Finance Minister Nicola Willis wants answers over high butter price
Finance Minister Nicola Willis will be asking dairy giant Fonterra about the high retail price of butter in New Zealand.
Willis told RNZ's First Up programme this morning it didn't seem quite right that butter seemed to be cheaper in Australian supermarkets.
The price of a block of butter is now 120% higher than it was a decade ago, according to Stats NZ. In the year to June, it was up 46.5% to $8.60 for a 500g block.
At her regular meeting with the co-operative this week she would be discussing what gets added to the cost by retail brands, including Fonterra's Anchor, and at the wholesale level.
Finance Minister Nicola Willis. Photo: RNZ
"My frustration has been when you sometimes go on to an Australian supermarket website and see that butter appears to be cheaper there than in New Zealand, that doesn't seem quite right. So that's exactly the conversation I want to have.
"They'll have the opportunity to set out their case."
It was well understood the main driver of prices for dairy products was international demand and pricing, Willis said.
"But competition at the retail level does seem to have an effect on price, because organisations like Costco choose to have a really low price point on that product to get people in the door and the ultimate winner of all of that is the Kiwi shopper.
"So I'm talking to Fonterra about what they're seeing in terms of the supermarket pricing behaviour, what the margins are."
In May, Costco Auckland's special pricing saw queues out the door.
Federated Farmers dairy chair Karl Dean has urged retailers to lower prices quickly when costs go down, and said there was probably very little Fonterra itself could do.
"To put in it in perspective, there hasn't been any new players onto the domestic market in the last 10 years in terms of butter, other than the likes of Westgold - Westland have got their very premium product," he told RNZ's Morning Report programme last week.
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17 minutes ago
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Heather du Plessis-Allan: We are being irrational about the price of butter
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15 hours ago
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Is there anything we can actually do to bring down butter prices?
The alarming rise of butter prices has become a real source of frustration for New Zealand consumers, as well as a topic of political recrimination, writes Lincoln University professor of agricultural economics Alan Renwick. The issue has become so serious that Miles Hurrell, chief executive of dairy co-operative Fonterra, was summoned to meetings with the government and opposition parties this week. After meeting Hurrell, Finance Minister Nicola Willis appeared to place some of the blame for the high price of butter on supermarkets rather than on the dairy giant. According to Stats NZ, butter prices rose by 46.5% in the year to June and are now 120% higher than a decade ago. The average price for a 500g block is NZ$8.60, with some local brands costing over $10. But solving the problem is not a matter of waving a magic economic wand. Several factors influence butter prices, few of which can be altered directly by government policy. ADVERTISEMENT And the question remains – would we want to? Proposals such as reducing exports to boost domestic supply, or cutting goods and services tax (GST) on dairy products, all carry consequences. A key factor driving butter prices in New Zealand is that 95% of the country's dairy production is exported. Limited domestic supply and strong global demand have pushed up prices for a range of commodities – not just milk, but beef as well. These increases are reflected in local retail prices. Another contributing factor is rising costs along the supply chain. At the farm level, producers are receiving record prices for dairy. But this comes at a time when input costs have also increased significantly. It is not all profit. Weighing the options Finance Minister Nicola Willis. (Source: Getty) Before changing rules around dairy exports, the government must weigh the broader consequences. ADVERTISEMENT On the one hand, high milk prices benefit 'NZ Inc'. The dairy sector accounts for 25% of exports and employs 55,000 New Zealanders. When farmers do well, the wider rural economy benefits – with flow-on effects for the country as a whole. On the other hand, there is the ongoing challenge of domestic food security. Many people cannot afford basic groceries and foodbank use is rising. So how can New Zealand maintain a food system that benefits from exports while also supporting struggling domestic consumers? One option is to remove GST from food. Other countries exempt dairy products from such taxes in an effort to make staples more affordable. This idea has been repeatedly reviewed and rejected – including by the 2018 Tax Working Group. In 2024, it was estimated that removing GST could cost the government between $3.3bn and $3.9bn, with only modest benefits for the average household. Fonterra or supermarkets? File photo. (Source: ADVERTISEMENT Another route would be to examine Fonterra's dominance in the supply chain. There are advantages to having a strong global player. And it is not in the national interest for the company to incur losses on domestic sales. Still, the structure of the market may warrant scrutiny. For a long time there were just two main suppliers of processed dairy products – Fonterra and Goodman Fielder – and two main retailers – Foodstuffs and Woolworths. This set up reduced the need to compete on prices. While there is arguably more competition in manufacturing sector now, supermarkets are still under scrutiny and have long faced criticism for a lack of competition. The opaque nature of the profit margins across the supply chain also fuels suspicion. Consumers know what they pay at the checkout and what farmers receive. But the rest is less clear. This lack of transparency invites speculation about who benefits from soaring prices. In the end, though, the government may not need to act at all. As economists like to say: 'Nothing cures high prices like high prices.' While demand for butter is relatively inelastic, there comes a point at which consumers reduce their purchases or seek alternatives. International buyers will also push back – and falling global demand may redirect more supply to domestic markets. High prices also act as a signal to producers across the globe to increase production, which could happen relatively quickly if there are favourable climatic and other conditions. ADVERTISEMENT We only need to look back to 2014, when the price of dairy dropped by 48% over the course of 12 months due to reduced demand and increased supply, to see how quickly the situation can change. Alan Renwick is a professor of agricultural economics at New Zealand's Lincoln University. This article was republished from The Conversation under a Creative Commons Licence.
NZ Herald
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Government should cut GST on food if it's worried about butter price – Fran O'Sullivan
The Finance Minister did not need to call Hurrell in to reaffirm that global dairy prices are at a high and that this would inevitably spill over to higher farmer returns and, in turn, boost regional and finally national economies. (That's the plus side you didn't hear about before the meeting). Or that any notion of Fonterra slashing its own margins was not going to happen. They are thin when compared with the margins applied by supermarkets to dairy products, and she knows it. The upshot is that Willis did seek explanations from Hurrell over the co-operative's pricing, which she of course accepted. Within days, she was talking up Fonterra and the surging global prices on the Mike Hosking show as a plus – as indeed they are when it comes to the impact on the New Zealand economy. Hurrell subsequently made it clear his company is not moving to a two-tiered pricing system: an export price geared to global prices and a subsidised price for domestic consumers. There was more besides. It was sensible for Fonterra to shut the issue down quickly. It currently has its consumer brands business on the market. Any suggestion of a move to a two-tiered system would be a complication to that sales process or indeed an IPO of that business if that ultimately turns out to be the Fonterra board's preferred option. But while there was an element of the performative to the Beehive shenanigans, it does underline how much 'cost of living' issues are a lightning rod when it comes to sparking domestic dissatisfaction with the Government. Willis later described her meeting with Hurrell as 'constructive and engaging', underlining the fact that Fonterra does not control retail prices and that the final price is set by supermarkets, whose contracts and pricing strategies vary. This was more grist to Willis' campaign against what she claims are supermarkets profiteering at the expense of consumers. Already, she has been working to reduce the barriers to entry for other competitors. Willis has been encouraged that the Commerce Commission has taken a case against grocery giant Foodstuffs North Island and Gilmours Wholesale to court over what it believes is cartel conduct. The regulator said civil proceedings would be filed against the big grocery suppliers under the Commerce Act and Grocery Industry Competition Act (GICA). Foodstuffs 'strongly denies' any unlawful conduct. The Commerce Commission has also levelled criminal charges against retailer Noel Leeming over what it claims is a misleading price-matching promotion. The company 'firmly' maintains it had not committed an offence and would vigorously defend itself against multiple charges of misleading customers under the Fair Trading Act. Put that to one side. Prices have escalated on multiple fronts: dairy products, meat and some fruits; electricity and gas, rates, insurances. But they have decreased on others: mortgage and loan interest rates, and some fuels. There is little point in trying to jawbone prices down. In many respects, the answer lies with Willis. If she is overly concerned, she could wipe the 15% GST from particular food items. This is the case in Australia, where its 10% GST does not apply to meat, fish, produce, cheese and eggs, plain milk and cream, bread, butter and other spreads, bottled water, tea and coffee, cooking ingredients and oils, or infant formula. In Britain, most foods are zero-rated. Many European countries have reduced value-added tax rates for food, typically running at 5%-7%. Basic foods are exempted in Singapore, there is an 8% rate in Japan, and in the United States some states exempt various food items from sales tax. The upshot is that New Zealand verges on being an outlier in this area. Any changes to the GST regime would, however, have an impact on how New Zealand's tax regime is perceived as being neutral. Farmers are not the enemy. There is much to celebrate from our rural sector, which will deliver nearly $60 billion in export earnings this year. The fixation on rising prices has also overly consumed the Prime Minister, who frequently talks about 'cost of living issues'. But this is not going to be solved in the medium term. The upshot is that, short of any intervention by the Government, consumers will just have to suck it up.
