Wholesale butter prices set to overtake retail prices

Published 30 August 17

Over the past 16 months wholesale butter prices have risen dramatically. From its last low at £1,850/tonne in April 2016, prices have risen 232% to £6,150/tonne in August 2017.

As a result of these rises, the price of bulk butter is closing in on the average price of retail packs, despite the fact the latter will involve significantly higher packaging and distribution costs. As of July 2017 the retail butter price was £5.02/kg (12 w/e 16 July 2017) and the 3-month average wholesale price was £4,940/tonne (£4.94/kg). For the 3 months to August the average wholesale price is £5,560/tonne (£5.56/kg), with retail prices unlikely to have matched the increase.

At first, retailers were slow to react to the rising wholesale market. Although wholesale prices first started rising in April 2016, the average retail price continued in gradual decline until October 2016 (Kantar Worldpanel, 12 w/e 9 November 2016). They have since risen by £1.12/kg (29%) in the last 10 months (12 w/e 11 September 2016 vs 12 w/e 16 July 2017), to £5.02/kg. As noted previously, block butter prices have not risen evenly, with the lower-based private label price rising by more than the branded price.

Comparing the private label and branded butter prices separately to wholesale prices, as on the graph below, gives another potential explanation for the disparity in price increases. As wholesale prices rose, the lower-priced private label butter may have felt more and earlier pressure to increase prices, compared with branded butter. The additional cost of packing and distributing butter in retail packs would have also contributed to this price pressure.

2017.08.31 butter retail vs wholesale

For wholesale, supplies continue to remain tight. In August 2017, usually a quiet month, prices rose to £6,150/tonne, up 13% on the month and 89% on the year. With bulk wholesale trade now expected to be priced above average retail prices, there is likely to be further pressure on retailers to increase prices to consumers. What is not yet clear is the impact higher retail prices might have on consumer behaviour, and any resultant change to overall demand for fat.