GOVERNMENT moves to smooth out volatility in the price and supply of butter to Scotland's shortbread makers, confectioners and bakeries must take account of the unstable financial situation afflicting the country's primary milk producers.

As ScotGov announced an urgent feasibility study to explore opportunities for collective butter buying and storage, so that Scottish businesses' substantial demand for the ingredient can be consistently satisfied, farmers leaders warned against 'simplistic' solutions to complex problems.

Speaking at the RBS Food and Drink conference, rural economy secretary Fergus Ewing said: “The price of wholesale butter has doubled since the start of the year, with wholesale prices at a record high. This is a concern for many of our smaller food and drink manufacturers who use butter as a primary ingredient, such as our shortbread and confectionery producers and bakeries, and who are finding trading tough.

“We have listened to the concerns of our manufacturers and this urgent feasibility study will explore opportunities to exploit buying and efficiency savings made available through collaboration, boosting productivity and competitiveness within domestic and global markets. We expect to see the outcome of the study within the next month or so and we look forward to supporting the industry in whatever way we can. ”

The study will be undertaken by the Scottish Agricultural Organisation Society, as part of ScotGov's £1 million market driven supply chain project, announced in March.

While welcoming the initiative, NFU Scotland policy manager George Jamieson strongly encouraged SAOS to acknowledge the crucial part primary producers play in the supply chain under examination.

“Collaboration across the supply chain is key, as volatility affects all players," said Mr Jamieson. "Scottish Government will be aware that butter prices, with cream and cheese, have risen dramatically with objective market indicators rising from 15ppl to over 40ppl from Spring 2016 to Autumn 2017.

“Farm gate prices, in stark contrast, have risen over the same period from around 18ppl to only just reach around 30ppl now. Dairy farmers are faced with the double challenge of wafer thin margins and carrying the bulk of the risk from volatile markets. Without that being addressed, it is evident that many will continue to leave the sector, including the most efficient, as the considerable ongoing investment is simply not worthwhile," he warned.

Iconic Scottish products, like shortbread, should be underpinned by high quality locally-produced ingredients, said Mr Jamieson, and manufacturers should be seeking out Scottish butter as a first choice, which would in turn build stability of supply at home.

"The challenge for the supply chain is to develop collaborative initiatives that mitigate the effects of volatile markets," he said. "That means not merely sourcing the cheapest, but to ensure that Scottish producers and processors find solutions to support each other in growing Scottish added value brands."

He stressed too that butter production was a part of a complex product mix: "It is too simplistic to say we must produce more butter, as butter is made from cream, separated from milk which is then sold either as skimmed milk, or Skimmed Milk Powder. In contrast to high cream values, powder currently commands a very low price."

Albeit that it still has major concerns for the country's dairy sector, NFUS believes that there are solutions, said Mr Jamieson, as its dairy farmers are "inherently positive" and are more than willing to be part of a progressive dairy supply chain serving Scotland's added value brands.