High butter prices are actually a good thing for New Zealand, economists say
Photo:
Margaret Jaszowska for Unsplash
Butter prices might be biting at the supermarket checkout, but there's a warning that anyone hoping they'll fall should be careful what they wish for.
The price of butter has increased about 50 percent over the past year,
pushed up by high global dairy prices.
But economists say that's actually a good thing for New Zealand.
Household Economic Survey data shows that in 2023, households spent about $124 million on butter. Between 15 percent and 30 percent of households would buy butter over a one- or two-week period.
But the country exported $5.2 billion worth.
"It's not nearly worth trying to change the domestic butter game at the expense of our very lucrative export potential," Brad Olsen, chief executive at Infometrics said.
"Being in China at the moment, I've been looking around here ... we are still charging more in our premium export markets than we are seeing domestically.
"I mean in New Zealand, butter is $8.50 to $11 depending on who you're talking to or what shop you're going to. I've found an Anchor block in China that was only 454 grams for about $13.52. So the export stuff works for us."
India is also a large producer of butter and has comparatively low prices, but Olsen said that was not comparable because farmers there were getting a subsidy of up to a third.
In Australia, there was no GST on fresh food.
Butter is about 7 percent of total New Zealand exports.
"So yes, consumers get hit with higher butter prices in New Zealand," Olsen said.
"But we make a lot more as a country from the exports that we send out overseas. And I guess you know, cause there's all this talk of, well, what happens if butter prices were lower ... I do think that there is this conception that if magically butter prices were lower, everything else would be the same too.
"And that's just a complete false economy. If you had persistently lower butter prices, then there wouldn't be quite as many people farming. Or they wouldn't be the same profits from manufacturing and similar from Fonterra and what have you. That would mean there would be less money going into the economy across the country, people would have fewer jobs than they would at the moment. And so you might be paying cheaper, better prices. But you might not have a job.
"That's the trade off that, that to a degree we're talking about ... I also think we talk a lot about butter. How much butter does every household in New Zealand consume? Like how many blocks are you guys buying?"
Westpac chief economist Kelly Eckhold said it was good for the country overall that dairy prices were high.
"Exports of cheese is $3 billion. All these dairy products are rising for the same underlying reason - demand for milk fats is increasing. Butter and cheese in particular are the things the world wants."
He said the conversation was influenced by the fact that everyone encountered the retail price but not everyone was exposed to the export earnings.
"One thing to think about is the gains from the income are more narrowly shared than the costs that come to all of us. We all go to the supermarket and buy a bit of butter and cheese and milk.
"But if I look at employment trends on a regional basis, you can see in the last few months the regions where jobs are growing are Canterbury, Otago, Southland, West Coast, Marlborough ... these are areas that have a much higher agricultural and dairy input. There are more jobs in those parts of the country whereas Wellington and Auckland are very weak. There aren't many dairy farms in Remuera unfortunately."
He said a wider problem was not that dairy products' price was rising but that New Zealand incomes were not keeping up.
"Prices are being bid up by people overseas who are wealthier than us and their incomes are growing more strongly.
"That's why they can afford to pay the prices that are pushing the prices up. The question isn't should we be redistributing further the profits form those sector. The question should be what can we do to improve the incomes of Kiwis so when demand goes up overseas we can keep pace. If we can do something that gets job growth up that's unequivocally better than putting price controls on butter or cheese."
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