New Zealand produces enough food to feed 40 million people a year; so why do our groceries cost so much to buy here in New Zealand?
According to Statistics New Zealand our annual food prices rose by 5.9% from January 2021 to January 2022.
Some of the reasons groceries are expensive in New Zealand are; the lack of more competition in the supermarket trade (currently there is only Foodstuffs and Countdown); transportation costs for imports and the amount we export.
The Commerce Commission has just completed a market study on supermarket chains, which was released on Tuesday 8th March which estimated that Countdown (owner of Woolworths NZ) and Foodstuffs (owner of the Pak ’n Save, New World and Four Square brands) were making about $430 million a year in excess profits.
The Commerce Commission report said New Zealand had the fifth most-expensive food prices among 38 countries in the O.E.C.D.
The Commerce Commission report said the best way to keep prices down was if a third supermarket chain entered the market and provided further competition.
There are many other issues that have an impact on New Zealand’s high food prices which include; the minimum wage, biosecurity regulations, higher costs for packaging, “island logistics” and low economies of scale.
New Zealand produces enough to feed 40 million people and most gets exported. Given that those exports particularly dairy products and meat fetch higher prices overseas (many of them are at record levels), this creates pressure on the prices that we have to pay, as the price for the raw materials is the same at the farm gate, no matter where they are being sold.
As a result, global markets set the price in New Zealand, to make it profitable for local producers to sell their foods domestically.
The location of New Zealand also has an impact on grocery prices. Because we are so far away from most other production sites, the cost of importing products is high, and as the price of oil increases so do prices.
A supply shortage of ships and containers worldwide due to consumer demand since the pandemic began has driven up freight costs, with the cost of shipping goods to New Zealand increasing by 500 per cent in the past year.
All of these costs have to be included in the prices of imported goods which create upward pressure on the prices we pay.
Given our small population and consequently small market, we fail to get much benefit from economies of scale meaning that our goods often cost more to produce.
Bad weather; diseases and wars such as the one in Ukraine, all impact on global food costs. According to the Food and Agriculture Organisation of the United Nations’ food price index, the international prices of a basket of food commodities in February had reached an all-time high.
Vegetable oil prices were at an all-time high, as international palm oil prices increased due to the sustained global import demand that coincided with reduced export availabilities from Indonesia, the world’s leading palm oil exporter.
Aside from the financial pressures created by this rising demand for Palm Oil, there is also an environmental price to be paid. As the demand for Palm Oil increases there will be more area of native rainforest cut down in Malaysia & Indonesia (currently they produce 87% of the total palm oil world production) to allow planting of more palm plantations to feed this increasing demand.
Palm oil production also leads to an increase in human-wildlife conflict as populations of large animals are squeezed into increasingly isolated fragments of natural habitat. The habitats destroyed frequently contain rare and endangered species or serve as wildlife corridors between areas of genetic diversity.
Palm oil is everywhere today: in food, soap, lipstick, even newspaper ink. It’s been called the world’s most hated crop because of its association with deforestation in Southeast Asia. … The plant that makes it, the African oil palm, can produce up to 10 times more oil per hectare than soybeans.