Butter prices head for meltdown

The Swiss produce around 40,000 tons of butter every year (imagepoint)

The two top Swiss supermarkets have declared "war" on the price of butter, claiming that a cartel has made the product too expensive in Switzerland.

Earlier this week, the country’s largest retailer, Migros, announced that it was cutting prices by ten centimes, following the lead of rival Coop that has introduced its own brand and dropped prices.

The supermarkets’ stance has gained consumer support, but the dairy industry – an important sector of Swiss agriculture – remains sceptical.

Butter prices are decided by the Butter Sector Organisation, on a Swiss government mandate. Its main members are Emmi and Cremo, two of the largest dairy concerns.

But retailers believe the body is keeping the price too high – up to 40 per cent more than in neighbouring Germany, according to Migros – and have gone on the offensive.

Coop moved first. At the beginning of the year it introduced its own brand of butter, made by an independent company, undercutting the normal price by ten per cent.

Despite a shaky start – some of its new product had to be recalled after customers complained it smelt “strange” – Coop hailed the move as step towards breaking the “butter cartel”.

“We wanted to make the market move and create real price competition,” said Coop spokesman Takashi Sugimoto. Coop has now also dropped prices of other butter brands.

The competition watchdog has also welcomed the move.

In mid-January the Butter Sector Organisation reduced its butter prices by 20 centimes per kilo, according to Migros.

Migros

On Monday the supermarket announced price cuts of ten centimes on butter. In a statement it said this was not just due to the butter sector’s decision but the fact that the company believed that the market was too protectionist.

Regular butter will now retail at SFr2.60 for 250g ($2.07) and premium versions will cost SFr2.75 ($2.19) for 200g.

This is not the first time Migros has gone on the offensive. Last year it asked Swiss customs for permission to do some of its butter production in neighbouring countries and then re-import the product. The company said this was due to high production costs in Switzerland. The request is still pending.

The Swiss Competition Commission has already recommended to the government that it accelerate the opening up of the Swiss market to the European Union. This would allow for the export of raw materials, which could be processed abroad and then reimported.

When asked about the butter wars, it said the situation was “very favourable for competition”.

Spokesman Patrick Ducrey added that market changes began after the government cut its subsidies for dairy products on January 1 this year.

Pressure

But dairy farmers maintain that Migros and Coop’s decisions will put pressure on the industry, with the Swiss Milk Producers Association estimating it could set the sector back up to SFr200 million.

For its part, the Butter Sector Organisation does not seem too worried by the situation. Speaking to swissinfo about Coop’s decision, director Peter Ryser said he did not agree, however, with what was said about a cartel and fixed prices.

“It’s the manufacturers and their buyers that determine the prices, not our organisation,” he added.

“The price difference with abroad is to be found in the raw materials – on average the price of milk in Switzerland is 72 centimes [per kilogramme] compared with 44 centimes in Germany.”

Along with the Butter Sector Organisation, the Federal Agriculture Office says that the fact that a new product has come onto the market means that the market is not dictated by the state but by the laws of offer and demand.

“We will see what will happen in the future,” said an office spokesman, adding that if other retailers offer cheaper butter, this could call into question the system put into place by the butter industry.

swissinfo

Key facts

Annual butter production in Switzerland: 40,000 tons.
Government subsidies milk sector 2006: SFr465 million.
This figure was reduced by SFr120 million from January 1, 2007.

Butter market

The Swiss butter market is mainly in the hands of the two dairy concerns Emmi and Cremo. Emmi has reinforced its position with the purchase of the Aargau dairy AZM.

The legal basis of the Butter Sector Organisation is determined by federal agriculture law, meaning that not much can be done to dismantle any form of “cartel”.

Swiss butter cannot be exported due to its price. In 2004, one kilogramme of butter cost SFr11.80 compared with an average of SFr8 in neighbouring countries.

But the Butter Sector Organisation is allowed to import butter if there is a shortage within Switzerland. Quotas are determined by the Federal Agriculture Office.