Low incomes not high prices still the problem

Fonterra agreed to freeze the price of milk for the rest of the year but other dairy products are getting more expensive:

The price of cheese and yoghurt could be on the way up at a supermarket near you.

Cafe owners supplied by dairy processor Goodman Fielder have received word the price they pay for some dairy products will go up from next Monday.

Some say that’s a result of Fonterra’s freeze on milk prices, and the same could happen in supermarkets.

Fonterra CEO Andrew Ferrier was interviewed about this on Campbell Live last night. He said the company’s profit margin on milk was around 12%:

“All we do is run a milk price which converts the world market price to the New Zealand equivalent,” . . .

Mr Ferrier says it is the distributors who set the price consumers pay in the supermarket.

“Ultimately it’s the distributors who are buying product – whether you are in a dairy or a supermarket – who will set pricing polices as they see fit.

“They buy from us and they have there own pricing policies.”

He reiterates that Fonterra is not pointing the finger at supermarkets, saying price structures are often very complex.

“I’ve been in business a long time, the last thing you do is try to put important customers in a difficult situation – and I won’t.”

I have no doubt that price structures are complex but how often do you see milk, cheese or yoghurt on special?

What about other basic foods – meat, eggs, bread, fruit and vegetables?

Is it my imagination or are non-staple foods and grocery items on special much more often than the staples, most of which are produced domestically if not locally?

Regardless of the answer to that question, higher prices for goods we export are good for the country. Producers are already benefitting from better returns and that will filter through the economy. Unfortunately the higher prices are filtering through first which makes it difficult for people on limited budgets.

But the problem of affordability is not high prices it’s low wages and better prices for exports is one of the best ways to improve them.

9 Responses to Low incomes not high prices still the problem

  1. mort says:

    how is it that I can buy NZ packed UHT milk at ALDI supermarket in Hervey Bay (pop 60k; roughly equivalent to small city status in NZ) in Australia for 99c a carton (NZD~$1.26)? The cheapest I can get a litle here for is $1.65.
    Have Fonterra been able to explain this differential?


  2. homepaddock says:

    Mort – I think the answer to your question lies with what happens after the milk leaves Fonterra ie the wholesaler and retailer.


  3. gravedodger says:

    What bit about busines practice under unfettered trade rules do the dumbarse air heads fail to understand. Oh thats right they are the very same people who talk about “free education” and tooth fairies aren’t they.
    Get Fonterra to cut the wholesale prices of the product lines,ie pay the producers less, cut the wholesale prices, ie use a government subsidy, or pay the subsidy to the retailer then enterprising people can take tonnes of product to high priced markets and reap profits.
    What part of economic theory that the “CAP” produced as unintended consequences do these muppets miss.
    Why not accept we enjoy leading world class quality dairy produce without worrying about contamination, disease, dilution problems that arise in many other markets.
    Yes it is very hurtful to be leaving many specialty cheeses and other milk based products in the chiller because of the price but I am old enough to remember the grocer cutting a lump of chedder ( the only cheese available at the shop) off the block with his cheese wire and eating home made butter. Margarine was a product our pommy rels had to eat as a spread.


  4. mort says:

    my point is the mark up in NZ must be higher than that demanded from their Australian distribution chain. Is it unreasonable to assume that distribution costs for the NZ market to cities of 60k+ population would be less than getting it into a city 3.5hrs north of Brisbane?
    Yes its ALDI and they have a you can 1 choice in our range of stock, but we’ll sell it to you cheaply. The corresponding product in Coles and Woolworths were AUD1.06 and 1.08 respectively, while fresh milk was sold at $AU1/L. Stories are coming out there that the producers are being contracted for lower rates, but Coles themselves say that they are minimising markups to getthe product to market as cheaply as possible.


  5. homepaddock says:

    GD – it’s not that long ago that margarine was only available on prescription here.

    Mort – You’re right about the mark up difference. There’s been (still is?) a supermarket war in Australia with milk selling for a lot less than it costs.


  6. Cadwallader says:

    Milk in Australian supermarkets is discounted as a brand leader to entice customers in. NZers ought be prepared to pay a top price for a top product.


  7. david winter says:

    The thing is, if we accept the point that it’s low incomes that we should be worrying about, what are we meant to make of a government that was elected on a promise of ‘closing the gap’ to Australia and has failed, and a finance minister who seems to think low wages are now a structural part of our economy?


  8. homepaddock says:

    Unprecedented financial and natural disasters combined with the mess the last government left means turning the economy around is taking longer than anticipated, but there is some progress.

    I don’t think Bill said low wages are a structural part of the economy – just that they’re lower than in Australia at the moment. That could make NZ more attractive for investment which would create jobs leading to economic growth and higher wages.


  9. david winter says:

    Yes, I’m sure that will be the spin. I’d just like to see some evidence.


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