Bakers are set to face a butter shortage by the end of this year, according to comments by the boss of dairy giant Arla.

There will not be enough butter or cream available by this Christmas, Arla CEO Peder Tuborgh told the BBC’s Today programme.

EU butter is currently selling at its highest level this year, at €4,950 per metric tonne, which is more than double the price it was a year ago. The price is continuing to rise, and was up 10.1% in June compared with the previous month [Mintec].

The increase has been driven by strong domestic demand and a decline in availability, according to analysts.

“A consumer preference towards butter instead of margarine is driving domestic demand, while an increase in exports to the US has been seen for some EU member states,” Mintec reported.

The butter shortage will play out differently in different markets, Tuborgh said. “The first sign we will see, is that the price of butter will rise sharply.”

He told the BBC the dairy market was out a balance as a result of farmers producing less milk.

Recent over-production

This had followed over-production of milk in recent years, and a consequent surplus of skimmed milk powder. SMP prices have also started to rise recently, up 18.5% year on year, following increased demand from the foodservice sector.

Dairy industry body Dairy UK said there had been “significant increases in wholesale prices for butter and cream recently”.

“We should remember, however, that less than two years ago we had a global oversupply of milk, which resulted in a difficult time for farmers,” it added.

“This illustrates the fact that dairy markets are inherently subject to fluctuations and a sudden surge in milk production or unseasonable weather, which depresses production, can have a significant effect on wholesale prices for commodity products like butter and cream.”

For more information on commodity prices, updated monthly, British Baker subscribers should visit our Prices page.