On the Farm – So why is our food so expensive?

A recent Commerce Commission report found that the cost of food is the second largest expense for New Zealand households after mortgage or rent. On average, we spend $234 per week on groceries and many of us a whole lot more. By international comparisons, our food prices are very high – as many of us who travelled before the pandemic can attest. So, our farmers must be making a mint, right? Think again.

Before the turn of the 19th century, only a few generations ago, farmers received up to half of every dollar spent by consumers on food. Nowadays, they’re lucky to get somewhere between eight and 12 per cent, with the lion’s share going to marketing and sales (66%), and the rest to processing. So, for every plate of 10 chops, the farmer gets paid for one, and even as prices rise, farmers often get less. Bearing in mind also that out of the farmer’s meagre share, he or she is usually servicing a sizeable bank debt.

So where is the value being captured? Unsurprisingly, it is with the domination of the food chain by our supermarkets, who control the wholesale as well as retail sectors and who can and do dictate terms to our growers. The lack of any real competition makes it particularly intense here in New Zealand with only two supermarket conglomerates who carefully avoid competing on cost. Their profit margins are some of the best in the OECD with up to a 23.8 per cent return on investment, whereas elsewhere it would normally be in the range of 4.6 to 6.1 per cent. Even more difficult for our producers is that only a small fraction of the food grown here is consumed here. The vast majority of it (85-95%) goes offshore. Farmers often have even less control over the price achieved for their produce for export, as they have to sell to the exporting company.

While this situation is obviously not good for farmers, it is also not good for the rest of us either. Farmers are custodians of the land and when returns are low, they are forced to work on a “volume model” rather than a “value model” of production. It means there isn’t the time or money to address environmental concerns – the “externalities” that impact on wider society, like freshwater quality, biodiversity and climate change issues.

One of the few options left to our farmers is to try to “reclaim the middle” (by reducing their inputs, stocking rates, debt and overall costs), aiming for more of a “value model”, and by exploring opportunities for value-add local or export sales. Other countries have so far been more successful at this, but it’s fair to say that our producers are more locked-in than most. But with true Kiwi grit and can-do attitudes, we are seeing slow moves to break out, and we can all help our farmers by seeking out and paying extra for locally produced, value-add offerings – especially if direct from the farm, meaning a bigger share is returned to the farmer.