BUTTER After a turbulent period of dramatic price swings alongside increased demand, the international butter market is now facing the impact of the COVID-19 pandemic, which is pushing prices to challenging lows Gill Langham Following several years of fluctuating prices, the butter trade is now facing the effects of the COVID-19 pandemic and global butter prices are currently sitting below the average for the last five years. The upward trajectory in global dairy product prices, visible in the final quarter of 2019, stalled in the first quarter of 2020, according to a March 2020 RaboResearch Dairy Quarterly report, titled ‘The Corona Hangover’. The onset of the coronavirus in China and the permeation across the globe had buyers and sellers scrambling to assess the market impact, the report says. As markets became more restricted, due to both difficulties in shipping and isolation restrictions put in place in the larger European countries, prices started to fall. This impacted most key dairy products, according to the UK’s Agriculture & Horticulture Development Board (AHDB). EU wholesale markets also saw quite marked price reductions in March as the impact of coronavirus coincided with the seasonal increase in milk production, the AHBD says. Reports also suggested that there was a significant rise in demand for packaged butter as shoppers stocked up, while there was a drop in demand for bulk butter. Consequently, there was a shortlived rise in butter prices in early March. However, since the beginning of the year, butter prices have dropped 5% to their lowest level since August 2016, according to the AHDB. The first notable impact from coronavirus on UK dairy markets was the effect it had on shipping. With many freight ships held up in China either quarantined or unable to load, a shortage of refrigerated containers to transport butter arose. “As the virus spread across the world and multiple countries have imposed lockdowns, the impact on markets is becoming more severe. Companies which supply the food service industry are 24 OFI – MAY 2020
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Spread the w particularly hard hit,” explains Katherine Jack, dairy analyst at the AHDB. And speaking about the impact of COVID-19 on the sector, Tom Bailey, senior analyst at Rabobank, says: “The butter price has collapsed – along with other dairy commodities - due to the coronavirus. Butter prices globally have fallen around 40% through April versus last year’s levels. “A big part of the issue is due to weakened food service demand. Around a third of US butter produced is sold or used in the foodservice industry and this is likely in other key markets like the EU. Stocks are rising and prices are falling as a result.”
Key markets
The prices of the five key dairy exporting countries/regions – Australia, the EU, New Zealand, the USA and, to a lesser extent, Argentina – have the largest influence on the sector. However, they are also affected by their internal markets, so prices can still vary from country to country. While the EU and USA consume a lot of their dairy production as well as
exporting it, New Zealand has grown its dairy industry with a focus on exports. China is also a major purchaser of dairy products while India is a large consumer but generally supplies itself. Speaking about the growth in demand in China for dairy products, Jack says: “China, in particular, imports a lot of milk powder but exporting countries are working to develop increased interest in other dairy products like cheese and butter. “With a growing middle class and a growing interest in western food, China and other Asian markets are seen as opportunities for dairy exports. It’s particularly a target for Oceania and New Zealand has a strong dairy trade relationship with China.”
Turbulent years
To understand why the international butter market has seen such dramatic price swings over the last few years, Jack says it is necessary to look back at the period leading up to 2015, mainly in Europe but also globally. Prior to 2015, the EU had quotas capping milk production, which it www.ofimagazine. com
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