Daily Demand and Supply: Sacre Bleu!*

What happens when the people of China decide that butter is yummy?

A sharp increase in global demand has caused the wholesale price of butter to nearly double in Europe. Consumers are paying more too: retail prices jumped nearly 20% in June over the previous year, according to data from Euromonitor.

Federation des Entrepreneurs de la Boulangerie, an industry group that represents French bakers, has described the situation as a "major crisis." It is warning of a sharp increase in the price of croissants, tarts and brioches.

"The price of butter, while certainly volatile, has never reached such a level before," the group said in a statement. "Butter shortages appear to be a real threat by the end of the year."

I'm not a butter policy expert, but I wonder whether this is the correct use of 'shortage?' A shortage occurs when the quantity demanded exceeds the quantity supplied persistently because prices can't rise to alleviate the shortage--usually due to some price policy that prevents prices from rising.  But it appears that butter prices in Europe are rising, so what is being classified as a potential shortage might just be an uncomfortable reality that prices are going to keep rising to prevent a shortage.

 

So why are butter prices rising?

Global butter consumption is rebounding after years of declines, when consumers ditched butter for margarine and other substitutes.

Raphael Moreau, food analyst at Euromonitor, said that consumers are increasingly opting for ingredients seen as natural and less processed, including butter.

The average European ate 8.4 pounds of butter in 2015, the most recent year available, compared to 7.9 pounds in 2010. The average American consumed 5.6 pounds of butter in 2015, up from 4.9 pounds in 2010, according to the U.S. Department of Agriculture (USDA).

At the same time, Chinese demand for foreign milk products is booming. The USDA predicts that Chinese milk imports are expected to jump by 38% this year, with almost all of it coming from the EU and New Zealand.

USDA predicts that global butter consumption will grow an additional 3% this year.

Demand increases cause price increases.

 

And here's some more on the potential shortage:

The next worry is a shortage of butter in Europe.

Butter production slumped 5% in the year to May 2017. Meanwhile, butter stockpiles have plunged 98% in a year, according to the European Commission's Milk Observatory.

"While supplies remain tight and demand has increased, there has been a shortage of butter in the EU, causing prices to soar...

So far no 'shortage,' just market adjustments.

...as buyers try to lock into contracts to obtain stocks," said Michael Liberty, dairy market analyst at Mintec.

Unfulfilled futures contracts might be called a 'shortage.' 

Peder Tuborgh, CEO of U.K. dairy giant Arla, warned the BBC last month that there might not be enough milk and cream to go around at Christmas.

There will be plenty to go around if prices are high enough.

 

*Urban Dictionary: "sacré bleu: A stereotypical french curse that is actually never used by real french people."

I'm not a real french person.