Our Opinion – Why is our food so expensive?

With grocery prices again an election issue, political parties are lining up with solutions.

National wants to investigate splitting Pak’nSave from New World and Four Square. Labour wants independent wholesale operations and laws against price gouging. NZ First also wants to break up the supermarket duopoly and tougher action from the Commerce Commission, while the Greens propose a publicly owned supermarket chain. ACT proposes removing barriers that make it difficult for new supermarkets to enter the market.

There is good reason for more competition. Foodstuffs and Woolworths still control 82 per cent of the grocery market, but perhaps the question isn’t why supermarkets charge what they do, but why is our food so expensive in the first place?

Unfortunately there is no single answer, which is why there is no single solution.

New Zealand may be a dairy-producing powerhouse, but we don’t seem to benefit with dairy products often retailing for more here than overseas. This is partly because Fonterra’s Farmgate Milk Price is tied to a basket of global prices for dairy products, which have remained high for the past five years. 

Meat faces a similar pressure with the domestic price of livestock and meat reflecting export opportunities as well as local demand. 

Eggs tell a different story. Their price is affected by feed, labour and energy, but also by the cost of production systems. Conventional battery cages have been phased out, while barn, free-range and organic production generally require more space, infrastructure and labour. 

Fruit and vegetables are vulnerable to weather, labour shortages, fertiliser costs and crop failures. They also have to be harvested, graded, packed, stored and transported, while retailers have to allow for fresh produce that deteriorates before it can be sold. 

Across  all these products sits another increasingly significant expense – transport. Food has to travel from farm to processor, to distribution centres and finally to the supermarket. The conflict in the Middle East continues to drive up petrol and diesel prices, which then works its way through the supply chain.

Only after all of that do we reach the supermarket, where property, wages, refrigeration, distribution, waste and profit margins are added. New Zealand’s concentrated supermarket market undoubtedly affects competition at this stage, and finally, GST is added to almost every item in the trolley.

So supermarket reform may help with more genuine competition putting downward pressure on retail margins and improving the position of suppliers and independent grocers. But it cannot change commodity pricing, the weather, feed costs, welfare standards, energy prices, processing costs, our small population or open the Strait of Hormuz. 

It comes back to an issue New Zealand repeatedly confronts, that real structural change requires more than quick policy fixes before an election, instead it requires cross-party agreement on the problems themselves and long-term solutions designed to address their underlying causes.