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Understanding the Global Butter Shortage and it's Impact on Industry

8 Nov 2017

The global market has been experiencing a butter shortage worldwide, as producers struggle to meet growing demands and changing consumption patterns. The European market (France, in particular) has experienced the most severe case of butter shortage in years, with supermarkets left bare and local businesses turning to alternative solutions.

 

Two big international changes explain the squeeze. Supply of dairy products has been in flux for a while. In 2015 the European Union ended a quota system for milk-producers, part of an effort to reduce subsidies and let a freer market function. Suppliers were hit by a period of low prices: impoverished small producers of milk in France reported monthly take-home income as low as a few hundred euros. At the same time, global demand for butter has also been changing. “China has discovered croissants,” notes Emmanuelle Auriole of the Toulouse School of Economics. (The Economist)

 

In the West, dietary habits are adjusting: sugar is increasingly shunned as unhealthy, but hunger for full-cream milk, butter and cheese appears to be returning. The result has been higher global prices of late. For markets like Australia and the USA – the upcoming festive season could be less profitable for the bakery industry, as dairy prices continue to rise with limited availability and supply shifting into the New Year.

 

Here are some of the key factors, highlighted by the Huffington Post, that brought about the butter shortage:

 

The demand for butter is growing

 

"One of the other food trends is around eating more natural, less processed foods, so more people are choosing butter compared to the alternative vegetable spreads.” - John Droppert, Senior Analyst at Dairy Australia

 

We are seeing a shift in consumption back to natural products (such as butter) as part of the health conscious consumer profile in today’s market.

 

The demand for full fat milk has grown

 

"Long story short, we produce butter from milk. It doesn't come just as butter -- you produce it from the fat which comes out of the milk or cream, and the rest of the skim milk usually gets dried into skim milk powder, which is a product used in baked and other goods," Droppert said.

 

With more refined sugars being eliminated from the average diet – consumers are looking to full fat milk to help satisfy the natural urges and cravings for their daily intake.  As more full fat milk is being consumed – less becomes available for the production of butter.

 

Dairy producers have been unable to keep up with growing demand

 

Due to the shift towards butter and full fat milk, dairy producers have struggled to meet the dairy trend demands.

 

"I suppose we're in a situation where we as food manufacturers are using all the different portions of the [dairy] product, so if one part of it changes then all of a sudden that forces a change in the other part of the equation. At the moment there's a complete surplus of skim milk powder in the world so prices for that product are at a 10-year low, but butter is at record prices," Droppert said.

 

What does this mean for the dairy-dependent industries?

 

A butter shortage is not an indication of no butter in the market – there is still sufficient supply in most regions. However, the effect of the butter (and full fat milk) shortage is felt on the price of these goods when trading in large quantities (particularly for the commercial and industrial use of these goods, but not so much the retail sector).

 

As more milk and butter is being produced, prices are expected to level-out as we proceed through the festive season and into 2018.

 

Sources:

 

The Economist

Huffington Post

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