Gå til resume Gå til indhold

Milk, Butter & Bread Price Development from August 2007 till March 2009

06. juli 2009

Summary

In October 2008, the Danish Competition Authority published an analysis of the food price development from August 2007 to February 2008. The conclusion was that the boom in commodity prices in the autumn of 2007 could not explain the increase in consumer prices. The manufacturers and the supermarkets had increased their prices additionally on top of the increase in commodity prices.

In the spring of 2009, the Danish commodity prices for milling grain and milk were back at roughly the same level as before the boom in commodity prices in late 2007.

The purpose of this investigation is to explain, why consumer prices on bread, milk and butter in March 2009 were still well above the price level of the summer of 2007, in spite of the fact that commodity prices were back at the same level as before the commodity price boom. The consumer prices on bread, milk and butter also increased significantly more than the overall Consumer Price Index (HICP). The investigation looks into which parts of the food supply chain that have contributed to the higher consumer prices in the period August 2007 – March 2009.

Milk and butter

In March 2009, consumer prices on milk and butter products (butter and butter blends) were significantly higher than in August 2007. Daily fresh milk (milk with a 24 hours freshness guarantee) has increased by 7 per cent and organic milk by 11 per cent, while prices of private label milk-products (milk without a specific freshness guarantee) had gone up by merely 3 per cent. Prices on butter blends had increased even more, i.e. 21 per cent compared to the level of August 2007. During the same period, the Consumer Price Index rose by merely 5 per cent[1].

Overall, the dairies have contributed the most to the price rise on milk and butter products. The dairies are responsible for more than 85 per cent of the price increase on daily fresh milk and butter products – especially on butter and butter products where, at the same time, consumer prices have risen the most since 2007.

The dairies are also responsible for a major increase of prices on private label products, but this increase is almost levelled out as the supermarkets have reduced their gross margin. At the same time, consumers have reacted to the high prices by switching part of their shopping of dairy products from more expensive daily fresh milk to cheap private label milk-products. This may have influenced supermarkets to ensure that they have competitive prices on private label milk products.

The Danish consumer prices on butter products etc. have risen more than in our neighbouring countries i.e. Germany, the Netherlands and Sweden. As the prices for dairy products have started to go down on the export markets, there may, however, be a basis for a price reduction on these products in Denmark.

After the sharp rise in consumer prices for bread in the autumn of 2007, up to 16 per cent, the consumer prices have gone somewhat down. Prices are, however, still higher than in the summer of 2007. Thus, in March 2009, the consumer prices on wheat bread-products, comprised by the investigation, were 13 per cent higher than in August 2007, prices on rye bread products comprised by the investigation, were 9 per cent higher.

In the same period the Consumer Price Index increased by 5 per cent.

It is worth noticing that the price increases in this investigation differ from consumer prices on bread, provided by Statistics Denmark.

The main contributing factors why consumer prices in March 2009 were at a higher level than in August 2007 are the mills and the supermarkets. The supermarkets have increased their gross margin on bread during the period.

The mills have been reluctant to cut down the prices on flour for the bread producers. While the mills’ cost price on grain was roughly at the same level in March 2009 as in August 2007, their selling prices had increased by approximately 35 per cent compared to the level of August 2007.

The general cost development (according to Statistics Denmark) can only explain a price increase of up to 1/3 of the actual price increase on flour for the industry.

There may be some inertia in the adjustment of prices on flour to the decreasing grain prices, as the mills have entered into long-term contracts with the bread producers. However, when the grain price increased in the autumn of 2007, there was no delay in the mills’ adjustment of their selling prices. The full impact of the falling grain prices may not yet have prevailed in the mills’ selling prices and therefore, there may be a basis for further price reductions on flour and subsequently on bread.


The sale of factory-made bread has declined in the retail trade during the past year. The consumers are buying more bread at the low end of the price scale, including bread in smaller package sizes.

The development in Danish consumer prices on bread and cereals covering crisp bread, rice and pasta, still remains above the development in the neighbouring countries.

Main conclusions

Consumer prices on milk, butter and bread were significantly higher in March 2009 than in August 2007. For some products, the price increase is significantly higher than the Consumer Price Index development. Looking at price development for the entire period, commodity prices have not increased, in general.

Milk and Butter

In March 2009, consumer prices on milk were 3-11 per cent higher than in August 2007. Butter and butter blends were 20-21 per cent higher. In the same period, the Consumer Price Index increased by merely 5 per cent.
In particular, the dairies are responsible for the price increases. For butter products and daily fresh milk, the dairies are responsible for 85 per cent of the price increases. The dairies have also contributed significantly to the price increase on private label milk, but their price increase levelled out as the supermarkets reduced their profit.
The supermarkets have increased their profit on daily fresh milk, organic milk and butter blends.
The consumers have reacted to the higher consumer prices by buying more cheap private label milk in favour of daily fresh milk. This may have contributed to sharpening the competition between the supermarkets.

Bread

In March 2009, consumer prices for wheat bread, comprised by the investigation, were 13 per cent above the prices compared to the level of August 2007, while consumer prices for rye bread, comprised by the investigation, were 9 per cent above. The Consumer Price Index rose by merely 5 per cent during the same period.
In particular, mills and supermarkets have contributed to the price increases. Supermarkets are responsible for approximately half of the price increase on wheat bread and rye bread. The mills are responsible for nearly half of the price increase on rye bread and a quarter of the price increase on wheat bread.
In March 2009, the mills’ prices on flour for bread production were 35 percent higher than in August 2007. The mills have not yet lowered their prices on flour, corresponding to the decline in commodity prices on cereals. The reason for not doing so may be that the mills have entered into long-term contracts.
The supermarkets have increased their gross margin during the period. 

The analysis (only available in Danish)

[1] It is worth noticing that the price increases in this investigation differ from consumer prices on milk, provided by Statistics Denmark.