Are soaring food prices the new normal?

Sunday, 5 October 2025

Food prices are continuing to rocket up, even while inflation and interest rates drop.

An investigation by the Sunday Star-Times has found food prices increased every month for the last 14 months.

Experts say get used to it.

Items we used to consider staples in our shopping cart - like milk, cheese and butter - are causing the most pain; according to Stats NZ they contributed the most to the annual increase in food prices in August.

The cost of milk was $4.72 per 2L, in August, up 16.3% annually, cheese was $12.89 per kilogram, up 26.2% annually, and butter was $8.58 per 500g, up 31.8%. annually.

The price of milk has increased by 88 cents since December.

Meat is also more expensive with beef, lamb, poultry and fish up an average of 8.1% in the year to August.

The price of beef mince - which is typically the more affordable cut of meat - is up by more than $3.40 a kg in the past year.

That is far ahead of New Zealand’s official inflation rate of just 2.7%.

Stats NZ’s Nicola Growden, unit manager of prices and deflators — effectively the head of the Consumer Price Index — says food price increases were growing larger month by month.

Food prices were up by just above 2% in January and now up 5% annually, she said.

“It's the highest [increase] we've had since December 23, when that was 4.8%. In the period immediately after Covid, back when annual inflation for the CPI was just over 7%, food prices did get up to 12.5% as an annual increase,” she says.

But as far as increases in a normal, unrestricted period go, this is the highest.

So why are food price rises still outpacing general inflation?

One reason is higher overseas prices for New Zealand dairy exports. Additional factors, like rising costs for ingredients, manufacturing and production, are also at play.

Alan Renwick, Lincoln University professor of agricultural economics, says New Zealand food prices are largely determined by commodity prices paid on the world market, and the discretion of supermarkets and their suppliers. Although which has the greatest influence is hard to say.

Renwick told the Sunday Star-Times the country is in what the industry calls a commodity cycle - with high commodity prices being driven by global supply and demand conditions; namely strong demand and not so great supply.

This is impacting the cost of foods from all groups, including locally-grown fruits and vegetables.

“We have very high prices for beef and lamb at the moment because of shortages on the world market, and because strong demands have not been met by supply in countries such as the US, that's really pushing up prices,” says Renwick.

“Those commodity prices feed into broader food items, if they're made up of these ingredients, even if it's not such a high proportion of the final price, that will be feeding through into it.”

New Zealand food producers operate in a global market and, because more than 80% of the food the country produces is exported, what consumers pay domestically is determined by what producers can get off shore.

Renwick calls food prices “sticky” because once they go up they never really come down fully.

“They tend to go up faster than they come down… that might be something to do with market structures,” he says, referring to the supermarkets’ duopoly power.

“There can be periods where even if the commodity prices are softening, we might not be feeling that at the consumer side.”

The last time food prices decreased was in June last year, when they fell 0.3%. That was the only fall recorded in six years, and they have been on the rise ever since.

The latest electronic card transactions data from Stats NZ shows spending on consumables and food increased by $7.1 million or 0.3% in August.

Even when products experience a price spike - such as olive oil, which hit record highs earlier this year - they rarely return to what they were.

The olive oil price surge was fuelled by supply issues, as Spain — the world’s largest producer — endured two consecutive years of drought, severely impacting olive harvests and causing a shortage of oil.

In January the average retail price for olive oil reached $22.49 per litre compared to $15.59 in January 2024. The price has since increased to $23.03 per litre in August, according to Stats NZ, though some advertised specials are lower.

Chocolate prices also rose due to weather-related crop disruptions around the world, though not to the same extent as olive oil.

Renwick says price increases - and any decreases - take a while to feed through to what consumers pay at the supermarket.

“Nothing cures high prices like high prices” — as costs rise, demand slows and supply eventually catches up. But even when prices begin to fall, it can take two to six months for those changes to filter through the supply chain and reach consumers.

“For example, even though dairy prices have been easing a bit recently, it's still going to take a while for us to get the benefit of that.”

Tariff impacts

Renwick believes a reduction in our beef and dairy prices in supermarkets could be on the horizon, due to the Trump tariffs that have caused uncertainty in our food system.

“If that begins to put pressure on our trade into the US, then we may have more of a domestic surplus.”

If that couldn’t be exported to China or other countries “that will push down our prices as well”, he says.

New Zealand is a major food exporter, operating quite differently from countries that consume around 90% of what they produce. Here, we consume just 5–10% of our output and export the rest — the reverse of most OECD nations.

Because New Zealand food prices are closely tied to world markets, international supply and demand pressures flow directly into domestic prices. When global prices are high — as they are now — local firms won’t sell for less at home than they can fetch overseas.

If a producer can get a higher price in another country for their product, they are not going to mark it down in New Zealand, says Renwick.

He argues that while that may not be good for local consumers, it is good for producers. “If you wanted them to subsidise domestically, then in effect they're then lowering the price that our producers get, which can impact on the returns, the contribution to GDP and the economy. These high beef and sheep prices and dairy prices are at least helping that important sector in our economy, even if consumers are feeling the pinch of it.”

The supermarkets’ role

Are supermarket prices driven by the retail duopoly, or do they reflect deeper factors — like the prices set by suppliers and producers themselves?

Renwick says there is no clear-cut answer.

“We don't have a huge amount of competition in our supermarket chain … there's no incentive for them to compete on price, to push prices down.

“Nothing has changed in the structure of our supermarkets, but we still have food price inflation, which I think is more driven by this global situation and the higher commodity prices.”

That said, sticky prices — where costs remain high even as market conditions shift — can only occur when firms have market power. Without it, prices would typically fall as quickly as they rise, says Renwick.

While broader factors are at play, supermarkets still wield significant pricing power — especially when two companies control 80% of New Zealand’s $25 billion grocery market.

“The difficulty, and key thing when they have market power, is the lack of transparency about where the margin is made in the chain. We know what producers get for milk for example, and we know what we pay for milk in the supermarket, but what's more opaque is where the margins are met between the two. It could be partly the processes and suppliers, and it can be the retailers but those are commercial relationships so we don't know.”

Companies have said in the past that 80% of price increases are driven by commodity prices, but that is not clear if it can be applicable to all goods.

“We do have higher general food prices than most equivalent OECD countries, but part of that can be because we are at the end of the world with a low population density and, our islands are cut in two by water, so there are obviously higher distribution costs in New Zealand as well to consider.”

In countries where there are more supermarkets and, therefore, more competition, prices are more competitive, Renwick says.

What the supermarkets say

Foodstuffs NZ managing director Chris Quin says there has been “added upward pressure” on food prices, including on fruit and vegetables, due to supply shortages, as well as the effects of a colder, wetter June and July.

'This winter has certainly knocked the leafy greens and brassicas around, with green cabbages the priciest they’ve been in years, even rivalling cauliflower at up to $8. Our produce specialists say they’re all now growing more quickly as the soil warms up and light levels increase.'

Quin says the price of some goods fell in August, including orange kumara and green kiwifruit, down 15% and 12%, and canned tuna which fell 10% in price, and olive oil prices were also falling due to rebounded supply in Europe.

'It’s the kind of correction we’d hope to see with dairy and meat as farmers worldwide respond to the current shortfall, bearing in mind it takes about two years to rebuild cattle stocks,' says Quin.

“We’ve now seen the Global Dairy Trade butter price fall - 13% since its peak in May … we’d expect to see cost falls from suppliers in due course, so retail prices can follow suit.'

Quin says Foodstuffs stores were intentionally making a loss on Pams butter in August, as 'part of the co-op's commitment to making butter as affordable and accessible as possible'.

A spokesperson added that, year-on-year, its supplier costs for goods in the FPI basket rose 5.5% in August, the highest since January 2024, and reiterated that grocery costs were shaped by global commodity, oil, shipping and packaging costs, and local factors like weather, wages, and regulations.

They said the main factors driving prices up were global prices for dairy and meat; a tough winter for local growers which pushed products like broccoli up 76%. Packaging and shipping costs were also high.

“Supplier costs and GST make up around 80c of every retail dollar, while only around 4c is our net profit after taxes and business costs,” they said.

A spokesperson for Woolworths NZ says the supermarket operator was “invested in keeping prices on key products as low as possible for as long as possible” for its customers.

“We are a small, exporting country that’s buffeted by international dynamics, and while the rising of some prices (like dairy and beef) are good news for our farmers, it’s no secret that this has a knock-on effect for kiwi households.”

Entrepreneur and anti-monopolist Tex Edwards says rebates are also a factor when it comes to commodity goods and the prices paid at the supermarkets.

He describes it as a complex issue, saying price is shaped by multiple factors — including international market trends, competitive pressures, market power, and regulations around food, health and safety, and innovation. He added that consolidation of demand plays a key role in driving down prices, citing Costco as a prime example.

He believes the high prices paid at the supermarket are a direct result of having a duopoly grocery market, and that the only way to bring down food prices is to establish a third operator with just as big a distribution network.

But it could take years. , he says. “You have to create a third distribution ecosystem.”

“They've [the supermarkets] got pricing power because they've got market power.

“[We] need to break up the supermarket monopoly and split up the distribution centres.”

Edwards says an overbuild of supermarkets over the past 20 years, has contributed to the issue, and left no space for other competitors - international or local - to set up shop.

“There's no business case to set up a new one.”