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It didn't spread on the bread
The long-term rise in butter prices and their high cost of production are reducing consumer demand, with producers reluctant to offer discounts at retail. These products were in fact the only significant dairy category to see a decline in retail sales during the year. In addition to the market price rising by a quarter per year, consumption may be curbing the population’s desire to eat fewer baked and fried foods.
According to NielsenIQ calculations, from October 2023 to September 2024, natural retail sales of butter and margarine in Russia decreased by 1.3%. Almost all major categories of dairy products saw growth. Pasteurized milk increased in price by 3.2%, sour cream by 3.8%, cottage cheese by 9.6%, and cream by 17.9%. According to Magnit, demand for butter increased moderately from January to August 2024, although not at the same rate as a year ago.
Sales in retail chains account for 70-80% of total butter consumption, explains the Soyuzmoloko association (which unites large milk producers and processors). For margarine, this distribution channel is traditionally not very important, says a Kommersant source in the oil and fat market.
According to Rosstat, as of October 7, 2024, the average price of Russian products was 104,000 rubles. The price per kg increased by 20.2% compared to the beginning of January of the same year. Compared with the previous year, average costs increased by 25.9%. According to Rosstat, food prices in the country as a whole increased by 9.2% compared to last year. According to CRPT (the operator of the Honest Sign labeling system), the price of butter in August 2024 averaged 850 rubles per kg, which is 24% more than in the previous year. For comparison: prices for ice cream and tofu cheese increased by 15-16% year-on-year. Margarine prices have not changed significantly. According to Rosstat, the average cost of products as of the beginning of October 2024 was 245.2 thousand rubles. In terms of kg, this is only 3.1% more than in the previous year.
The Association of Retail Companies (AKORT, which unites large retail chains) reported that purchase prices for butter in September increased by 31% compared to the beginning of the year due to increased costs for producers.
The head of Soyuzmoloko, Artem Belov, believes that the main reason for the price increase is the growth in consumption of milk fat in general (for example, in cottage cheese and ice cream) in recent years, including in the catering sector. This coincides with a sharp reduction in imports in 2022, as producers from South America and New Zealand leave the Russian market. In 2023, Soyuzmoloko said that supplies from non-CIS countries had decreased tenfold. Now, according to Mr. Belov, this amount has been replaced, among other things, by milk fat from Belarus, India, Kyrgyzstan, Azerbaijan and Iran. Currently, about 20% of butter consumed domestically is imported to Russia, and its cost is rising, experts say.
The ministry is considering the possibility of further stimulating the supply of butter from "friendly" countries to saturate the domestic market and stabilize prices, TASS reports, citing the ministry.
Artem Belov notes that Russian athletes also increase the production of milk fat, but this process takes a long time. According to him, about 60% of the cattle population in Russia is the Holstein breed, whose average milk fat content is 3.8%. Jersey cows with an indicator of 5.5-5.6% are not very popular due to low productivity, Belov points out. The expert added that the increase in fat production is concentrated in cream. This is a more profitable product. According to Rosstat, butter production in Russia in January-July 2024 decreased by 2.5% year-on-year to 193 thousand tons, margarine increased by 1.7% to 253 thousand tons.
Among retailers, according to Kommersant's sources, price problems have forced producers to suspend marketing activities related to the sale of butter, which has also limited demand. Alexey Popovichev, managing director of Rusbrand (integration of food producers and suppliers), notes that price increases are always a factor in reducing consumption. But he suspects that in the case of butter, these fluctuations will have a major impact on producers. There is no alternative to the product. Another limiting factor could be consumers' desire to eat less fried and baked food, although experts do not rule this out.