Will butter prices come down? Fonterra says global demand is pushing it up, rules out cheaper rates for New Zealanders
Fonterra
, has defended the rising cost of butter in New Zealand, saying strong global demand drives prices and generates significant revenue for the national economy. This implies that the co-operative cannot and will not have different butter prices for local and international customers.
Speaking to the media, its chief executive, Miles Hurrell, said after a meeting with Finance Minister Nicola Willis on Tuesday, July 22, he acknowledged the pressure on households but said the price surge reflected global trends and was largely out of the company's control.
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Hurrell explained that the international market influences about 80 percent of the retail price of a block of butter. With strong demand from countries like China and others, prices for dairy fats and proteins have climbed to their highest level in more than five years.
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Fonterra exports 95 per cent of its dairy products, selling them to both domestic and international customers at largely the same price.
Hurrell ruled out creating a two-tier pricing system that would offer local consumers discounts.
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'We're not going to play the game of discounting here in New Zealand,' he said. 'Our responsibility is to support the 8500 family farms that make up our co-operative.'
He added that higher dairy prices were ultimately a 'good news story' for New Zealand's economy and aligned with government goals for economic recovery.
Why do butter costs remain high, and will they come down?
The global butter price is set by supply and demand worldwide, similar to commodities like coffee. Due to its heavy reliance on dairy exports, domestic demand has little influence in New Zealand.
Fonterra said selling butter for less domestically would mean operating at a loss or providing subsidies, which it views as unsustainable, especially when competing in international markets.
Unless there's a shift in global supply or demand, New Zealanders may have to continue paying more for this kitchen staple.
Supermarkets respond
Supermarkets say they are also feeling the pressure from global prices.
Woolworths New Zealand
said it was "working hard to keep butter prices as low as possible, for as long as possible," but acknowledged that rising wholesale prices are forcing it to adjust shelf prices.
Foodstuffs North Island, which operates PAK'nSAVE and New World, cited an analysis showing that its butter was the most affordable among major North Island retailers in May, at $8.29 for a 500-g block.
Price comparisons and cost breakdown
Fonterra said comparisons with overseas supermarket prices can be misleading due to differences in currency, product size, and tax. For example, while Australia has no GST on butter, New Zealand includes GST in its retail price.
Of the $8.60 price tag for a 500g block of butter in New Zealand, around 80 per cent goes toward global pricing, production, packaging, distribution, and retailer margins.
The remainder includes domestic supply chain costs and taxes.
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