Market

Butter makes a comeback, thanks to affluence and informed health choices

15:16 SGT October 16, 2017
Butter
Butter is back, but increased consumption mean higher prices and shortages.

Global consumption of butter is rising, which is spurring high prices and supply shortages. Recent reports say that France, known for its heavy use of butter in many of its dishes and baked products, are facing a butter shortage.

France’s Federation des Entrepreneurs de la Boulangerie (FEB) says in news reports that increasing butter prices may cause possible shortage of the dairy product, as well as drive up prices of famed French-baked goods such as croissant, pain au chocolat and brioche.

Price-wise, data from the US Department of Agriculture’s (USDA) recent report, Dairy: World Markets and Trade, reveals international prices for dairy commodities such as butter, cheese and whole milk powder (WMP) having staged a significant recovery trading at more than US$3,000 per ton. The report notes that butter prices have climbed from a mid-point low of US$2,650 per ton FOB (free on board shipping) for Oceania and the EU to a current mid-point price at about US$6,100 per ton FOB — a 130% increase in the span of little over a year.

This rapid upswing is due largely to relatively tight world supplies and steady demand particularly evident in the US and the EU, says the report. Demand growth has been fuelled by consumers who now perceive butter as a safer alternative to vegetable oil substitutes such as margarine.

Indeed, F&B operations such as bakeries and even global fast-food brands such as McDonald’s are buttering their products more. McDonald’s Egg McMuffin sales, for example, increased when the fast-food chain publicly declared it is spreading butter on its muffins last year.

In Asia, consumers are not deterred by high prices when it comes to this premium bread spread, says global dairy company Fonterra, which is keeping close track of butter consumption in the region. The company’s Anchor Food Professionals reach out to F&B businesses such as bakeries to provide knowledge in optimising dairyingredients in their products.

Stanley Goh, Fonterra’s regional director for Food Service – Asia and the Middle East, tells Foodbiz Asia that butter’s resurging popularity is indeed due to health reasons and affluence.

In recent years, there has been a better understanding about the health benefits of butter, he says. People in the past were advised to reduce their fat intake, but now, experts agree, some fats are actually beneficial for health — especially natural dairy fats.

Aside from health benefits, millennials and Gen Z consumers, who look for premium and authentic ingredients in the food they purchase, do not mind paying more for butterenriched baked goods.

Goh calls this second driver “premiumization”. The YERs, or young educated and rich, are aware of their food choices. They have the disposable income to buy premium products such as baked goods with butter, he explains.

While usage of margarine is still widely accepted in some markets, the upper segment markets in South-east Asia such as Singapore and Malaysia prefer butter.

Urbanization of developing rural areas into Tier 1 and 2 cities also affected butter consumption. “People living in these cities don’t have time to cook their own food, so their out-of-home options have increased, and one of these options is bakeries,” he says.

According to market research company Euromonitor International, 60% growth of bakeries occur in Asia, and one of the key ingredients used by bakers is butter, Goh explains.

“Consumers are becoming more aware of what is in their food, and because of the competitive landscape of the F&B industry, consumers becoming aware of what they choose as ingredients for their food offerings will push F&B operators to develop a competitive edge.” Butter usage in Asia is across the board, Goh says. While usage of margarine is still widely accepted in some markets, the upper segment markets in South-east Asia such as Singapore or Malaysia prefer butter.

Even developing markets such as Vietnam, Myanmar and Sri Lanka are also tuning in to butter, he says.From 1.7 tonnes per annum, Goh thinks global butter consumption would rise to two million tonnes, so that means butter usage in bakeries both large and small will continue to increase across the region. Meanwhile, the USDA’s Dairy: World Markets and Trade says that price situation for butter is unlikely to change “in the near future if current shipments are an indication of available supplies to the international market”.

So far, exports from the top five major exporters, New Zealand, the EU, Belarus, Australia, and the US (through April 2017), are lagging behind last year’s pace by 17%, the report reveals. Before that, exports of butter from these major suppliers had been growing at an annual rate of 4% from 2012-16. The drop-off has been particularly evident in the EU, which is down 28% or 25,000 tons.

While high prices of butter will be welcomed by dairy farmers, this may induce further production of butter and its co-products, mostly in the form of skimmed milk powder (SMP). This will add to SMP supplies and likely temper any recovery in prices, the report concludes.