Bakers feel the pinch as butter hits record highs

European bakeries and food producers are starting to look at substituting margarine for butter as spot prices hit record highs of €6,000 a tonne.

French bakeries have been particularly vocal about butter shortages impacting on their famed croissants and pain au chocolat.

Ornua dairy trading expert Joe Collins says customers are now buying "hand to mouth" as the spot butter prices have surged 160pc in the last year.

"In the food ingredient sector we are hearing customers talking about reformulation and looking at veg fat instead of butter fat," said Mr Collins.

"We are hearing in the food service sector of firms replacing margarine with butter and some food service outlets are not putting butter out on the table."

With the Kerrygold butter brand achieving retail sales of €900m, Mr Collins said all brand owners' margins were being impacted and they were concerned about long-term brand damage if consumers trade down to lower quality own label brands.

Butter sales were back around 11pc during May at retail level in Germany which is one of the key markets.

Exports from the EU to countries outside the union have slumped 19pc up to the end of April, with exports to the Middle East and North Africa down 40pc as lower oil prices also impact.

However, Mr Collins cautioned that was before the prices surged even higher, with a 70pc increase in the last two months to €6,000/t.

"The previous record was for €4,100/t for two months in late 2007," he said.

Most of the price increase can be explained by the low unsustainable starting base of intervention for skimmed milk powder which is a by-product of butter, Mr Collins pointed out.

'Mis-match'

He said the depressed prices over the past 12 months have seen it at $1,850/t which is just 15pc above the intervention floor.

The product price "mismatch" has discouraged processors from making butter as the cent-per-litre returns are impacted by the SMP.

The demand for dairy has been growing over the past five years, with it acknowledged as a natural food.

However, he said the lower milk output in Europe, a reduction in the butter fat content of milk and increased volumes of cream going into items like yoghurt and high fat cheeses has also contributed.

"It looks like it will stay reasonably heated for the next few months. Supply is improving a bit and demand is burning off a bit," he said. "What is going on at the moment isn't sustainable."

Ornua's Kevin Lane said they planned to invest more in their brands in their key markets of Germany and the US.

He added that Ornua aims to target the growing Chinese market, alongside the Middle East, Africa and certain Eastern European countries with slightly altered products to appeal to local palates.

Margarine back on the menu as spot prices reach €6,000 per tonne