Pork chops, Sister Schubert's Homemade Rolls, protein drinks, McCormick seasonings, ranch dressing, the Starbucks dessert case.

The common ingredient? Dairy.

From whey to powdered milk to butter, dairy finds its way into a breadth of foods on grocery shelves. So, when demand for milk and milk derivatives grows and prices spike, you can expect to feel the pinch at the supermarket.

Milk and dairy prices reached record highs last year, and while they have ceased their dramatic climb, they're holding steady. Agriculture experts expect prices to settle next year, but the market has seen a marked shift that local dairy dealers and producers say may change the industry forever.

A global economy has created growing demand for dairy products in booming markets such as China and India. Drought in Australia and New Zealand has hurt exports there. These factors are leading to higher costs at home for corn, wheat, fuel and packaging--much of which is petroleum-based--as well. Thus, a complicated formula of factors contributes to that gasp of surprise at the checkout line.

Higher prices are good news for local dairy farmers, who just a few years ago suffered under some of the lowest milk prices in history. At the same time, the higher cost of inputs such as feed, fuel and fertilizer--not to mention land and equipment--means nobody's rushing to get into the dairy business or expand their herds.

"I think there are limits to expansion," said Monroe County dairyman John Harrison.

In a quiet West Knoxville office absent even a business sign to mark its presence, Tedford Tellico has held a front-row seat to the transformation of the dairy business.

Started in 1982, the small company is one of a handful of distributors across the country in the dried dairy product business.

The company holds contracts with customers around the world, buying and supplying them with powdered milk, buttermilk, whey, condensed milk and other products for a variety of uses from baby pig feed to chocolate bars. Tedford Tellico-brokered products can be found in Starbucks desserts, ranch dressing, seasonings, protein drinks, pork chops and Sister Schubert's rolls.

Ten years ago, the United States was awash in dairy, explained Tedford Tellico CEO John Lindley. Since the 1930s, the nation had bought up surplus powdered milk, cheese and butter and by the 1980s had 1 billion pounds of powdered milk stored in Kansas.

Because of subsidies traditionally paid to European dairies and the strength of the U.S. dollar, the nation did not export its product. At the same time, U.S. dairies used new technologies and agricultural practices to produce more milk than ever, and the surpluses mounted.

The U.S. government decided to begin exporting the powder, as it was in danger of spoiling, launching the Dairy Export Incentive Program in the late 1980s and early 1990s to carry out the effort, Lindley said.

At the same time, the European Union began lifting subsidies to its producers and the export market opened to U.S. dairy products was suddenly more price competitive.

A weakening American dollar further widened the floodgates, even as the quickly developing nations of India and China began adopting a more Western diet that includes dairy.

"It's not just all one thing," said John Campbell, area farm management specialist at the University of Tennessee. "There's been a severe drought that's lingered … in Australia and New Zealand, and historically that's where a lot of dairy exports have come from. That milk has not been available to feed the world demand that it generally goes to. You get outside of there and then the United States is the next best place to get it in the volume that's needed."

The vast government inventories of milk powder? Gone.

And companies like Tedford Tellico have become multinational firms.

"Fifty percent of skim milk powder is now exported," Lindley said. "Now the U.S. has become very competitive."

Tedford Tellico has an agent in China and customers around the world--in Asia, the European Union, Russia, the Middle East. Today, international business makes up 40 percent of the company's shipments.

The company began to develop its overseas business in the mid-1990s at the initiative of John Tedford, who serves as company president, has a master's degree in international business and speaks fluent Spanish.