Why butter and milk are becoming even more expensive

Dusseldorf UHT milk and butter are currently sold out in many supermarkets. Many consumers seem to be hoarding staple foods. In an interview with the Handelsblatt, Eckhard Heuser, General Manager of the Dairy Industry Association, explains what effects the war and possible further sanctions against Russia will have on the industry.

Mr. Heuser, everything is getting expensive – especially butter, milk and cheese. Price leader Aldi has recently raised butter prices by 30 percent. At the discounter, the 250-gram pack now costs 2.09 euros. What are the reasons for these record prices?
On the one hand, the supply of milk has declined. This applies to milk-rich regions such as Germany, the Netherlands or France as well as the USA and New Zealand. Two percent less milk is currently available on the market. On the other hand, demand has increased significantly. It’s the hamster. Consumers freeze butter and stock up on UHT milk. But food manufacturers are also hoarding. They store more stocks of milk, butter and cheese in order to always be able to deliver. This shortage has led to a relatively strong price increase.

So is it the consumers’ fault that prices are rising so much?
Unfortunately, hoarding plays a role in the price increase. Half a pound of butter still costs significantly less than half a pack of cigarettes. After all, the butter pack contains the cream from five liters of milk.

“Actually, there is enough milk”

Germany produces much more milk than it uses itself. The degree of self-sufficiency is 117 percent. Why is milk still scarce?
There is actually enough milk if it weren’t for hamsters. Milk can be scarce locally at the moment. Some retailers therefore only sell milk and butter in quantities that are normal for households.

Top jobs of the day

Find the best jobs now and
be notified by email.

To what extent is the Ukraine war responsible for the development?
The war has real and psychological effects. For example, Ukraine is an important supplier of animal feed for the whole of Europe. Dairy cows need protein feed such as rapeseed meal or corn. Some of the old harvest is still in the Black Sea ports, which are mined and tight.

What does this mean for the supply of German dairy cows with feed?
The harvest of grain or rapeseed in Ukraine will fall by an estimated 40 percent this year. That’s why no cow will starve in this country, but the prices for feed and fertilizer have already risen sharply.

Eckhard Heuser

“Actually, there is enough milk if it weren’t for the hamsters,” says the general manager of the Dairy Industry Association (MIV).

(Photo: Private)

Because of the war, energy prices have also increased dramatically. How is this affecting the dairy industry?
The production of milk and butter is very energy-intensive. The milk comes warm from the udder and has to be cooled by the farmer. The tank refrigerated trucks drive to the dairy, where the milk is heated. Dairy products are cooled down after production and taken from the cold store to the deep-freeze shelf in the supermarket.

How important is natural gas for the industry?
Very important. It covers an estimated 70 to 80 percent of the energy requirements of the dairy industry. That was different 20 years ago. In the meantime, old oil systems have been replaced by modern gas burners.

“Milk is systemically important”

What will happen if gas imports from Russia are stopped?
We do not support a boycott of Russian gas.

Isn’t the dairy industry relevant to the system and would preferentially be supplied with gas in the event of an import ban?
Milk is systemically important. This has just been confirmed to us by the Federal Ministry of Food. At the end of the day, however, it depends on the location of the companies and the gas demand in your own region. The Federal Network Agency then decides whether the dairy will be supplied with gas or not. But we assume that a dairy is more important in the gas allocation than, for example, a manufacturer of gummy bears. Milk is indispensable for children’s food, for example.

Shopping in a supermarket

Tendency to hoard UHT milk.

(Photo: IMAGO/Martin Wagner)

In February, producer prices for butter were 64 percent higher than a year earlier. For milk it was 30 percent more. Are the increases already fully priced in at the supermarket?
Only part of the price increases has reached consumers. Wholesale prices have already risen much more sharply, but will not reach consumers until summer. This is especially true for milk.

>>> Read here: These products are more expensive and scarce in the supermarket

Prices with retailers are usually negotiated six months in advance. Can the rhythm be maintained in view of the rapidly increasing costs?
no Many dairies have therefore switched to floating contracts with retailers so that they do not have to renegotiate prices every month. Now the prices are automatically adjusted – up or down – as soon as the prices for key products such as block butter, milk or milk powder change.

What prices should consumers expect this year?
A liter of milk is definitely more than one euro. The cheapest variety is currently available for 79 cents. With butter I reckon with 10 cents more per pack. The prices remain at a high level.

Do the higher prices for milk, cheese and butter reach the dairy farmers?
In 2021, German milk producers received an average of 36 cents per kilo of milk. Now the milk price is a good 43 cents. We expect around 50 cents per kilo of milk from the farm. These are prices that I have never experienced in my 30 years in the industry.

butter

The production of dairy products is very energy-intensive.

(Photo: dpa)

Can dairy farmers cover their increased costs?
The margins for dairy farmers are increasing. In 2016, the business was barely profitable, unlike today. Now the contribution margins are just under 20 cents per liter. 2022 and 2023 will be good years for milk producers. If milk production becomes attractive, however, more milk could come onto the market – and the price could go down again.

There used to be milk lakes and butter mountains due to overproduction. Then, in 1984, milk quotas were introduced in the EC, which were abolished again in 2015. How has the market changed since then?
The milk market has become significantly more volatile. We are much more dependent on exports. Russia, for example, has been shutting down the market for EU dairy products since 2014 in response to Western sanctions on the Crimean attack. The import ban hit us hard and made the markets very volatile.

Does Germany actually have enough milk reserves for times of need?
The Federal Agency for Agriculture and Food in Bonn has an emergency stockpile of condensed milk and milk powder. These are rolling stocks, but they only last a few weeks. Inventories should now be increased given the uncertain times.

Mr. Heuser, thank you very much for the interview.

More: How much will bread really cost?

source site-15