Butternomics, aka why milk-rich SA has a butter shortage

Business Insider SA


    It turns out that South Africa has been – and will remain for the foreseeable future – a net importer of butter.

    According to the Milk Producers Organisation (MPO) we do not produce enough milk solids, or butter fat to satisfy our growing demand for butter.

    “The awareness of the good attributes of butter have increased,” says Bertus van Heerden, chief economist at the MPO.

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    You can probably blame Tim Noakes for that. The Banting craze which hit heady heights in 2017 coincided with the most serious drought in SA in decades led to a massive increase in consumption at a time when there was a serious drop off in milk production.

    There may even have been culling of dairy herds at that time which means any recovery will be slow as farmers once again build up herds.

    “Higher demand led to higher consumption and the price of butter increased worldwide. The quantity of cream available to manufacture butter is dependent on the production of raw milk and the demand for its co- product namely skimmed milk and skimmed milk powder,” says van Heerden.

    “It’s not viable to produce raw milk purely to manufacture butter. Therefore an increase in the demand for butter will not result in the increase of raw milk production from which cream originates.”

    Basically, when skimmed milk production rises, we get more butter. So if you drink only full cream milk, you are part of the problem.

    See also: Cheap imported butter is undercutting local brands – here's how the market is changing

    Butternomics was a bigger issue in the 1970s when European Economic Community members supported farmers who simply produced too much of the stuff. Government interventionism led to massive stockpiles of butter which had mostly disappeared by 2017, just in time to coincide with a rise in demand and a slump in supply.

    The oversupply was typical of what happens when government’s intervene in customer relationships. After the Second World War the world slowly pulled itself out of the devastating effects of the conflict, and governments introduced interventions to stimulate supplies. Governments subsidised milk. That led to a leap in grain production and a massive increase in the production of dairy products, until suddenly there was too much. Governments then introduced milk quotas and farmers seeking to use the milk they were producing made butter – millions of tons of the stuff.

    The result was a glut and production continued to outstrip demand leading to milk lakes and butter mountains.

    By 2017 shortages led to a doubling in prices in Europe and shortages in countries like South Africa which had fewer opportunities for imports. The UN Food and Agricultural Organisation blamed falling milk production globally on adverse weather conditions.

    Which means if you go to the supermarket and pay attention about where butter is coming from right now, you will be stunned to see the impact of globalisation on the supermarket shelf.

    Bruce Whitfield is a multi-platform award-winning financial journalist and broadcaster.

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