As the manager of one dairy co-op rightly described it, the butter story this year has been nothing short of phenomenal.

The inflation in butter prices across Europe has been well highlighted, but an interesting dynamic is now emerging that we’ve never seen before.

The price of butter in Europe is now so far ahead of New Zealand and US prices that EU tariff barriers designed to protect Europe’s dairy farmers are fast becoming irrelevant.

The EU imposes a €1,896/t tariff on most butter imported from outside the EU.

With such prohibitive tariffs, it is no surprise that less than 7,500t of butter was imported into the EU in 2016, almost all of which (72%) came from New Zealand.

But the growing disparity between European butter prices and those in New Zealand and the US mean this tariff is very close to losing its impact. This week, butter will fetch anywhere up to €6,700/t on EU spot markets.

However, with New Zealand and US butter priced at €4,875/t and €4,958/t respectively, the potential for buyers to import from these markets is close to being economically viable. With the tariff included, New Zealand coming into Europe would cost €6,770/t, while US butter would be slightly higher at €6,850/t. The euro’s 12% rally against the US dollar in recent months is also driving this price disparity.

Unless we see some cooling in the EU butter market, product substitution could become a reality for many buyers hit hard by the rapid price inflation of European butter.