HOW much do you think a litre of milk costs? A dollar? Two dollars maybe? Actually it’s $2.30 and it’s going up so fast the guy in the coffee shop below my office on Flinders Lane has put up a big sign explaining the new prices.

The price of milk has risen 20 per cent in the past year, says Bill Barbour, and he should know. He’s the investment manager at the DWS Global Agribusiness Fund, a $1.6 billion fund from Deutsche Bank that was formed last year to capitalise on what he calls “Ag-flation” the sudden and irreversible upward momentum in food prices which is going to change the world as we know it.

Australian milk and dairy prices are bounding ahead and wheat prices are at an all-time high.

In China pork prices are up 90 per cent, in Britain food prices are growing at their fastest in a decade, in Mexico a sudden lift in the cost of flour for tortillas caused a riot a few months ago.

I had barely digested this news about food price inflation when two of the biggest food companies on the stock exchange reported annual results. At Goodman Fielder, CEO Peter Margin talked of a “perfect storm” of higher wheat and oil prices; at Futuris owners of Elders Rural CEO Les Wozniczka suggested food prices could rise by 50 per cent in the next five years.

What is driving food prices higher? A bunch of factors has combined at the same time. In Australia there is drought, which reduces supply against unchanged demand. ANZ’s chief economist Saul Eslake points out that the effect of the drought is only temporary: longer term falling EU subsidies will be a bigger driver of higher milk prices.

But a more important global force is climate change or at least developments around climate change, such as the new limitations on land use and the push (especially in the US) to replace petrol with biofuel.

In the US biofuel quotas from the Bush Administration are prompting a big increase in the price of corn. In the same way our higher milk prices push up butter and cheese prices, higher US corn prices push up the price of beef.

But the biggest driver behind rising food prices is widening appetites in China and India, where more than 2 billion people who once got by on a largely vegetarian diet are aspiring to diets like you, me or Homer Simpson.

US investment guru Jim Rogers who correctly called the “hard commodities” boom of recent years now says “soft” commodities will shine. He says: “There are three billion people in Asia and they’re not going to lose their appetite because we’ve got new problems in the US.”

So who wins and loses with rising food prices? First, it’s a social issue, felt most acutely in developing countries.

The links between the price of bread and revolution go back to the French Revolution but in Australia its main effect will be to push up inflation and maybe even interest rates.

For farmers the impact is split sharply between the big rich farms which can manage drought and smaller farms that are permanently struggling.

At the top end of the farming market the outlook is bright enough that international investors are buying farms across the country.

For stock investors the picture is also mixed. Food manufacturers such as Goodman Fielder have not managed to exploit the higher price of grain. But “pure play” soft commodity companies have been big winners.

In beef, the share price of Australian Agricultural Company with land holdings the size of Scotland has jumped by about a third since the start of the year, while grain companies such as the Australian Wheat Board are having a very strong year despite internal scandals.

At the DWS Global Agribusiness Fund, Bill Barbour has raised $14 million from local investors in less than a year. Units in the fund have risen four times faster than international share indices.

“Higher food prices are inevitable all over the world; we’re in a sweet spot,” he says.

jk@eurekareport.com.au

THE Tory peer who led the inquiry into the Holyrood building fiasco and a former Labour first minister are to sit on the new commission on Scottish broadcasting, it was announced yesterday.

Lord Fraser of Carmyllie and Henry McLeish will be among the ten members of the body set up by Alex Salmond to examine broadcasting and come up with recommendations to the Scottish Executive.

The Scottish Broadcasting Commission, chaired by former BBC Scotland head of news Blair Jenkins, will publish its first report next year.

Membership will also include the former Liberal Democrat MP Baroness Michie, the playwright and former Green MSP Chris Ballance, the former BBC national governor Norman Drummond, the actress and comedy entertainer Elaine C Smith, the former Scottish Arts Council director Professor Seona Reid, the games industry entrepreneur David Wightman, and the writer and film-maker Murray Grigor.

The posts will be unpaid, and officials said membership had been ruled out for anyone who might benefit financially from any of the commission’s recommendations.

The commission’s primary job is to report on areas currently under the scope of the Scottish Parliament - which are limited.

But it will also have a wider brief, to “identify matters for further consideration”, and in this role, the commission may well decide to report on whether broadcasting should be devolved from Westminster to Holyrood.

Mr Salmond said: “I am excited to see such respected and talented individuals from a wide variety of backgrounds agreeing to work together in the commission to examine Scotland’s broadcasting problems and come forward with effective solutions.”

Can fashion week help two retail hubs beat the blues - and the competition? Rachel Wells reports.

TWO struggling city shopping precincts are clinging to the coat-tails of Melbourne Spring Fashion Week and the promise of strong race-wear sales in a bid to boost an otherwise poor year.

Tomorrow night, the GPO will host a spring shopping evening featuring two fashion parades and discounts at selected stores, while on Saturday, the focus will turn to the QV’s Spring Fashion Carnivale with parades throughout the day.

Both precincts, which have suffered from rising vacancy rates and weak winter sales, hope to snare a good share of the $4.1 million that is injected into the city economy during the event each year an almost immediate boost, given that consumers can spot what they like on the catwalk and go straight into stores to buy it.

Despite overall growth in the number of people living and working in the city, and council figures that show visitors spent close to $1.5 billion more on shopping last year than they did two years ago,

the GPO and more significantly, the QV, have failed to prosper.

Vacancy rates are higher than ever at both precincts and several retailers have reported poor sales in the year to date.

Jo Foo, of women’s fashion label Dizingoff, in Albert Coates Lane at the QV, says winter was slow.

“There were a few weeks where it was really, really slow. I can’t speak for all the retailers here, but I know it’s been quiet and there’s at least one other retailer who I know has been even quieter than us We’ve also had a few (Third Millennium and Sashia) who have packed up and gone.”

Latest figures show the QV’s vacancy rate has risen to 8.41 per cent from 3.77 per cent a year ago.

The GPO is faring better with a vacancy rate of 2.5 per cent.

The best performing of the major fashion centres is Melbourne Central, with vacancies of just 0.75 per cent.

Ross Honeywill, executive director of consumer think tank the Centre for Customer Strategy, says that while fashion week and the spring racing carnival the second busiest period for most fashion retailers after Christmas will provide a short-term boost, both precincts need to make changes to ensure long-term prosperity.

He says the QV is too much like a traditional shopping centre to attract the city’s growing number of savvy shoppers, or new-economic-order consumers (NEOs): big spenders who represent almost 25 per cent of the population and account for more than half of all discretionary spending.

They prefer, he says, “the path less travelled” to the suburban-style shopping centre.

“I think the revamped Melbourne Central, with its laneway sense of discovery, has stolen the march from the QV, which is too geared to some middle Australia that no longer exists in the city.

“I think it has the potential to survive and even thrive, but it needs a really strong re-invention to appeal to these NEOs.”

Ms Foo agrees. “I don’t think the mix of retailers is quite right. We thought there would be more high-end Australian designers and boutique brands but there’s not and as a result there has been a lot of shops coming and going. At the moment, people are treating this laneway like a walkway to the food court.”

The GPO, meanwhile, has been hampered by an “uninviting” frontage and a lack of “destination” tenants in the building, according to Mr Honeywill.

“I think the GPO has the potential to be a strong retail presence in Melbourne. But at the moment it doesn’t have an active retail frontage that invites people in. It’s quite an imposing building.

“I also think it needs more destination tenancy, the type that people will come across town just to go to. At the moment it probably relies too much on passing trade and it doesn’t get it.”

Melbourne Spring Fashion Week runs from tomorrow until Sunday.

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