Grains of truth on our food bills
A pandemic, a war and an ongoing climate crisis – all three are combining to send our food prices soaring. Chris Hyde explains what’s going on with your food bill.
Foodstuffs has lowered the price of some of its most popular supermarket items. Countdown’s frozen the price of hundreds of products it considers essentials.
But neither initiative will stop grocery bills from continuing to soar – the two promotions are merely a shuffling around of an inflation-driven menu malaise.
Grocery food prices were 6.4% higher in April this year than last, with rises across all the food categories measured, Stats NZ says. Fruit and vegetables were up 9.4% and meat, poultry and fish 8.1%.
It would have been even higher had fruit and vegetables not fallen 3.1% from March to April, mainly due to lower prices for broccoli, lettuce, and kiwifruit. (We’ll get back to broccoli in a moment.)
To stop their costs rising for the rest of this year the supermarket giants would likely need to end the threat of Covid-19, stop climate change, and end the war in Ukraine. All this seems unlikely.
So Foodstuffs and Countdown have tinkered, in an effort to be good corporate citizens, to get hostile politicians off their backs, and of course to get more shoppers to choose them.
To get a sense of why your food bill is so high we’ve had a look through the supermarket (main aisle by main aisle).
Fruit and vegetables
Fresh fruit and vegetables are the most volatile part of the whole building to price shocks. We’ve all seen limes that cost $59 a kg and cauliflowers for $13. Then again, in 2021 tomatoes were 9c/kg at one point.
ASB chief economist Nick Tuffley says the weather plays a larger role in produce prices than people realise. Quality and quantities of crops can vary hugely depending on how dry it is, whether frost hits at the wrong time, and whether a hailstorm has rolled through.
Higher prices for fresh fruit and veges over the past year point to how bad the weather has been for growing, he says.
Everyone knows not to buy out of season, but Covid-19 also kick-started a labour crisis that meant even in-season produce wasn’t making it to supermarket shelves.
After Covid closed the borders, it was a struggle getting seasonal workers from normal and lower-income sources, such as backpackers. ‘‘You’ve either had constraints on how much stuff has been able to be picked, or the cost of picking and harvesting has been much higher.’’
Some good news here. John Murphy, grower and chair of Vegetables New Zealand, said this week that better growing conditions were likely, after a challenging April that included damage from Cyclone Fili in eastern regions.
Given broccoli’s astonishing annual rise of 80% has already slowed to just 28%, that’s (some) good news for winter cooking.
Meat and dairy
The fridge section of the supermarket arguably riles people more than any other. We produce abundant meat and dairy, so why isn’t it cheaper?
Beef mince is now $18.17/kg on average, up 13.4% on April
last year. Cheese is up 18.3% in a year and milk 8.5%.
Investigations that show the same block of cheese selling for almost half the price in Australia and off-the-charts butter prices generate a firestorm of frustration, though these are at the extreme end of the scale.
Meat and dairy are our big exports – 95% of our dairy is sold internationally – and Tuffley says both of their prices will always be linked to what we can sell them for overseas.
Global dairy prices were lower this week for the first time in a long time, but they remain very high.
Meat is at middling prices internationally, but it has heated up slightly recently as restaurants open up in the wake of the Omicron wave, Tuffley says.
‘‘We’re in a period now where dairy prices have gone up quite substantially in New Zealand dollar teams. You don’t necessarily get that filtering through immediately into your retail prices; the actual cost of the underlying product is just one part of the overall retail cost of it, but it’s obviously going to be a heavy influence.’’
Covid disruption has also played a part in the meat market – with so many meat workers off sick due to Omicron it is a challenge to even process all of it.
The grain aisle: Bread, cereals and a whole heap of influence
Russia and Ukraine are locked in conflict. No-one is buying grain from Russia because it doesn’t want to be seen to be encouraging its leader’s war.
No-one is buying grain from Ukraine either, because farmers are now fighters and port workers are more preoccupied with sinking Russian ships than trying to get grain on to an export vessel.
That means 30% of global grain exports are effectively rotting or being destroyed by bombs.
Tuffley says it is understandable that this would result in upward pressure on all sorts of grains, from wheat to maize and especially corn and barley.
‘‘It comes through in prices of imported grain-related products. We do grow some wheat and corn . . . and we do also import from Australia.
‘‘It will take a little bit of time to filter through in the New Zealand context, and it’s not going to be a huge part of our overall food costs, but bread and Weet-bix and baked goods – it can start to have an impact on that.’’
Sure enough, the cost of bread has increased 15.3% in the past 12 months.
There’s also the cost of grain that is used to feed animals.
‘‘Around the world feed prices are going up because of grain shortages,’’ says Poultry Industry Association executive director Michael Brooks. ‘‘Feed is 60 to 70% of the cost of producing an egg and the cost of producing a meat chicken, so as those prices go up, the price pressures come on enormously.’’
The other aisles, and the other things driving up costs
At the checkout the person serving you will most likely be getting paid a decent amount more than they were a year ago. That gets added on to your receipt in some way.
‘‘Wage costs are rising quite rapidly and for a couple of reasons,’’ Tuffley says. ‘‘The minimum wage has increased very sharply in a relatively short space of time, irrespective of whether there’s any productivity gains from doing that.
‘‘So you’ve got a lot more labour costs coming through, and then you have a very tight labour market so that’s putting added pressure on supermarkets, distributors, and anybody in that whole chain, right through from the people picking, to the processing and the manufacturing and the distribution of it.’’
Then there’s the rising cost of oil, as the world is spooked by Russia – a big global oil player – and its actions in Ukraine. ‘‘You’ve got that creeping through higher transport costs through fuel price, though they’re not a big part of it domestically,’’ Tuffley says.
‘‘But it affects even sort of small things like, say, those who are using petroleumbased plastics for packaging who are now facing added costs for that – it’s all potentially relevant.’’
Prices in the international import aisles – think rice, raisins, bananas (up 7.4% in a year) and myriad other items – are also badly affected by the global shipping system being upended by Covid19 disruptions, he says.
‘‘And that’s before you factor in that any food supply businesses that borrow money are also facing increases in costs
. . . as a result of interest rates going up.
‘‘Things like local authority rates tend to go up fairly fast relative to overall inflation as well, so those things at the margins matter, too.’’
Budget blowout: How could the Government lower food prices?
All eyes should now turn to next week’s Budget. Will the Government do anything to ease shoppers’ pain?
It’s not an easy problem to solve overnight, but there are options available, Tuffley says. Allowing seasonal labour from overseas to come in quickly and easily is an obvious one.
To return to paying relatively low wages to seasonal workers would be controversial after previous seasons of relatively high wages for them.
‘‘We just have to be reminded if we’re very comfortable with there being much higher wages in that sector that one of the flow-on effects will be some impact on food costs.’’
The Government could also see if there was any regulatory red tape that might be contributing to higher food costs, Tuffley says. This is also controversial. No-one wants food safety regulations to be cut and people getting sick as a result.
Then there’s the myriad regulations being put in place to stop agriculture from warming the climate and polluting rivers, which would not be easily wound back either.
The Government could remove animal welfare regulations, such as incoming caged hen bans that will increase costs for many egg producers, but these would face their own unique forms of backlash.
Tuffley says another option is to lower taxes – the most commonly proposed in this space is removing GST from some or all food. But that would start to make it a lot more complex to manage what is currently a very simple GST system.
Instead of trying to find ways to lower the cost of groceries, the Government could look at supporting people on lower incomes more, he says.
What it cannot do is force supermarkets to keep food prices low for them. Interestingly, Malaysia has opted for this recently, setting the wholesale price of rice and some meats itself.
‘‘If all you needed to do was mandate a price ceiling, we would have tried that a long time ago,’’ Tuffley says. ‘‘It doesn’t work. If you put a ceiling on the cost of something like food with a natural degree of scarcity, all you will get is a lot of farmers or growers saying, ‘If I get $1 for it, and it’s costing me $1.20 to make it, then it’s probably best if I don’t make it.’ ’’