Cheap imported butter is undercutting local brands
By Bruce Whitfield - Apr 24th, 11:31
South Africa has been a net importer of butter for years. In 2018, 85% of those imports came from as far afield as New Zealand, Denmark, Ireland, and the Ukraine.
And it’s cheaper to import than it is to make it locally. Imports in 2018 ranged from around R68 per kilogram to about R100 per kilogram. And with only a R5 per kilogram import duty, the imports are undercutting local suppliers.
All Woolworths-branded butter carries the "Product of South Africa" label, but Shoprite-owned Checkers has a far wider range from all four corners of the globe. There you will find "President of France", which is priced at a premium to local butter, while American and Ukranian butter significantly undercuts the local market.
On a recent visit to Checkers Business Insider found Kings Gold (from the Ukraine) retailing at under R50 for a 500g block, while Crystal Valley (from the USA) comes in under R60.
Local brands like Ladismith retail around R65 a block and Clover’s main offerings Springbok and Mooi River go for over R70 for half a kilo. Processed products made by the likes of Lurpak and Kerrygold from Ireland sell at premium prices in smaller formats.
Shoprite said in written replies to questions that it increasingly was receiving less butter than it needed from local suppliers and was forced to source product internationally to meet demand.
“We apply the policy of sourcing locally first and had to look to supplementing volumes required to service our customers when Kings Gold was procured. The high price of butter does not normally make imports at large scale a viable option for us, but at the time we were able to procure a good quality product at an affordable price for our customers,” Shoprite said in a statement.
And local brands are not only fighting competition from outside the country. Increasingly, large dairy concerns are internationally owned.
Ironically foreign players have been buying up local dairy businesses. French dairy group Parmalat has a substantial presence in South Africa and has over the last two years gradually phased out the Simonsberg brand in favour of its own President brand. President is the worlds’ second biggest cheese brand and sells in 147 countries. It happens nowadays to make cheese in Stellenbosch too.
Clover, South Africa’s biggest dairy business is currently trading under cautionary and seems likely to be taken out by Israel’s Milco. The deal has been mired in some controversy with JSE listed Brimstone recently withdrawing from the consortium doing the R4.8 billion buyout under pressure from activists. The offer though remains on the table at R25 a share, a 20% premium on the ruling price before the news of the offer broke. Investors have been disappointed in the market performance of Clover since its listing.
Expect to see more foreign butter on our shelves through the winter months too. Winter milk production is usually lower than that produced in summer and as a result will lead to further shortages and because of the laws of supply in demand could lead to price increases.
Bruce Whitfield is a multi-platform award-winning financial journalist and broadcaster.Business Insider
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