Since the beginning of 2016 UK butter prices have risen over 20%. This is because the cost of cream (the primary ingredient in butter) has tripled in price. It’s no surprise that industry professionals are now warning of shortages leading up to the Christmas period. These shortages could not only affect the price of butter but may well impact the price of other dairy products, including festive favourites such as mince pies. So what exactly is driving prices up?
The UK Milk Crisis
The reason we are seeing price increases on dairy products such as butter and cream, whilst the cost of milk remains relatively low, is primarily due to competition for UK milk supply which is falling rapidly. Stuck in a boom-bust cycle, the dairy market has become increasingly volatile. 2016 saw a 10% decrease in production of British milk. Farmers were advised, following a Russian ban on all EU dairy imports, that the UK market was saturated. This drove prices down and led to a surplus of milk. Now plagued by the increasing production costs and ever-growing prevalence of diseases such as Bovine Tuberculosis, producers are struggling to sustain healthy herds and turn a profit, following a poor year financially in 2016. Whilst some dairy farmers are choosing to diversify, most struggle to remain financially solvent with many forced to quit farming altogether.
Supermarket Price Wars
The ongoing battle between supermarket giants has further contributed to the plummeting price of British milk. Whilst retailers battle it out for the cheapest price per litre, driven by consumer trends, farm gate prices have fallen as low as 2p per litre in the past 6 months. Although demand has now increased, the recent price increases have not yet filtered down to producers.
Following the rise of the Euro against the pound, European exports have become increasingly profitable, with manufacturers looking to export as much as possible whilst current trade agreements with Europe remain unchanged. It’s suggested that a decrease in dairy exports could help level the price of milk by limiting competition for supply to with the UK.
Market Trends: The Mary Berry Effect
UK retailers have reported spikes in the sales of butter following the success of popular TV show The Great British Bake Off. Named ‘The Mary Berry effect’, the showed has piqued the interest of amateur bakers across the country, adding to demand for the popular ingredient.
Recent revelations about the benefits of natural fats has also seen health conscious consumers switch back to butter, following a period of bad PR for vegetable spreads and other butter alternatives, which can be highly processed and have been linked to several negative health implications.
The NFU have advised that whilst the dairy industry is unstable, butter shortages in 2017 are unlikely, however with wholesalers and retailers fighting hard not to pass on cost increases to consumers, it’s unclear when wholesale prices will stabilise.