Butter prices soar to $8.50 amid global dairy surge

Global dairy price increases are behind the soaring cost of butter. Photo / Getty Images

• Butter prices have risen due to global dairy price increases, with further hikes expected.
• Shoppers are reducing butter purchases, switching to alternatives as prices reach record highs.
• Economists warn continued price rises could impact inflation, posing challenges for the Reserve Bank.

By Susan Edmunds of RNZ

Shoppers are turning away from butter as prices soar – and there’s a warning retail prices could get another dollar higher.

As global dairy prices have soared, so too has the retail price of butter.

Stats NZ recorded the average price of a block of butter in March at $7.33, up 10% from its December level of $6.66.

In Woolworths this week, home brand butter was selling for $8.49.

The Global Dairy Trade auction price for butter has risen from US$6631/MT in December to US$7992 in the latest auction.

A spokesperson for Woolworths said the supermarket was trying to keep butter prices as low as possible.

“With the recent rise in price, early trends are showing a minor reduction in the volume of butter purchased. The driving factors here consist of customers switching to dairy or table spreads, reducing their butter buying frequency, or ceasing purchases altogether.

“Market conditions have changed significantly in the last few months and international butter prices are now at record highs. While this is great news for our farmers, it does mean we have to pass on these increased prices to our customers, which is why we’ve changed the shelf price for butter products.”

Gareth Kiernan, chief forecaster at Infometrics, said Woolworths’ home brand butter had increased from $7.19 the last time he bought it, to its current price of just under $8.50.

“The strongest correlation appears to be about a four-month lag between GDT price movements and retail movements, so current butter prices at the supermarket might only reflect GDT pricing up to January.

“The GDT butter index (priced in USD) has risen another 16 percent since January, mitigated by a 6% recovery in the USD/NZD exchange rate, resulting in a rise of almost 10% in NZD terms. On that basis, further increases of another 50c to $1 per block look possible by September, taking prices for the supermarket brands to as high as $9.50.”

ASB senior economist Mark Smith said it was to be expected consumers would reach the limit of what they were prepared to pay.

“The reason probably why also that the butter prices have been so high is that the dairy supply is being reasonably constrained in the European market. And it’s contributing to what we’re seeing here.”

He said US tariffs could have an impact on the flow of dairy products around the world.

“We do send quite a lot of dairy products to the US, but they could well be diverted to other markets.

“So certainly dairy prices will be higher for US consumers. For New Zealand consumers, we could see the reverse if some product that was heading for the US actually headed elsewhere...”

But he said demand for New Zealand product was likely to be strong given the country was an efficient producer, although overall tariffs would have a dampening effect.

Smith said the increase could put pressure on inflation in the coming months. “Unfortunately inflation as a whole looks like it’s going to be picking up in the middle of this year and if anything will be pretty close to 3% ... which is pretty awkward for Reserve Bank that is trying to make sure the New Zealand economy doesn‘t unduly suffer, yet we’ve still got inflation remaining high.”

He said there were enough signs that the labour market was still very soft and wage inflation cooling which would help, but it would be awkward for the Reserve Bank in the near term.