Facing high raw costs and competition from “healthier” alternatives, butter producers refuse to give up.

Butter producers have long been plagued by a host of challenges. Chief among them is the ongoing struggle to shed butter’s commodity image and chuck its less-than-positive reputation as an inconvenient, unhealthy product.

After decades of scratching their heads, butter producers finally appear to be making some progress. At long last, consumers seem to have abandoned the mindset that “butter is butter” and are developing brand loyalty, primarily due to the ambitious marketing efforts of national brands — most notably Land O’Lakes — and regional players.

What’s more, bad news about trans-fatty acids hit the margarine and spreads industry hard. Consumers who had fled the butter category over a fear of fat began rethinking their decision and gave butter a second chance. As those consumers began rediscovering the great taste of butter, they found a whole new subcategory of products to choose from — “spreadable” butters with added canola oil to make them easier to use.

Just when things seemed to be looking up, butterfat prices surged, surpassing $2 per pound in 2004. This, in turn, resulted in retail butter prices of $3 and higher. At first blush, the category seems not to have been negatively affected by the volatility in raw-material costs. Dollar sales of butter in supermarkets, drug stores and mass merchandisers, excluding Wal-Mart, rose 21.7 percent during the 52-week period ending March 20, 2005, according to Chicago-based Information Resources Inc. A closer look tells the tale, however, as unit sales fell 8.3 percent.

“When butter increases in price rapidly and past the comfort level for the consumer — which seems to be about $3 — sales fall off in volume,” says Greg Hansen, vice president of marketing, Cass-Clay Cooperative Creamery Association, Fargo, N.D.

If there’s a silver lining in this dark cloud, it’s that consumers don’t seem to be flocking to margarine as a result of butter’s woes. “Despite the fact that we saw some slippage in butter volume, we didn’t see a mass exodus from butter to other table spreads,” says Jed Davis, director of marketing, Cabot Creamery Cooperative, Cabot, Vt. “People may have cut back a little bit, but they haven’t abandoned butter.”

During previous price spikes, Davis says, foodservice operators frequently reformulated their recipes, substituting butter blends or other fats to keep raw-ingredient prices in check. This time he hasn’t seen a widespread move toward such surrogates.

According to Davis, this is evidence the foodservice channel is confident butter prices will make their way back from the stratosphere before too long. Already, wholesale butter prices have come down to just below $1.50, the first time prices have been that low since early 2004.  

“The past few weeks, it’s been very stable,” agrees Kevin Nagle, director of marketing, Crystal Cream & Butter Co., Sacramento, Calif. “We really can’t heave a sigh of relief yet because the ice cream season is right around the corner, and when you get the butterfat going in two different directions, who knows what will happen with the market.”

When prices do settle down, Hansen says, that’s the time for producers to promote their product more aggressively. By doing so, Cass-Clay has successfully taken a bite out of competitive spreads’ sales, particularly when it comes to hard stick margarine. Soft tub-style products are harder to impact, Hansen says. “People want the soft, spreadable product, and butter has an issue trying to get there,” he explains.

In an attempt to steal some of margarine’s convenience thunder, St. Paul, Minn.-based Land O’Lakes rolled out two products last year — Land O’Lakes® Soft Baking Butter with Canola Oil and Land O’Lakes Spreadable Butter with Canola Oil. This spring, the company expanded the line with the introduction of Land O’Lakes Light Butter with Canola Oil. Containing 60 percent less cholesterol and 50 percent less fat and calories per serving than butter, this new spread also offers “immediate spreadability” right out of the refrigerator.

While Land O’Lakes’ latest offerings resolve butter consumers’ biggest complaint, they have created quite a stir among the competition, many of whom charge that such hybrid products threaten to jeopardize the integrity of butter. Some producers have gone so far as to suggest that the butter industry needs to develop a set of standards, establishing exactly what constitutes a product that can be labeled as butter.

“There’s certainly room for those type of products in the category, but there needs to be a more deliberate decision to examine the standards of butter,” says Joe Fallon, vice president of marketing, Keller’s Creamery LLC, Harleysville, Pa. “There may be short-term gains in terms of sales and expanding the category, but long-term, you have to consider what the impact will be.”  

Because Land O’Lakes Light Butter with Canola Oil contains 0 grams trans fat, it’s in the same subcategory as several other butter alternatives on the market for several years, but have just recently begun building up steam.

Smart Balance, made by GFA Brands Inc., Cresskill, N.J., experienced a banner year, with a 25 percent rise in dollar sales.

In years past, industry experts have shrugged off these kinds of products, claiming they don’t consider them to be competition. So has the sudden surge in sales changed their mindset?

“I still think it’s a niche product,” says Jerry Kozak, executive director, American Butter Institute (ABI), Arlington, Va. “They are bringing people to the category, who are unique, meaning it’s not taking sales away from butter or margarine.”

Of greater concern to producers is the increasing number of butter imports reaching U.S. grocery stores. Producers have been pressuring the USDA to increase tariffs on imports, claiming that import levels more than doubled between 2003 and 2004. While Davis does express concern that the United States may someday become “a dumping ground for foreign butter,” he remains confident, at least for the time being, that a preference for homegrown dairy products will mitigate any surge in import sales.

“At the end of the day, people like to feel that their dairy products are coming from somewhere near home,” he says.

ABI has developed Cooperatives Working Together (CWT), a program that assists members exporting hard cheese and butter. Whenever the domestic butter price drops below $1.30, CWT provides an incentive bonus for the exportation of butter products.

According to Nagle, Crystal Cream has successfully exported its butter to Russia, but in recent years, butter prices have risen so high that exporting hasn’t been an option.  m

Julie Cook Ramirez is a freelance journalist based in the Chicago area.