BMI Food Bites: Butter looks promising

The South African butter category did not perform particularly well during 2010, reports BMI Research in its annual market quantification, but it says the outlook for the sector is promising.

The butter category has historically been quite volatile in terms of the annual volumes consumed. This volatility may be attributed primarily to supply-related issues within the market, rather than being a reflection of market demand. During category volume declines or hefty price increases for butter, consumers generally transition to margarine, a natural competing product to butter. As soon as supply and pricing factors return to normal, the butter category regains ground.

A fairly static market state (0.5%) was recorded for the period.

It is hypothesised that a number of factors may have hampered further potential growth for butter during 2010. Firstly, given the lucrative nature of the cream category, raw material may have been channelled preferentially into cream production at the expense of butter. This meant that less butter was produced in South Africa during the base year.

Secondly, international butter supply issues translated into reduced imported volumes entering the country’s borders. While local suppliers attempted to fill the gap created by this, this was not fully met.

Thirdly, the butter category is extremely price sensitive. Possibly due to the reduced supply of both local and international butter volumes, the butter category recorded a substantial price increase (18.6%) on the local market. As margarine is a direct competitor to butter, any significant price increases for the latter result in a relatively easy transition to margarine, with a decline in volumes seen as a result.

Overall, it is hypothesised that these factors collectively hampered further category growth in 2010. However, it is believed that, with the increase in imported butter volumes and with better category pricing, the category should see good growth in the short term. An increase of 6.7% is anticipated for 2011.

Read more about the performance of the butter category in BMI’s Annual Market Quantification (September 11).