Why dairy prices are slowly creeping up
Sunday, 26 January 2025
The prices of dairy products on supermarket shelves are slowly creeping up.
The price of a 2L bottle of milk increased from $3.84 in 2023 to $4.25 in 2024.
The price rises are due to global market forces.
Paying almost $7 for a 3L bottle of milk, $10 for a block of butter and $10 for yoghurt is becoming the norm - but why have our dairy products got so expensive?
New Zealand consumer prices for dairy are bound by global forces. This week at the Global Dairy Trade auction there was a 1.4% increase across all categories.
Whole milk powder increased 5.0%, to an average of US$3988/MT, which was good news for local farmers as it impacted Fonterra’s farmgate milk price the most.
In December, Fonterra increased the farmgate milk price forecast for the 2024/25 up to $10.50 per kgMS.
Michael Harvey Rabobank senior analyst for consumer foods and dairy said since mid-2024 there had a been a strong rally in dairy prices in global markets.
“Global demand for dairy is picking up and at the same time, while global supply is improving it is not overly strong, and inventory levels are not excessive.
“Of course, the rally has been in USD terms and a weaker New Zealand dollar puts upward pressure on consumer prices also.”
This meant the price of milk, and dairy ingredients used to make dairy products, had increased and the food and beverage companies were needing to pass through some of these higher prices to consumers.
“The most notable product is cream/fat component of milk. Global bulk butter prices have been the strongest and recently reached record highs. Again, this is largely driven by market forces outside New Zealand.
“This also means the cream price has been strong and would be contributing to higher yoghurt prices.”
According to Stats NZ, the price for a 2L bottle of milk was $3.84 in December 2023 and was $4.25 in December 2024.
A 1kg block of mild cheddar had increased in price from $10.12 to $11.01, and 500g of butter had risen to $6.66 from $4.48. The price of a six pack of yoghurt was $7.69, but this was down from $7.74 the year prior. It was still the highest price in the past eleven months.
Some good news for New Zealand households is that Rabobank see a more neutral price outlook in 2025, so the upward pressure should be somewhat contained.
Westpac senior economist Michael Gordon said general inflation had also made it harder to mentally adjust for what was a reasonable price level.
“For instance, $7 today for a 3L milk would be equivalent to $5.68 five years ago. Fresh milk prices have actually risen by less than general inflation over that time,” he said.