Reserves were low, demand was high and prices skyrocketed. No, not oil.
Butter demand surged in Norway several months ago when a low carb high fat diet swept the nation. At the same time, the supply of butter plunged because wet weather diminished the quality of livestock feed. Worse feed meant less milk.
You see where this takes us. More demand, less supply, and not only will price rise, but for Norway, it also meant a devastating butter shortage.
Here, Stephen Colbert tells the whole story of Norway’s butter crisis and a Russian butter smuggler.
The Economic Lesson
Usually, Norway represents a happy economic story. Endowed with immense oil wealth, they used the proceeds wisely by establishing a Government Pension Fund to invest in the future. Recognizing the possibility that the value of their currency would soar because of oil demand, they discouraged people from buying relatively cheap imports by protecting domestic industries. One result was a dairy cooperative monopoly. So, when the butter crisis hit, there was no way to get extra butter until tariffs were lowered. Until then, supply contracted and demand soared.
As you can see, Norway’s butter crisis is a economic tale of oil wealth, monopoly, tariffs, supply and demand.
Here, Slate tells the whole economic story.
An Economic Question: How would a demand/supply graph represent the Norwegian butter price spike and quantity shortfall?