DAIRY FARMERS ARE MISSING OUT ON THE BULL MARKET IN BUTTER.
Butter, as the saying goes, makes everything better. Just ask a high-end restaurant chef: they cook everything in the stuff. Or ask the French: they consume an average of eight kilos of butter every year, the highest consumption level in the world and more than twice as much as we milk-fat-starved Canucks do.
And why not? C’est delicieux, after all. And somehow the French, even with all those buttery croissants and pastries and buerre montée, enjoy one of the lowest rates of heart disease in the world.
Lately, however, their beloved butter has become a pain for French consumers.
According to a recent Bloomberg report, grocery stores in France have been unable to stock shelves fast enough, to the point that in mid- October retail supply fell 30 per cent short of consumer demand. In response, shoppers have taken to hoarding bricks of butter, which of course has only aggravated the problem.
This isn’t happening because French shoppers are suddenly more in love with butter than they used to be. Instead, it has something to do with the removal of European Union milk production quotas in 2015, and something else to do with soaring global demand for butter. And lest you think it’s just a French thing, it also serves as an object lesson in the limitations of Canada’s own dairy regulatory regime — one that’s a stumbling block in the current renegotiation of NAFTA with the U. S. and Mexico.
In one way, the shortage in France is a uniquely French problem, because the country’s retailers and producers agree to prices once a year, leaving little flexibility to pass on price fluctuations to consumers. Recently, those fluctuations have been something to behold, with prices nearly tripling from last year. Unable to capitalize on that in France, producers have started selling more butter on the open market. The result: empty shelves in the local dairy section.
As local as its causes are, the French butter crisis is also a flashpoint for the changing global dynamics in the dairy market.
After the EU — whose members collectively produce twice as much milk as India, the world’s largest single-country producer — eliminated production quotas more than two years ago, a predictable glut of milk products ensued. Global prices swooned. (For instance, U. S. milk futures were nearly cut in half between late 2014 and mid-2016.)
Last year, farmers cut back production in response to lower prices; a wave of bad weather further reduced output. So prices rose. In fact, between July of last year and this September, the average price paid to EU producers has risen by nearly 40 per cent.
Those developments explain part of the price increase for butter, but not all of it. The supply fluctuations are taking place against the backdrop of rising demand globally.
China, for instance, has ramped up demand — which might come as something of a surprise, since Chinese cuisine is not exactly redolent with butter. But as incomes have grown, so has the Chi- nese appetite for proteins and western-style foods. Butter is no exception: per capita consumption has doubled since China’s accession to the World Trade Organization in 2001.
Compared with other markets, butter still comprises a tiny portion of China’s diet. But in a country of 1.4 billion people, even a little bit can be a lot. In fact, the Organisation for Economic Co- Operation and Development expects China’s overall butter consumption to increase by a third between 2016 and 2026.
It’s a similar story, by the way, in India, which already is the world’s largest consumer of butter, where the OECD expects a 35- per- cent increase in overall consumption to 2026.
Growing demand i sn’ t just coming from developing countries. In the U. S., butter consumption has been forecast to jump eight per cent this year. That’s in part because of more sanguine consumer perceptions of butter’s health effects. Meanwhile, more and restaurants ( like McDonald’s) have started to use and promote butter in their products.
In short, the world is coming to think — and eat — like the French, at least when it comes to butter. And this is obviously good news for the world’s farmers.
Unless they’re Canadian, of course. Our supply managed dairy industry can’t even keep up with domestic demand. We imported $ 970 million of dairy products last year, including $130 million worth of butter, along with other fats and oils. Canada’s dairy exports were a paltry $235 million.
Compare that with New Zealand, which adopted a free market- based system years ago: it exported a billion dollars in dairy products in May 2017 alone. Or compare the dairy numbers to the ( non- supply- managed) Canadian pork industry: exported $3.8 billion of pig last year, including more than half a billion dollars worth to China, where pork demand is strong. In fact, in the first quarter, Canadians exported more pork to China than U.S. producers did.
As it stands, it’s hard to imagine a Canadian dairy industry that could do likewise under the supply management system. And at the NAFTA renegotiations as elsewhere, our legislators have shown no willingness to take a real, hard, honest rethink of a system that limits Canadian access to global markets and whose production quotas comprise huge barriers to entry.
The butter crunch might be small, and it might be French.
But it also represents a global opportunity — one that Canadians are sadly unprepared to capitalize on.