The price of butter has been going through the roof and shops in France have been running out of it while the raw material it is made from, milk, costs next to nothing.
How can this paradox be explained?
Butter has been selling at stratospheric price levels over the past few months (€7,000 per tonne) and some French supermarket chains have been running out of it.
French dairy farmers have been forced, over the past few years, to lower their prices. Their prices – which currently stand at €350 per 1,000 liters – do not enable them to make money from their farms.
“This appears to be the paradox at the moment”, acknowledges Dominique Chargé, the Chair of the Fédération Nationale des Coopératives Laitières (FNCL, the national federation of milk cooperatives), “but it is not one when you understand what is actually happening”.
The steep rise in the price of butter can be explained, firstly, by increased demand from Asian countries, who are being tempted by the western lifestyle, and secondly, by increased sales in western countries, notably in France.
“A decade ago, everybody was convinced that there was a problem with butter, that it wasn’t good for your health and that only producing protein – and not fat – was the future of the dairy industry. Yet now the situation has been turned on its head, since nutritionists have told us that protein is bad and that butter is good. Consumers have thus started eating more of it, and also the [food] industry has sought substitutes for palm oil”, explains Dominique Chargé.
But to understand the price paradox about milk and butter, you need to examine the ways in which they are produced :
To produce butter, only cream – which makes up a small proportion of milk – is used. About 1,000 liters of milk are required to produce 45kg of butter. The rest of the milk is processed into milk powder (90kg of it) and into buttermilk (which is mainly made up of water), which is used by the food industry, but which is very cheap.
In other words, when 45kg of butter is produced, twice that of milk powder in quantity terms must be sold.
But the latter is not highly valued.
“Milk powder is a co-product, and one which doesn’t have a great value. It is less profitable to produce and as a result the price of the prestigious substance – butter – is going through the roof”, explains Dominique Chargé.
Thus, “Dairy industry companies could produce much more milk powder, but it would not be profitable, because they would then have to sell the milk powder, and it does not make them much money”, according to the Chair of the FNCL.
The end result? The dairy industry places the emphasis on high added-value segments which are growing strongly, such as cheese, and mainly mozzarella, cheddar, and Emmental, which are used in preparations by food manufacturing companies in their recipes – in pizzas and hamburgers, for instance.
The impact on beef has not thus only been caused by the end of milk quotas and the resultant reduction in herds. But there are great similarities in the forces at play in these two interlinked markets.