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The ongoing reappraisal of natural fats suggests a bright future for butter in Brazil as long as manufacturers can reduce their reliance on bread.
Volume consumption per capita of yellow fats has declined in Brazil in recent years amid the country's worst recession in history, with high unemployment and inflation encouraging many consumers to scale back their purchases. In 2017, volume sales in the category declined by 1% to 480,500 tons, following a similar 1.3% reduction in 2016 and 0.5% decline in 2015, according to data from IBGE, MDIC/SECEX, USDA and Mintel.
Despite this difficult operating environment, price inflation has continued to support value growth in the market. The cost of yellow fats rose by an average of 9% per kg in Brazil during 2017, pushing up the overall value of the retail market by 8% to BRL6.4 billion.
Some of this growth reflects high farm-gate milk prices and lower supply pushing up the cost of production. However, it also highlights another fundamental shift occurring: the transition from margarine to butter.
Margarine has long been the go-to yellow fat option for Brazilians. The affordable product is a household staple, and has traditionally been preferred to butter thanks to its superior affordability. In 2016, margarine was still responsible for 85% of all yellow fat volume sales in Brazil.
However, few Brazilians have a positive image of margarine despite high consumption rates, and many are now moving to butter instead. The economic turbulence of recent years has stalled the growth of the butter market, where volume sales remained static in 2016. But given the higher price of butter, recent limitations on consumer spending power, and the stronger decline recorded by the margarine segment, this can still be seen as a positive development. It also bodes well for future growth as the Brazilian economy shows signs of revival, with GDP up by 1% in 2017, the first rise recorded since 2014.
Brazil: butter and yellow fats retail market segmentation, by value and volume 2016
Changing perceptions around the health impact of butter have been an important factor behind its rising profile in Brazil. Like elsewhere globally, Brazilian consumers are increasingly reassessing the previous consensus that fat needs to be avoided, as studies highlight the health benefits of consuming unprocessed fats from natural sources, such as butter. These "good fats" are increasingly being touted as important components of a healthy diet, while more manufactured fats like margarine are warned against. More than a third (37%) of Brazilians already agree that butter is healthier than margarine, and as fat continues to shed its stigma, butter brands should enjoy even greater prominence in Brazil, with potential for manufacturers to promote their fat content as a positive.
The ongoing reappraisal of natural fats suggests a bright future for butter in Brazil, but market growth has been hampered in recent years by local conditions. Outside of the economic climate, domestic butter shortages have been a significant constraint, with many supermarket shelves empty for periods of 2017 due to insufficient production of the milk fat required to make butter.
Milk contains between 3% and 3.5% fat, with the production of skim milk generating a surplus that is used to manufacture butter and other dairy products. However, most milk is consumed whole in Brazil – 63% of Brazilians drink whole milk, compared to 23% who drink skimmed milk – reducing the supply of milk fat for other uses, particularly as requeijao, takes up most of what's leftover.
This has created space for manufactures to import butter, but has also elevated the product to a premium tier, pushing it out of reach for many. Two-thirds (67%) of Brazilians say they would buy more butter if it was cheaper, highlighting opportunities for local dairy producers. Domestic butter production is projected to increase by 1% in 2018 to 85MT, according to the USDA, but this remains insignificant compared to the 4,809MT imported in the first nine months of 2017.
Brazil may have some way to go before it has the butter production capacity of other markets, but positive changes are being made. In 2017, 58% more butter products were launched in Brazil than in 2016, with both domestic and foreign producers investing in the dairy product. The launches appeared from a diverse range of sources: from regional dairies like Laticínios Passa Quatro, to brands owned by global dairy giants such as Lactalis.
What has been more uniform is the nature of butter innovation. Most recent launches have been plain, unsalted butters that rely on descriptors like "first quality", "top quality" and "extra quality" to gain an edge in what remains a largely commoditized market (albeit a relatively expensive commodity). Few products have looked to stand out by taking a more experimental approach to flavor, functionality or packaging, and this represents a potential growth area going forward as butter consumption becomes more ingrained in Brazil.
Butter is primarily used as a spread in Brazil, highlighting scope for brands to boost sales by suggesting other occasions, such as cooking and baking.
Butter's reliance on spreadable occasions could become an even greater weakness in the coming years as Brazilians increasingly avoid carbohydrates. In May 2017, 41% of Brazilians said they were limiting how many carbs they ate, or were interested in doing so in the future, as they instead look to elevate foods with more nutritional value. This represents a serious threat for a category typically consumed alongside bread or crackers, and could limit future growth unless manufacturers can successfully branch out into other occasions.
One potential method of achieving this diversification is through flavor innovation, which can not only help brands break down butter's commodity image, but can also position the dairy product as a cooking aid. Elsewhere globally, manufacturers have marketed flavored butters as convenient "life hacks" that can help consumers be more creative in the kitchen, with smaller pack sizes offering a low risk way to experiment. Developing similar butters will draw attention in Brazil as consumers value convenient shortcuts when cooking at home.
The Brazilian butter market offers significant opportunities for manufacturers as the country recovers from a historic recession, with more consumers likely to shift away from margarine as price becomes less of an issue. Butter is still, however, overwhelmingly seen as a spread, which highlights opportunities for manufacturers to be more experimental around flavor, with flavored butters that can help consumers be more creative in the kitchen.