23 April 2025

5 minute read

By: Adisseo

North America

Asia

In recent years, there has been a marked increase in the global demand for milk fat and butter. This trend is fueled by a combination of changing dietary preferences, economic factors, and shifting trade dynamics. In this article, we delve into the underlying causes of this trend, focusing on the situations in the European Union (EU), the United States (USA), and China. Additionally, we explore how these dynamics have impacted butter prices globally.

The Global Trend

The current trend for increased demand for milk fat and butter is largely driven by changing consumer preferences, production shifts in the dairy industry, and economic factors.

Consumer Demand for Natural Fats:

Over the last decade, there has been a major shift towards natural and whole-food ingredients, leading consumers to favor dairy fats over processed alternatives. Butter, in particular, has enjoyed a resurgence as more people opt for “clean-label” foods without artificial ingredients. Health trends also play a role, as dietary perspectives have evolved to embrace natural fats, including butter, as beneficial in moderation.

Global Growth in Bakery and Food Service:

The bakery, pastry, and food service industries are significant consumers of butter and milk fat. As these sectors expand globally, especially in developing markets, they increase the demand for these dairy fats. In regions like Asia and the Middle East, where dairy consumption is rising, butter and milk fat are key ingredients in a growing array of foods.

Increased Production of Cheese:

In the EU, a major producer of butter and milk fat, cheese production is prioritizing milk use. Cheese production has higher profitability than butter, leading dairy producers to allocate more milk towards cheese rather than butter. This limits the available milk fat for butter production, thereby pushing butter prices up. Cheese demand, particularly for exports, has increased significantly in recent years, contributing to the strain on milk fat supplies.

Higher Costs of Dairy Production:

Increased feed and energy costs have raised overall dairy production expenses, impacting milk fat prices. Additionally, adverse weather conditions and supply chain disruptions, exacerbated by high costs of transporting and storing perishables, have reduced milk output in key regions like Europe and the U.S. This limits butter and cream availability, driving prices higher.

Seasonal and Market Dynamics:

Seasonal fluctuations in milk production and the impact of the southern hemisphere’s production cycles also influence availability. While New Zealand is ramping up production, European and North American regions face seasonal lows, tightening supplies for butter and milk fat. Consequently, short-term demands are not always met, leading to price volatility.

In summary, the increased demand for milk fat and butter stems from consumer preferences for natural fats, the growth in the bakery sector, and competitive pressures from cheese production, all compounded by high production costs and seasonal supply limitations. This combination of factors makes it challenging to balance supply and demand, resulting in persistently high prices.

The European Union: A Leader in Butter Production

The EU is the world’s largest producer of butter, with France, Germany, and Ireland leading production. The demand for milk fat within the EU has risen both domestically and internationally. Per capita butter consumption in the EU has remained relatively stable over the past decade. In 2011, the average consumption was approximately 4.1 kilograms per person, and by 2023, it was around 4.17 kilograms per person. This slight increase indicates a steady demand for butter among EU consumers. European consumers are increasingly opting for natural and organic products, favoring butter over margarine.

Price Trends:

In 2023, butter prices in the EU averaged around €5,700 per ton, a significant increase from previous years. This surge is partly due to lower milk production caused by adverse weather conditions and stricter environmental regulations limiting farm output. Additionally, export demand, particularly from Asia, has tightened domestic supplies, further elevating prices.

United States: A Growing Appetite for Milk Fat

In the USA, the demand for butter has seen consistent growth. The preference for natural and minimally processed foods has led to a decline in margarine consumption in favor of butter. In 2023 Americans ate the most butter per capita in at least 50 years, according to the U.S. Department of Agriculture: 6½ pounds per person. American dairy farmers have also increased their production of high-fat milk products to meet this growing demand.

Price Trends:

The average retail price for butter in the USA has climbed steadily, reaching $4.81 per pound in late 2023. Factors contributing to this increase include higher feed costs for dairy cattle, labor shortages, and increased export demand, particularly to Asian markets.

China: A Key Driver of Global Demand

China’s role in the global butter market has expanded significantly. The country’s growing middle class and urbanization have driven higher consumption of Western-style baked goods and dairy products, where butter is a key ingredient. Per capita consumption of dairy products in China has been gradually increasing over the past decade, though it remains relatively low approximately 13.2 kilograms compared to global averages which is approximately 110 kilograms per year. Additionally, the Chinese government has promoted dairy consumption as part of its nutrition guidelines. The Dietary Guidelines for Chinese Residents recommend a daily intake of 300 grams of dairy products indicating room for increased consumption.

Price Trends: 

China imports a significant portion of its butter, primarily from New Zealand, the EU, and the USA. In 2023, wholesalers butter prices in China reached $7,500 per metric ton, reflecting strong demand and supply chain constraints exacerbated by global trade disruptions.

Implications and Future Outlook

The rising demand for milk fat and butter is reshaping global dairy markets. Higher prices benefit producers but place pressure on consumers and industries reliant on butter, such as confectionery and bakery sectors.

Key Trends to Watch:

Sustainability:

With increasing environmental regulations, dairy producers are likely to face further constraints, potentially keeping prices elevated.

Trade Dynamics:

Geopolitical factors and trade agreements will continue to influence the global flow of butter and milk fat products.

Consumer Preferences:

The trend toward natural, organic, and high-fat diets is expected to sustain demand growth. With increasing environmental regulations, dairy producers are likely to face further constraints, potentially keeping prices elevated.

Consumer Preferences:

The trend toward natural, organic, and high-fat diets is expected to sustain demand growth.

Conclusion

The global trend toward higher consumption of milk fat and butter reflects changing consumer preferences, economic dynamics, and trade shifts. The EU, USA, and China are key players in this landscape, each influencing and responding to the growing demand in unique ways. As the world navigates the challenges of balancing production with environmental and economic pressures, the story of milk fat and butter remains one of adaptation and opportunity.