From butter hole to butter mountain

In recent years, frozen butter stocks in Switzerland have been characterized by extreme fluctuations. The situation has been particularly striking since 2020, when butter stocks reached record lows and it was difficult to fill the gaps with imports. The situation stabilized somewhat in 2021, but three applications for butter imports amounting to 2,500 tonnes still had to be submitted. Despite these measures, stock levels plummeted again at the end of the year, reaching just under 300 tons. Even in 2022, additional imports of 6,100 tons of butter were unable to fully alleviate the situation. The situation only began to improve from 2023, only to swing sharply in the opposite direction again by June 2024, with butter stocks reaching new highs of over 8,000 tons.

Causes of the fluctuations in butter stocks

The reasons for the sharp fluctuations in butter stocks are varied and complex. Stefan Kohler, Managing Director of the milk sector organization, explains that the stock levels, which are often used as an indicator of the supply situation, only affect the deep-freeze warehouse: "In the years in which there was actually too little butter and we had to close the gap with imports, very little butter went into the deep-freeze warehouse - the butter manufacturers supplied the retail trade and industry directly with fresh butter and so these quantities do not appear in the butter curve," he explains.

This means that the supposed shortages in the deep-freeze warehouse do not necessarily reflect the actual availability of butter. "So if there was practically zero quantity in the deep-freeze warehouse from the fall onwards, this is not necessarily a shortage, because when demand and production are in balance, the butter is brought directly to the stores," Stefan Kohler continues, adding: "Deep-freezing and defrosting are time-consuming, you can save yourself the trouble." Nevertheless, the development of the butter curve has indeed been very volatile, he admits.

Another point that Stefan Kohler addresses is the cautious choice of quantities for import requests. "We chose the quantities for our import requests rather carefully - that's why we only imported small quantities at a time, even when stocks were very low, so that we didn't import into stock," he explains. The fact that stocks were practically zero at the end of the year was intentional. "From summer 2023, however, the situation changed," he explains.

"In times of butter shortages, the Swiss food industry increasingly turned to processed butter - this sales volume is currently lacking compared to previous years." Peter Ryser Managing Director of the butter industry organization

Reasons for the sharp increase in butter stocks since 2023

The decline in milk volumes and the good market situation for cheese during the Covid pandemic years also led to a reduction in butter production, adds Peter Ryser, Managing Director of the butter industry organization. "However, various market developments have since led to an increase in butter production again," he says. These include reduced cheese production and the increasing use of foreign milk powder in the food industry. These developments led to a change in the balance between supply and demand, which further exacerbated the fluctuations.

According to Stefan Kohler, the dramatic increase in butter stocks since 2023 can be attributed to two main causes: "Cheese production has lost some of its momentum after a few boom years - in addition to the slightly higher butter consumption in the three Covid pandemic years, more Swiss cheese was also consumed and the export business was very good," he explains, "we are now back to normal times, which means that the milk has to be used for other purposes."

Demand for milk fat in the food industry has also fallen. "Less chocolate is being produced and, above all, fewer raw materials from Switzerland are being used in exported chocolate products," adds Stefan Kohler. So-called processing traffic has increased. These factors have led to a surplus of butter, as milk production has not been reduced accordingly.

Opportunities for balanced butter production

According to Stefan Kohler and Peter Ryser, achieving a balanced production and stock management of butter is a challenge. "Butter is a so-called regulating product because it can be stored very well and is not very lucrative for producers due to the by-product skimmed milk or skimmed milk powder," explains Stefan Kohler from the milk sector organization. This means that an oversupply of milk quickly results in a "butter mountain", as other markets are saturated. If, on the other hand, there is not enough milk, butter has to be imported.

Peter Ryser from the butter industry organization adds that in addition to milk, cheese and milk powder production, the milk fat content of raw milk and the demand for fresh milk products also play a role. "Butter production can fluctuate greatly from year to year, and sales volumes are also subject to annual fluctuations," he explains, adding: "In times of butter shortages, the Swiss food industry increasingly turned to processed butter - this sales volume is currently lower than in previous years." Balanced production is therefore difficult, as structural surpluses or deficits in milk production have a direct impact on butter stocks.

"If the situation does not calm down in the coming months, it will be difficult to maintain the milk price." Stefan Kohler Managing Director of the milk sector organization

Measures against the butter mountain

In order to reduce the current butter mountain, Stefan Kohler describes various measures: "If the situation does not calm down in the next few months, it will be difficult to maintain the milk price," he explains, "I also expect the proportion of B milk to increase this year, because when the domestic market is saturated, exports will have to fill the gap with B products." In addition, more money will be made available from the Raw Material Reduction Fund to respond to the increase in processing traffic. As a last resort, butter exports via C milk could also be considered. "However, I am convinced that this will not be an issue this year," adds Stefan Kohler.

Meanwhile, Peter Ryser emphasizes the importance of replacing processing trade volumes with Swiss butter: "As a first measure, butter producers should try to replace processing trade volumes with Swiss butter - there is also the possibility of creating incentives via the milk sector organization's raw material reduction contributions to ensure that more Swiss butter is used for export products again," he explains. This could boost domestic butter production and reduce stocks at the same time.

Import volumes and their effects

Despite the surplus, butter imports continued to be recorded. These amounted to around 5,000 tons in 2023 and a further 200 tons by May 2024. "In retrospect, these high import volumes in 2023 were not necessary," comments Stefan Kohler from the milk sector organization. However, these imports were based on a decision made in November 2022, when it was not clear that the situation would change from mid-2023. In addition, there are WTO quotas that must be met regardless of the market situation in Switzerland: "These WTO provisions require that a small amount of butter must be imported regardless of the market situation in Switzerland - we know the same thing in the meat market," Stefan Kohler continues.

"The Confederation auctions 100 tons of import quotas annually within the framework of the WTO quotas - additional import volumes that are not imported via the import quotas auctioned by the Confederation are imported within the framework of processing trade," explains Peter Ryser from the butter industry organization. He adds that additional import volumes are also re-exported in processed form as part of processing trade.

The development of butter stocks in recent years shows the complexity of the industry and the many factors that influence the production and storage of butter. Close cooperation between the industry organizations and careful market observation play a decisive role in ensuring a stable and sustainable supply of butter and maintaining the balance between supply and demand in Switzerland.