Why has the European butter market gone haywire?

Sunday, March 3, 2013

Milk shortages in Norway, Sweden and Finland took butter completely off the market at times during 2012, and in Denmark the government introduced a "fat tax," later abandoned, to cut down consumption

by NORMAN DUNN

What's happening in the European butter market? "Plenty" is the short answer. In fact, in the last two years, there have been more changes in demand and consumption of this high-fat dairy spread – in northern Europe at least – than has been seen for a generation.

Here's a summary just to put you in the picture. Scandinavian per capita consumption of standard butter soared between 2010 and 2011 – by an extra one kilogram per head in Finland, for example – and the trend is continuing upwards according to current estimates. In Britain, butter consumption, once severely depressed by medical warnings of associated coronary disease, has radically turned around and is now over seven per cent higher than 10 years ago. After decades of stagnation, German sales of the dairy spread reflect a (smaller) upward trend, too.

But market observers in the north of the continent are pointing out that the increase in butter consumption could have been even bigger. For instance, in most of Scandinavia, the dairy sector has been caught on the hop and there's just not enough butterfat to meet demand. Reima Luomala from Finland's biggest milk processor Valio told the Helsingin Sanomat newspaper at the beginning of 2013 that the Finns were content with six kilograms of butter per head in 2010, but by the following year had increased this consumption by 20 per cent.

Ironically, dietary trends – once the cause of butter's abandonment – are partly behind the new butter boom. Low-carb diets are in fashion and this has tipped the balance in favour of more fats. Foods that are seen as natural and without additives constitute another closely followed trend and this boosts butter sales, too.

There's also more acceptance of other high-fat dairy products such as cream, yogurt and soft cheeses. Sweden joins Finland in this respect. Here, the increase in butter demand through 2012 has seen the country – already troubled by reductions in national milk supply through cash-strapped farmers giving up production – attempting to buy more milk and particularly dairy fats in neighbouring Finland and Denmark.

In fact, Sweden's largest circulation newspaper, Dagens Nyheter, noted in mid-2012 that butter sales had increased by 40 per cent since 2009. And, yes, once again dietary trends got the blame. In that newspaper, Dr. Annika Dahlqvist said that consumers following current low-carb high-fat (LCHF) diets are "realising that animal fats are not so bad for them." Meanwhile, sales of "diet" margarines and other low-fat spreads plummeted by nine per cent last year, according to the Swedish Food Retailers' Association.

Butter supply is not much better in Norway where, for two or three months of last year, there was hardly any butter to be had in retail outlets. When it was available, consumer websites there reported prices equivalent to C$16 per kilogram! This was at a time when German discounters were offering in-house brands for less than one quarter of this price.

So why wasn't butter from further south simply imported up north? Easy solutions like that hardly ever work in European agriculture. For a start, Norway isn't a member of the Common Market and imposes some pretty stiff import levies to keep out foreign foods and support its own farmers (butter import tariff: $4.26 per kilogram). The leading French dairy, Lactalis, did manage to get shipments of its excellent President brand of premium butter into Norwegian stores during the shortages. But this actually sold at 30 per cent more than even the very rare – and expensive – Norwegian products.

Processors say there has always been plenty of butter in neighbouring Denmark, however. And both Sweden and Denmark are of course European Union members. The problem is that Sweden, too, isn't a great importer of dairy products. "Butter here has a symbolic value," explains market analyst Lennart Holmström from the milk producers' association Svensk Mjölk. "It's important for consumers here that their butter is genuine Swedish butter."

But while the rest of Scandinavia has had to struggle to supply a surge in demand for butter, Denmark during 2012 was actively trying to reduce sales of its dairy spread – and all other foods with a high content of saturated fatty acids. In autumn 2011, the government in Copenhagen introduced the world's first "fat tax," representing a retail levy equivalent to $2.77 for every kilogram of saturated fatty acids in food. As reported in Better Farming at that time, this represented around $0.37 extra on a 250-gram butter pack with equivalent additions to cream, cheese, lard, etc.

The Danish government claimed that its big worry and main reason for introducing the fat tax was the proportion of fat people in the population (about 47 per cent). Dairy farmers at that time went to the barricades claiming that the imposed retail levy on locally produced high-fat foods was nothing more than a new way of increasing Denmark's fiscal income.

The good news from the farmers' point of view is that the tax turned out to be a flop and was abandoned in January 2013. We hear that administration cost more than any income. Worse, consumption of high-fat cheese and butter did not decrease. This was because Germany is only a couple of hours' drive away for most Danes. There have been reports of fleets of buses and autos transporting weekend shoppers over the border and into German supermarkets for high-fat food sprees over 2012.

Incidentally, Denmark was planning to introduce the same sort of food "health" tax on sugars (for sweets, lemonade and cookies) starting this year. The idea has already been abandoned.  BF

Norman Dunn writes about European agriculture from Germany.