The rise and fall of food prices: what's cheaper, dearer and why it all matters

Friday, 6 August 2021

Auckland City Missioner Helen Robinson says food parcels continue to fly out the door as food becomes the only flexible part of many people’s budgets.

Food banks are the canary in the coal mine when it comes to rising food costs.

At the Auckland City Mission, 48,000 food parcels were given to 17,000 families in the last financial year – double the number before Covid.

Over half of these families were coming in for the first time.

One could blame rising food prices, but Helen Robinson, the city missioner, says she does not think they tell the whole story.

“I think to look at the drivers of food insecurity, we've got to look at income,” she says.

“If a standard salary is $100 but $90 is actually going towards housing, it's almost irrelevant what you're getting in.”

But she says it's galling when New Zealand produces so much food.

Commerce Commission chairwoman Anna Rawlings presents the commission's draft report into the grocery sector in July.

“It's outrageous, upsetting, horrifying. It makes me both sad and angry. It doesn't have to be this way.”

How much are we spending on food?

The recent Commerce Commission report on supermarkets has reinforced a gut feel that people have been spending more than they should be on food.

It noted New Zealand had the sixth-most expensive grocery market in the OECD in 2017 and the level of profit being made by supermarkets was “consistently high”.

And Statistics NZ data shows prices have indeed been rising. In the last 10 years, between June 2011 and June 2021, the food price index has climbed 11 per cent, below inflation at 15 per cent.

But if you were to look more recently, prices have been creeping up, rising 2.5 per cent in the last three years.

Another way of gauging our spending on food is the proportion it takes of our income.

Everyone spends their money differently but in 2019, New Zealanders put about 17 per cent on average of their weekly household income into food, a ratio which hasn't changed for at least a decade.

Up to 15 per cent of all supermarket goods are thought to be private labels.

In monetary terms, that’s about $234 a week on food, a little more than transport ($216) and cheaper than housing and utilities ($344).

Proportionately, the Kiwi food budget is well within guidelines which suggest spending more than a quarter of your disposable income on food is creeping into “food stress” territory.

Compare that to other countries. According to the World Economic Forum, the US spends about 6.4 per cent of its household income on food.

In poorer countries, food takes up a much bigger proportion of one’s income – in Nigeria’s case, 56.4 per cent.

Richard Archer says meat and three veges used to be the dream for Kiwis – now, not so much.

This doesn’t mean food is more expensive in Nigeria. It just means they have less income to spend on anything else.

That helps explain the queues at food banks back in New Zealand. A paper in 2010 by Wellington Regional Public Health calculated that a basic healthy diet would take a huge chunk of a low income family’s income – somewhere between 42 to 75 per cent, after rent was deducted.

Our changing tastes

Bad luck broccoli lovers, it got more expensive.

Changing tastes can also have an influence on how much our food bill changes.

Pre-Covid, just under a quarter of the food budget was on fruit, vegetables, meat, poultry and fish. But increasingly Kiwis are spending less on home-made meals.

Between 2007 and 2019, the restaurants and takeaways portion of the average weekly household food spend grew to 29 per cent, while fruit and veges slipped to 10.1 per cent.

Infometrics economist Brad Olsen says eating out is still only about 5 per cent of overall income but the convenience is catching on.

A growing taste for exotic meals like this baked chicken schnitzel has seen the poultry industry take off.

“It's more expensive to eat out, but it used to be so much cheaper to eat at home, whereas now it’s not as much of a stretch.”

But while little luxuries may have been doable because of low inflation, economists are warning that’s about to change.

Food prices are pegged to rise further, thanks to Covid-related inflation. In the last year, food prices have already gone up 2.8 per cent, led by fruit and vegetables.

Researchers Berl note that the pandemic has definitely played its part in this, with freight costs for imports rising significantly and a shortage of horticultural workers in the country.

Canned food was a luxury 100 years ago, along with imported goods. Now the rich want fresh, local food and the poor are eating imports, Richard Archer says.

Another influence on food prices is whether a food suddenly gains popularity and becomes either readily accessible or scarce.

Take poultry, which has fallen 11 per cent on the food price index in the last 10 years.

In the 70s chicken was a rarity for many families. Instead they tended to dine on red meat and three vegetables, a hangover from colonial times.

Red meat is less of a Kiwi household staple after domestic prices started following export prices.

“We think of it as pretty stodgy and boring now but we were founded by people for whom it was the dream,” says Richard Archer, a professor of food technology at Massey University.

However, as poultry started being bred at scale for meat as well as eggs, it became a popular alternative to increasingly expensive red meat.

Fish is another commodity that has changed with the times. Once it was a much larger part of most people's diets, and certainly in Maori-Pacific diets.

But fish has become increasingly expensive. The weighted average monthly price for 1kg of fresh fish has risen 32.7 per cent in the last decade.

Export prices seem to be the culprit. Sanford, one of our largest fishing companies, says fish stocks are generally plentiful but 60 per cent of its fish is exported.

The remaining 40 per cent is sold to the local market, largely to Foodstuffs.

The export factor

So what happened to red meat? Unlike chicken, red meat consumption has fallen dramatically at the same time prices rose.

Export prices have been blamed for setting red meat prices at home. In the last decade, mutton has risen 12.3 per cent on the food price index, and beef and veal prices have soared 31.9 per cent.

A 1kg of beef mince has climbed from $12.05 in June 2011 to $16.03 in June this year, well above the overall rate of food inflation.

Had it just followed that rate, it would have been $13.39.

Supermarket profits are much higher than international counterparts, the Commerce Commission found.

Likewise, a kilogram of lamb chops has risen from $15.60 to $18.65, instead of $17.33 if it had followed the inflationary curve.

Archer says you can't really blame exporters for going offshore to get the highest returns.

“It takes more work to sell a branded product through the local market than it does to export it in a full container load.”

However, some foods have fared better over the last decade.

Two litres of standard milk has stayed largely flat over the last 12 years, down 2c to $3.66, well below general food inflation, which would have pushed it to $4.09.

A kilogram of mild cheese has, surprisingly, also been a bit of a bargain, easing from $10.97 in 2011 to $10.85 now, instead of increasing to $12.19.

“Obesity is just one form of malnutrition,” says Elaine Rush.

A 600g loaf of white bread bought for $1.76 in 2011 is now $1.32, instead of $1.96.

Overseas experience

But falling prices on some items doesn’t mean New Zealand’s grocery prices are internationally competitive. In fact, few people believe they are.

While country comparisons are difficult to make, the Commerce Commissions’ new market study concluded that New Zealand's grocery spending was the sixth highest in the developed world.

However, other figures show we also have less disposable household income than the average OECD country – about US$25,074 per person compared to US$33,604.

Two explanations commonly given for New Zealand's prices are that it is a small market and a long, skinny island nation, which makes importing and distribution expensive.

But the commission said lack of competition was also at play, noting “persistently high profits being earned by the major retailers and high grocery prices when compared internationally”.

The market dominance of Woolworth NZ and Foodstuffs weighed heavily and despite an “increasingly diverse fringe of other grocery retailers, they have a limited impact on competition”.

Why food prices matter

Rising food prices matter because apart from putting a dent in our wallets, they have implications for our nation’s health.

The Child Poverty Action Group has calculated that 18,000 Kiwi children may have been pushed into poverty last year because of increasing housing and food costs.

As a result, cheap low quality food is often the default.

“Obesity is just one form of malnutrition,” AUT nutrition professor Elaine Rush says. “Calories are very cheap.”

She would like to see an intervention, possibly more tax on the producers of unhealthy foods or the supermarkets themselves.

She also believes there needs to be a long hard look at New Zealand's food supply, including the soils we use and the food we import.

“The farms in New Zealand should be the main source of New Zealanders’ food. We have a tremendous amount of imported food as well, and we need to look at that carefully … a lot of the foods that are imported, even soft drinks, are cheap but not good for us.”

But Archer says our food production reflects what we're best suited for.

“New Zealand makes protein-based foods which tend to be expensive anyway. We don't make much in the way of carbohydrate-based foods.

“We import oils, sugar, we don't have huge amounts of flat area. We have the highest yielding wheat paddock in the world but we don't have those millions of square kilometres that Australia or the United States or the Ukraine has.”

The irony, says Archer, is mass production has made some things that were once considered luxuries everyday.

Canned and imported foods were once only for the rich, but in many cases are now the food of the poor, while fresh and local command premium prices.

Cheap rubbishy foods that were once treats give processed foods a bad name, he says.

“It is food processing which lets us live to 80 years old now – preservation of foods from times and places of plenty to be consumed anytime, anywhere – preservation with minimal loss of nutrient.

“We have learned really well how to do that. But we also make delicious ice-cream very cheaply. Consumer choice is where the peril lies, and at the point of purchase.”