Why margarine, butter prices jumped 32%

Hints of collective gasps of chefs, bakers and eaters: Food prices have risen dramatically – but not by much more than butter and margarine.

According to the consumer price index, the prices of these ingredients and spreads rose 32% in September from a year ago, the highest among all groceries. data Thursday release.

Specifically, the price of margarine increased by 44% and butter increased by nearly 27% – significantly more than 13% increase year on year for the overarching “food at home” category, according to the CPI, key inflation measure.

Those prices will likely remain elevated at least for the rest of the year, experts say.

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So what for?

The sharp increase was partly due to the same factors driving prices across grocery aisles, like rising labor and distribution costs, according to economists.

But it is also due to global geopolitical events – such as the war in Ukraine – as well as weather and other phenomena affecting the dairy industry and the market for vegetable oil, a major input for the dairy industry. Margarine.

Matt Herrick, a spokesman for the International Dairy Foods Association, a group that represents dairy producers, said: “All of the costs that go into making butter bars, all of those costs have gone up. up.

Several factors have recently pushed commodity supplies to tighten, and therefore prices to be higher. In March this year, the prices of all vegetable oils jumped 53% above the 2021 average and 153% higher than in 2020, according to a United Nations. food price index.

Global commodity prices have since fallen off that high, but it could be a while before consumers feel the impact. The margarine on the shelves can now be made with oils that manufacturers bought at a higher price months ago, Marshall said.

Margarine prices rose about 4% in the month from August to September, meaning they continue to trend up in the short term.

Economists say the war in Ukraine, a major global food producer, is perhaps the most important driver of price increases over the past year.

Importantly, Ukraine is the world’s number 1 producer and exporter of sunflower oil, account for 9% of all vegetable oils produced globally. Sunflower is the national flower of the country, and become a symbol of unity to supporters after the Russian invasion in February.

Ukraine accounts for 31% of global sunflower oil production in 2021, follow for the United States Department of Agriculture. But the war limited those exports, Marshall said.

“Market uncertainty over sunflower oil supplies from Ukraine has created additional demand for other vegetable oils, such as palm, soybean and canola,” the ministry wrote in June. . “Supply of these alternatives is expected to tighten in the 2021/22 marketing year, contributing to higher vegetable oil prices.”

Furthermore, Indonesia and Malaysia are the world’s No. 1 and No. 2 palm oil producers respectively. Together, these countries represent 84% of global supply, follow to the Department of Agriculture.

Palm oil accounts for 35% of the total amount of vegetable oil produced globally, accounting for the largest proportion of the aforementioned oil commodities.

Indonesia – which accounts for more than half of the world’s palm oil – imposed a temporary export ban in April. That ban lasted three weeks, despite other restrictions like export tax kept in place longer.

One severe drought in the prairies of Canada also resulted in a 35% decrease in rapeseed oil production between 2021 and 2022, follow to the Department of Agriculture. Canada is the world The biggest canola oil exporter. Indeed, the word “canola” is a combination of “Canada” and “ola”, referring to petroleum.

And Brazil, the world’s largest soybean producer and exporter, saw production fall 14% last year due to weather conditions caused by the La Niña atmospheric and oceanic phenomenon, follow for Gro, a data provider.

Wages have also increased across the entire US economy at the fastest speed in decades in the context of historical demand for workers. That dynamic has led to higher labor costs for food manufacturers and distributors, which ultimately, pushed up supermarket prices.

“It’s a bit of an odd mix of a bunch of different factors that are essentially all happening at the same time,” said Andrew Hunter, senior US economist at Capital Economics. “As a result you have widespread food price increases.”

Milk is its basic ingredient. It takes about 21 pounds (more than 2.5 gallons) of whole milk to make one pound of butter.

However, milk production by the world’s major exporters fell in 2022 through May – down 6% in both Australia and New Zealand and 1% in the European Union, according to the Department of Agriculture.

“Since the end of 2021, the global milk supply has tightened, pushing the prices of manufactured dairy products higher,” the ministry wrote in a July. report. Supply is likely to remain tight due to “hot dry conditions“in the EU, the report said.

While U.S. production has been steady, the country has ramped up exports to meet global demand, resulting in lower domestic avocado supplies, Herrick said.

Avocado net exports tripled, to £19.3 million, in the January-July period this year compared with the same period last year, according to the Department of Agriculture. Storing butter in cold storage is 22% off in August compared with a year earlier.

Higher feed costs for dairy cows – especially soybean and corn prices – have also contributed to butter prices, Herrick said.