy exporter, accounting for about one-third of global trade. Export prices for dairy products have also risen for other important exporters, such as the European Union and the United States, but not to the same degree.
"The exceptional increase is in part a reflection of market uncertainty as buyers seek alternative sources of supply," the food price index report says. "In addition, dairy output in Europe has yet to come fully online after a particularly cold winter, which has delayed pasture growth to feed dairy animals.
Meanwhile, FAO's monitoring of the global cereal supply and demand situation has slightly revised the 2012 crop production estimate upward by nearly 3 million tonnes, which now stands 2% lower than the record set in 2011.
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The Government has expanded the medium-scale adverse event classification to cover the Canterbury and Otago regions.
Federated Farmers Marlborough Province says it welcomes the announcement yesterday that current dry weather in the top of the South Island would be classified as a medium-scale adverse event.
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