The rising cost of butter and other dairy products is hitting bakeries and other small food businesses hard, the Baking Industry Association says.

Photo: RNZ / Eva Corlett

Butter prices continue to soar - last month 500g blocks hit a record high price of $5.39 and on Countdown's website last night, several brands were at $6.

Demand for butter has blown up worldwide after scientists debunked research linking animal fats with heart disease, ASB economist Nathan Penny recently told RNZ.

But bakeries have limited options as to how they can combat the high prices, the association's president Kevin Gilbert said.

Many absorb the cost, use alternative ingredients like margarine, or have to increase their prices, which consumers do not take sweetly to.

"There is a limit to what the consumer will accept in increases, they do not necessarily appreciate the background costs skyrocketing on one or two items.

"It is a difficult industry to be in anyway because the perception of what we do has been tainted by the $0.89 loaf, so many consumers do not understand the difference between an $0.89 packaged loaf in a supermarket and what a bakery makes."

To on top of that have ingredient costs continue to rise - butter rose 70 percent in a year - was a continued battle, he said.

"It is cheaper to get imported French butter, travelling all that distance and up 'til now it has been seen as an extravagance, but it is now cheaper to get that than it is to get stuff across the ditch [for Australian bakers]."

"It is getting very close to that for us as well. We are being offered European butters that would be cheaper," he said.