The Germans save on butter and milk

The Germans save the butter from their bread. The sales figures for butter in the local food retail sector fell by almost nine percent in 2022, according to the annual statistics from the market researchers at Nielsen IQ, which is available to WELT. And that's not all: Most other dairy products also lost a lot of sales volume last year.

For drinking milk, for example, the minus is 6.4 percent, as is the case with cream. Quark, on the other hand, recorded a decline in sales of seven percent, yoghurt is 2.9 percent and the so-called yellow line, i.e. cheese, has lost 4.8 percent in the self-service area and an impressive 16.5 percent at the fresh food counter.

This reluctance on the part of consumers is a reaction to high food inflation, in which dairy products have once again been particularly prominent. There were several price increases for milk, butter, yoghurt and co. in supermarkets and discounters, often even in the double-digit percentage range.

Example butter: The average price for the classic 250-gram packet in December 2021 was 1.66 euros, according to the cash register data from Nielsen. In the twelve months that followed, it rose steadily in several steps, above all after the outbreak of the Ukraine war, to around EUR 1.97, then to EUR 2.30 and even to EUR 2.39 in September 2022. And that's just the mean. Branded goods were at times up to 3.50 euros per butter cube.

The average price for a 200-gram cup of cream, on the other hand, rose from 68 cents in December 2021 to one euro at the end of 2022. And the liter of UHT milk with 3.5 percent fat in the carton packaging went up from an average of 87 cents to 1.15 euros most recently.

As a direct result, consumers have noticeably restricted themselves. "Either people ate and drank less, or consumers bought more consciously and threw away less," says Eckhard Heuser, general manager of the Dairy Industry Association (MIV), which represents the interests of dairies in Germany.

Retailer sales of dairy products have nevertheless increased, even significantly. For drinking milk, for example, the Nielsen figures show an increase in revenue of almost eleven percent despite the 6.4 percent reduction in sales volume. In the case of yoghurt, on the other hand, sales growth is almost seven percent, cheese a good eight percent, cream 15 percent and butter almost 26 percent.

Just like the trade turnover with refrigerated goods, the income of the dairies also rose sharply in 2022: The MIV reports an increase of almost 23 percent for the industry to the new record value of around 35 billion euros.

Nevertheless, there is no jubilation in the industry. Conversely, the costs for the production and processing of milk and milk products have risen sharply due to high energy and raw material prices. In 2022, for example, there were historically high payout prices for dairy farmers. The farmers received an average of 53 cents for one kilogram of raw milk, reports the MIV. That is 46 percent more than in the previous year.

In November and December, the price level was even more than 60 cents in the national average. "The increased revenues were often barely able to cover the high costs," reports association manager Heuser. "As a result, many dairies are in the red, despite the overall high price level."

And 2023 could get even worse, say the industry. Because trade puts pressure on you. After all, the dairy product range is one of the most important for supermarkets and discounters. The sharply declining sales figures are hurting the companies accordingly.

In the case of butter, which, like coffee or beer, is one of the most important price points and attracts customers, retailers have already taken countermeasures and massively reduced the price. In early February, it was down 20 percent, or the equivalent of 40 cents.

This discount now also raises expectations among customers. "Of course, consumers are now demanding that other dairy products become cheaper again," says Lillie Li Valeur, the Germany boss of the large Arla dairy, in the WELT interview. "Thats not OK."

Even the fall in the price of butter does not match the current cost situation. Because the payment prices for the dairy farmers are still high in view of their high cost burden - at Arla it is currently 55 to 58 cents per kilogram. For the dairies, there is also the ongoing price increase in production, packaging and logistics.

In fact, the dealers are reportedly forgoing a margin. Boosting demand is much more important for supermarkets and discounters in the current situation, say industry experts. Likewise the fight for market shares and a certain price image.

The prices for so-called special milk products, such as organic milk or lactose-free milk, have also recently been slightly reduced. However, both are areas with comparatively small sales volumes. For price reductions in the other areas, retailers have to negotiate new conditions with their suppliers.

And that's apparently what they're trying to do. In any case, the “Lebensmittel-Zeitung” reports that Aldi, Edeka and Rewe are demanding lower purchase prices for dairy products and are thus causing an uproar in the food industry with the highest turnover. However, the dealers do not want to talk about it.

Only Edeka expresses itself, albeit reluctantly. "We work together with many producers of milk and dairy products at national and regional level and are in regular discussions with them about current market and price developments," says a spokesman. "Please understand that we do not wish to publish any details from these discussions. Likewise, we cannot yet make any forecasts about the future price development of individual items.”

Adjusting the conditions would not be easy. Because unlike butter, whose delivery terms were last negotiated on a monthly basis, the agreements for drinking milk, cheese, quark and co. have significantly longer terms. And according to the MIV, the contacts are currently valid until the summer.

"Butter is a special case," Arla Germany boss Valeur clarifies accordingly. The Danish company has around 1,400 dairy farmers under contract in Germany and operates two production facilities in which around 1.7 billion kilograms of milk were processed in 2022.

This makes Arla number five in the German dairy industry. The cooperative produces both branded goods with well-known names such as Arla, Buko, Kaergarden or Finello, but also own brands for all supermarkets and discounters.

In order to avoid a pure price focus in the product category in the future, Arla is focusing on the topic of sustainability. The European cooperative wants to pay out up to 500 million euros of the milk price to its farmers every year as a "green bonus" for measures to improve the CO₂ balance, for example on topics such as land use, liquid manure management or efficient feeding.

The bonus and thus the amount of the milk price varies depending on which and how many improvement measures the dairy farmers implement. “In this way, we create positive examples that others can then follow,” describes Valeur.

The aim is to reduce greenhouse gas emissions on Arla farms by 30 percent per kilogram of milk by 2030. "Sustainability is becoming hard currency in the dairy industry," Valeur is convinced.

The manager also refers to the results of market researchers and consulting companies. For example, Deloitte found out that two-thirds of German consumers have now adjusted their consumer behavior to counteract the effects of climate change. And GfK reports that sales of sustainably produced products increased by almost 60 percent between the first half of 2017 and the first half of 2022.

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