New Zealand consumers are unhappy with their grocery bills and the supermarkets are quick to point to the export markets to justify higher food prices.
But, are export prices and NZ retail prices really that closely aligned? We will take a look at that in a moment.
First, it is important to note that food price inflation is not strictly a NZ problem, or limited to meat prices.
Pent up global demand caused by the reopening of foodservices, hotels and restaurants is driving strong competition for food. The FAO global food price index has been climbing for the past 12 months.
AgriHQ subscribers will also recall that food price inflation led Argentina to temporarily limit their own beef exports in an attempt to control domestic pricing. And, since a few armchair economists are suggesting a similar tactic for controlling NZ prices, it is worth pointing out that the last time Argentina throttled its beef exports it led to a substantial reduction in the nation’s beef production and prices ultimately rose even higher.
In light of the growing frustrations, AgriHQ took a look at the local trade market this week, focusing on beef prices, since this is the main fare of the domestic red-meat market. The domestic market consumes roughly 13% of total NZ beef production, in contrast to around 6% for sheepmeat.
If we look at retail prices for beef mince, courtesy of StatsNZ, we can see that mince prices first climbed beyond $16/kg in late 2019. This was in response to a very strong Chinese beef export market, which correspondingly pushed up NZ cattle prices. However, when covid-19 very quickly knocked the wheels off the export market in early 2020, retail prices held their ground.
One could argue that the supermarkets may have had more costs to cover while NZ was socially distancing through the middle of 2020. However, the $16/kg-plus mince price persisted beyond this period and held steady when shipping issues strangled the export market and an oversupply of prime animals brought about the lowest cattle prices in six years.
The gap between export values and the NZ retail prices for beef grew to record levels, but has been narrowing since the start of 2021, as the easing of lockdowns overseas have rejuvenated the export beef prices. Since then, NZ retailers appear to have stuck to the $16/kg mince price rather than following the export price upward.
It would seem that margins remain good at this level and/or the retailers have recognised that further price lifts would not be accepted by their customers. Some of the misdirected anger that farmers have been coping from angry shoppers would support the latter.
Further price lifts would also be unpalatable for the Commerce Commission, which has released a report pointing to a lack of competition amongst NZ supermarkets.
Poor competition is a likely driver behind this uncoupling of retail and export prices.
The commission isn’t the only player taking a shot at supermarket margins, however. American food giant Costco intends to open a store in Auckland next year.
While Costco runs a slightly different model to the average supermarket by focusing on bulk buying, the extra competition could give the local supermarket prices a bit of a tickle up.
