Why is butter so expensive?

Political crisis and the food market

Poland is part of the global market trends when it comes to food products. Any political and climatic crises that are evident on the global market affect the European market, as well as the Polish one. And on the example of butter we can see this perfectly. Especially in recent times.

– The price of butter on the market in Europe has shot up quite a bit,” explains Andrzej Parzonko, Ph.D., professor at the Department of Economics and Organization of Enterprises at the Institute of Economics and Finance at the Warsaw University of Life Sciences. – This is due to the fact that demand for butter has increased on the world market. The situation was similar during the pandemic and when the war in Ukraine broke out. It can be observed that, as at that time as now, China is starting to make stocks, for example, of butter. It’s not entirely clear what’s going on, but it doesn’t look good. Let’s hope that nothing bad will happen. Perhaps this is the result of the changes that are taking place in the United States after the presidential election. The trade war between the US and China is already a reality and is likely to escalate. The new U.S. president announces the possibility of a trade blockade with China, as well as European countries, which could cause turmoil in the world market, which we also feel in Poland.

As for dairy products, the world market is determined by New Zealand, which is the largest exporter of dairy products (95-97%) to the Asian market. In general, Asia is the world’s largest importer of dairy products (more than 50%) due to environmental conditions and inability to meet domestic demand for dairy products. Observing the market, we can see that China has increased its butter imports. – Due to the fact that we are connected to the world market, we also have expensive butter in Poland,” explains Prof. Andrzej Parzonko.

– We have a 20% surplus of milk production, which we need to export in the form of dairy products. The share of butter exported from Poland in the structure of exports of this product from the EU is relatively high, ranging from 18.3% in 2020 to 25.6% in 2023. The group of countries with the largest imports of this product from Poland included only European countries, of which the Czech Republic and the Netherlands were the most significant. Unfortunately, Poland has not been significantly successful in exporting butter to non-European countries. Some of the butter exported from Poland to other EU countries is re-exported to Asian countries. This is mainly handled by the Dutch, who buy butter from us cheaply and sell to other markets more expensively.

Farmer, producer, consumer

When it comes to milk itself, the problem is even more complex. Farmers are at the beginning of the food distribution chain – they produce the raw material of a mass nature. When it comes to the price of milk, they are unable to do anything – they depend on buyers who purchase the raw material. The prices of milk at the buyers are small relative to what the consumer can see in the store. A farmer will not suddenly slow down milk production or suddenly change the dairy to which he sells it when there is an oversupply. This is a difficult and complex issue.

– Dairies in Poland are diverse in economic strength and legal form, says an economist at SGGW. – The strong ones can offer a correspondingly higher rate, especially to producers who offer a lot of milk of good quality. And then, of course, there are the weaker ones, which work with smaller farmers and are unable to offer high prices. The two largest dairies in Poland in terms of milk purchased and processed are Mlekpol and Mlekovita. They operate in the legal form of a cooperative, although farmers are not offered the highest price on the market. The highest price is offered by the District Dairy Cooperative in Piątnica. It is a medium-sized dairy that has a certain group of its proven milk suppliers, who are also its shareholders. It pays correspondingly more, but requires very good quality raw material. There are also strange situations when the milk that is being metastasized, i.e. sold between dairies, offered from the dairy level has a higher price than that offered to the farmer.

Unfortunately, the low price of milk at buyers has little effect on the price of butter in stores. Producers are happy because they make money. Farmers have nothing to be happy about, because for them the price for milk at dairies is small, even with high prices for butter. Consumers, of course, are also losing out on this situation. And even the activation of strategic butter reserves, of which there aren’t many anyway, won’t help here. On top of that, with the mobilization of reserves, a situation may arise that someone will buy this butter cheaper and sell it more expensively.

Butter price forecasts

If nothing bad happens, the price of butter should fall, although it will no longer fall to the previous one, much lower anyway. The market in the United States has already seen an obvious drop in butter prices. On top of that, consumers in Europe are not able to pay such high prices for it.

– What is happening in the market for dairy products, including butter, is a result of global conditions, and we are included in this global system and market turbulence. They affect the Polish market, and if there is deglobalization as a result of political actions we may experience deeper turbulence in the dairy market. For example, we can imagine a situation where China stops buying dairy products from Europe, or Europe, pressured by the United States, stops selling to China. Then the prices of butter and other dairy products could fall in the short term. Consumers would then rejoice, but producers would no longer. Unfortunately, political and climatic behavior in the global world determines the market for dairy products,” adds Andrzej Parzonko, Ph.D., professor of the Warsaw University of Life Sciences.

Anita Kruk, SGGW Promotion Office

Substantive consultation:
Andrzej Parzonko, Ph.D., Prof. SGGW
Department of Economics and Organization of Enterprises, Institute of Economics and Finance, SGGW