Rising cost of butter giving food manufacturing companies at tough time

Rising cost of butter giving food manufacturing companies at tough time

 22 Nov 2017

A reduction in the numbers of milk farmers and a particularly cold spring have resulted in the price of dairy products soaring by more than 18%.

Official data from the Office for National Statistics illustrates that food manufacturers were paying 4.7% more for their dairy products by the end of May, and 18.7% more than just twelve months ago.


Effects of the Economic Downturn

The chairman of the dairy board of the National Farmers Union, Michael Oakes, has reported that many dairy farmers were unfortunately forced to stop their milk production as a direct result of the economic downturn.

In 2014, many farmers were selling milk for considerably less than it cost them to produce, and since then the number of producers has fallen by approximately 2.5% each year. At the start of 2014, Lancashire had more than 500 registered dairy farms; however by December 2015, more than 30 had stopped production and ceased their operations indefinitely.


An EU-Wide Dairy Decline

It isn't just UK production that has been falling, there has also been a steady decline across the whole of the EU. Significantly, some of this reduction has resulted from an oversupply on a global level, partly following the lifting of EU production regulations which saw farmers producing increasing numbers of dairy products. Dairy markets have subsequently seen substantial fluctuations in relatively short periods of time.


Poor Grazing Conditions Due to Bad Weather

In addition to declining milk production, the Agriculture and Horticulture Development Board has reported that unfortunate weather conditions throughout the Spring season negatively impacted grazing conditions across the UK, further affecting the output of the dairy industry.


The Rising Cost of Butter

Increasing costs seen by food manufacturers haven't been passed on to the consumer so far, with the notable exception of butter. Kantar Worldpanel, a consumer research company, has found that the butter price has increased by around 10% in the last year across shops and supermarkets, which is considerably more than any other grocery product. Conversely, supermarket milk prices have continued to stay well below the yearly consumer price inflation of 2.9%.

To understand why this is the case, a brief investigation into supply and demand is required. As previously illustrated, milk production has been unstable for some time and when this information is combined with what many UK retailers refer to as 'The Mary Berry Effect', the reasons for the noticeable price inflation start to become a little clearer.

The success of the Great British Bake Off, which used to occupy a prime slot on the BBC and has since moved to Channel 4, has resulted in notable spikes in butter sales, with amateur bakers the length and breadth of the country increasing the demand for these staple cake ingredients. There have also been several key reports revealing some of the central benefits of natural fats alongside warnings over processed butter alternatives. Consequently, many consumers, particularly those who are mindful of their health, have switched back to butter.


Potential Price Inflation on 2017 Christmas Staples

The food manufacturing industry is reporting that the prices of butter and cream are set to continue to see significant price inflation by Christmas 2017. A spokeswoman from Dairy UK has commented on the soaring prices for cream and butter, and again reinforced the likelihood of both significant shortages and price increases.

With unstable wholesale prices predicted to continue during the run-up to the Christmas period, food manufacturers using butter as one of their primary ingredients will continue to feel the pinch. Mince pies, a winter season staple, may yet be one of the products where consumers will see a noticeable price increase. However, the industry is fighting hard to ensure that if some costs are passed to the consumer, they will be kept to an absolute minimum.


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