France’s butter crisis is a perfect lesson in basic economics

The butter crisis is an existential crisis. What is French life without butter?
The butter crisis is an existential crisis. What is French life without butter?
Image: Reuters/ Stephane Mahe
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A visit to the Sena Fromager at the Marché des Carmes brought more bad news. Daniel, the knowledgeable and personable fromager who gamely tolerates my poor French, looked grimly at the display case when I inquired about butter.

Gone was the giant block of gleaming fresh butter from which he cuts a tablet each day for discerning customers. He pointed to one small pile of butter and said this was the very last supply of this brand he could procure. What made him even more glum was that prices had increased by 20% for the butter that could be found.

“Once the prices go up, they usually don’t come back down,” he lamented. “Even when this ends, the price of butter will remain high.”

The great French butter crisis of 2017, the “crise de beurre”, is upon us here in the southwest. The massive butter shortage was first felt this year in the northern regions of Brittany and Normandy where local dairy production is highest, followed naturally by Paris, and now here. Perhaps it took a bit longer to arrive because the south allegedly uses more oil in food than the north. But in any case, we are now one with the country which has met this crisis with a mix of outrage, trembling fear over its impact on daily eating habits, a fair bit of hoarding, and also an extraordinary sense of humor about the whole thing. If you think a crisis over the shortage of butter seems like the most French of catastrophes, well, the French are right there with you, caught between feelings of amusement and agony over their plight.

Such a moment triggers a favorite French pastime: The opportunity to engage in the profound questioning of everything. The butter crisis is an existential crisis. What is life without butter? It is a cultural and identity crisis. What does it mean to be French without butter? It’s a culinary crisis. Butter without salt? Margarine? Are you mad?

Most of all, however, it’s an economic crisis. The shortage is the latest in a long list of crimes being attributed to globalization and commercialization gone too far. How could a country that makes butter in abundance, a country that bleeds butter, suffer a lack of it? The finger of blame is pointed by many at an unjust system of global trade and the invasion of capitalist inevitabilities like large supermarket chains that have become commonplace and too powerful.

Globalization as a concept has had a couple of rough years as politics seemed to have turned decisively against it in the US and UK. It might seem that globalization got a reprieve in France when pro-globalist Emmanuel Macron was elected president in the spring. But it’s easy to forget that two anti-globalist candidates, Marine Le Pen (on the right) and Jean-Luc Melénchon (on the left) together received about 40% of the vote in the first round. Globalization carried the day in France, but voters hardly gave it a ringing endorsement. Now it’s accused of robbing them of their beloved butter, which is not the way to win hearts and minds here.

The butter crisis has brought again the question of France’s place in the global economy to the forefront as the fundamentals of capitalism are being hotly debated here in the way one simply never hears anymore in the United States. “The butter shortage, the supreme crisis of capitalism?” asked one anti-globalist magazine. Mixing in references to shortages under the Nazi occupation, the importance of fat in the diet, and the superiority of butter to oil, the writer sees in the butter crisis the last, gasping days of a dying free-market ideology. “For a system that boasted of producing abundance (while the ugly people’s democracies had only margarine because it was Lenin’s fault)…to lack butter, it looks bad. It’s still very symbolic, butter. To lack butter, in the imagination of a country like France, it recalls the scariest shortages.”

When it comes to food, there may be nothing Americans more fundamentally associate with the French than butter. Sure, there are the more esoteric things like escargot or frog legs. Butter, however, seems to be the core of how we see the French diet. Perhaps that’s because for Americans of a certain age, French cuisine was a thing extolled and taught by Julia Childs. “With enough butter, anything is good,” she famously exclaimed. Despite decades of cookbooks and TV shows that contained infinite insights into the wonders and nuances of French cooking, what we tend to remember is the butter. The French had it right, Julia Childs claimed, that butter makes everything taste better. This made the French seem all the more mystical, other worldly. While the world was discovering treadmills and workout fads and chemically-constructed, low-fat butter substitutes, the French were ladling buckets of butter on everything and still managing to be thinner and healthier than people in most other western countries.

A caricature, perhaps, but just by degrees. The French are indeed the biggest consumers of butter on the planet. By a lot. In 2016, according to the Canadian Dairy Information Center, the average French person consumed 8.2 kg of butter. That compared to 2.6 kg for an American. And .1 kg for someone in China. In the US, you can’t have your cake and eat it, too. But in France, you can’t have “le beurre et l’argent du beurre” (the butter and the money from selling the butter). This massive consumption of butter is not surprising if you’ve ever watched someone like Julia Childs make croissants. These staples of the French diet are essentially a large chunk of butter made edible by baking some token amounts of flour around it.

When word of price increases began to spread, a mild degree of panic ensued in this land of buttery souls. When butter began to disappear with increasing frequency over the last two months, the impact was profound. The National School of Milk and Meat Industries in La Roche-sur-Foron says it has been besieged by calls to increase production of butter, but says it cannot because it would jeopardize the quality of teaching. Boulangeries have been raising prices of croissants, from €1.05 to (gasp!) €1.15. People worry about whether there will be butter for their Christmas gateau. TV news has been offering tutorials on how to make your own butter. France has the feel of a country on a wartime footing.

Still, the French are determined not to cross certain lines. There was the near unanimous rejection of taking perhaps the most desperate measure of all: buying margarine. The notion of using this dreaded substitute in things like croissants was widely rejected. Across Twitter, people shared with a mixture of amusement and pride photos of super market shelves stocked full of margarine. Times were desperate, but the French had kept their heads and were determined to hold onto something essential about being French. Even as the country inches closer by the day to American customs and habits, there are some lines that it refuses to cross.

Mixed in the anger is a fairly healthy dose of humor. Yes, there is still a lot of French bashing in the world. But at the end of the day, no one is more amused by the French than the French themselves, even in times of need.

“Shut up haters!”

As word of the looming butter crisis spread over the land, an artist collective know as “La Mauvaise Graine” (The Bad Seed) was moved to make a satirical film about the coming beurre-pocalypse called “Pénurie”, the French word for “shortage.”

At the most basic level, the butter crisis seems like a case of Economics 101: An imbalance between supply and demand.

Going back almost a year, the agriculture sector began warning about possible issues related to butter production. That’s because due to bad weather and its impact on animal feed and harvests, 2016 was deemed not to be good year for raising and feeding livestock. The poor condition of cow food was leading to lower rates of milk production. In 2016, 24,667 tons of milk were collected in France, according to the French National Institute for Agricultural and Marine Products (FranceAgriMer). That was a 2.8% drop from 2015.

On a profit basis, cheese generates higher returns than butter, so when supplies run low, it gets priority over butter. That’s because it takes 22 liters of milk to make one kilo of butter. You can make the same amount of Emmental with only 12 liters. So producers are making a profoundly rational, economic choice.

At the same time production is down, world demand for butter is booming. This is primarily driven by two countries. The Chinese, who are currently taken with all things French, have embraced croissants and other French pastries. Just as shocking, to the dismay of the French, their American cousins are finally lightening up about the whole butter thing as the wheel of diet fads in the US has turned in favor of fats and butter. “World demand has increased by 5% over the last twelve to eighteen months, while supply has fallen simultaneously by 5%. It’s gigantic,” Jean-Marie Le Bris, director of consumer products for the dairy cooperative Laïta and the Paysan Breton brand, said last March in an interview by Les Echos.

This simple imbalance between supply and demand is reflected in the price of butter. Over the last 20 months, the industrial cost of raw butter in France rose from €2,500 per ton to €8,000 per ton as of September, according to Le Figaro. But while this explains the skyrocketing cost, it doesn’t fully tell us why stores’ butter shelves across the country are empty.

One of the joys of our neighborhood in Toulouse is its proximity to the Marché des Carmes. The open-air market is an American’s romantic notion of life in France. Waking up in the morning and strolling to the marché to get ridiculously fresh bread at the boulangerie, maybe a chocolatine. Wandering over to the boucherie for advice on cuts of beef, ogling the displays of the fish at the poissonneries. And yet while we indulge our French fantasies, the reality of shopping in France for the average French person is quite different.

Across the country, large shopping chains dominate sales. If France ever once resisted this American-style trend, it stopped decades ago. Today, French chains like Carrefour, Casino, Intermarché, and E. Leclerc dominate the daily lives of French shoppers. The top seven chains account for 85% of all grocery sales in the country, according to Kantar Retail. It is the kind of stranglehold of which American chains like Costco or Safeway could only dream. French grocery chains were such successes that for awhile they were being hailed as economic engines, and sources of French retail innovation as they expanded across the globe.

In recent years, however, these behemoths have been struggling with slowing sales, thin profits, and changing shopping habits. They spent years building at the edge of cities the kind of large supermarkets where any suburban American would feel at home. Following the financial crisis of 2008, several things in France shifted.

In part, it’s demographics. According to a Kantar Retail study, the population increase in France has fallen from an annual average of 500,000 between 2001–2006, to a projected 283,000 between 2016–2021. As a result, the population is aging, with people over 65 expected to grow from 19 % to 21% of the population by 2021. These people are increasingly living in large family homes and are less mobile. Also, much of the current population increased includes poor immigrants who are living in shared homes with other families and lacking cars. All of this, mixed with perhaps a cultural desire to recapture an older way of life, have led the French to slowly turn back to their neighborhood shops. It is what Kantar calls in retail speak “small-basket shopping” opportunities. These corporate giants saw the writing on the wall, and have adapted by scrambling to build “tiny” and “mini” and “express” versions of their markets that now pack seemingly every corner in our town.

Think about the way certain urban American neighborhoods became saturated with McDonald’s or Starbucks in the 90s. That’s what is happening across France, times 100. Just the other day, coming back from a holiday, we noticed a former shoe store had been converted to a Carrefour Express, the second local shop the company had opened within two blocks of our house in the past four months. We have a Casino within a short walk no matter which direction you go out of our door, all of which have been extensively renovated over the past year. And these are squeezed in between a Monoprix store and our local Biocoop (organic) grocery store. It’s like an invading army that has surrounded the Marché des Carmes on all sides in a concerted attempt to slowly asphyxiate it. This is a trend worth noting because, as I said, the French are considered to be innovative leaders in retail, and I’ll bet that you can expect to hear terms like “proximity retail” in the coming years as American retails look for the latest shopping fad to save the crumbling brick-and-mortar economy.

Back in France, this massive pivot is resulting in huge capital expenditures which have made profits even more razor thin. These giants are fighting for customers one hand basket at a time. Competition is brutal. And yet, the intensity has led to a series of rather perverse alliances. Determined to squeeze prices to a minimum, these giants have formed various buying partnerships with each other to gain even greater leverage over producers. So, for instance, Intermarché and Casino negotiate purchasing prices, Carrefour has its own partner, and so on. These allies sign contracts once a year with many producers, and this brings us to the reason there is no butter on many of their shelves.

With the cost of industrial butter soaring, producers have called on the supermarkets to renegotiate the purchasing ingredients. The supermarkets have refused, given the last thing they want to do is pass along price increases of any kind to customers. Facing huge capital expenditures, thin profits, tough competition, the butter crisis has come at the worst possible moment for supermarket giants.

The producers aren’t having it, however. Having watched super market chains become all powerful, the makers of butter aren’t feeling a lot of pity in their hearts. Dominque Charge, president of the National Federation of Dairy Cooperatives, complained to Le Figaro that the butter crisis “illustrates the great dysfunction of this” power imbalance. “The distributors are accustomed to an abundance to put pressure on prices.”

With supermarkets refusing to negotiate, producers are sending their butter elsewhere, to countries such as Germany where sellers are willing to pay the higher prices. The exports of French butter increased year-over-year by 6% in June, 17% in July, and 16% in August. And keep in mind, France has to import butter as well to satisfy all its needs in a typical year. As a result of France’s own butter being shipped elsewhere, one study noted that by the third week of October, about 30% of all butter shelves were empty, and projected that could rise to 46% in some stores this month.

Naturally, this was all made worse by reports of people hoarding butter. Confession time: As I write this, we have five tablets of butter sitting in our refrigerator, unprecedented in our house except for moments of massive holiday baking. France’s agricultural minister promised this lack of butter “will not last” and brought the various parties together for talks in early November.

There are some signs of hope, or at least a laying down of arms between the two warring sides. The negotiations for the prices of goods such as butter in 2018 have begun, and as part of the talks, supermarkets and producers signed a broad agreement to be nice to each other and to respect things like market-driven prices. This hasn’t yet ended the crisis, but it seems to have opened the door toward talks that could end the standoff. Of course, in this case, ending the standoff means agreeing to raise the price of butter for consumers. The leaders of the Leclerc supermarket chain said they would consider price increases up to 27.48%.

If there is irony to all of this, it’s that after years of protectionism, what farmers and dairy producers want is the government to force the super markets to embrace the free market. It seems basically the Macron government, the supermarkets, the farmers, and the producers, have decided that solution to the butter crisis is more competition and capitalism. That would benefit the dairy producers and the latter-day converts for market-based pricing. But one should always be careful of what one wishes for when it comes to the free market. This enthusiastic embrace could prove short sighted if economic conditions change and say a bountiful year leads to an over-supply of butter that sends the price of industrial butter crashing. As my local fromager noted, the price consumers pay for butter will likely stay high, and the profits will shift from the producers to the super markets again.

In any case, the war of butter may be ending, but it’s not likely to taste like victory to anyone. All the butter in the world may not be enough to convince the French consumers to savor the financial impact of the free-market economics they may soon have to swallow.

This post was originally published on Medium.