As consumer prices begin a new spiral sparked by war and an energy crisis, there are three key thoughts about nationwide food prices to consider as New Zealanders struggle to meet the cost of weekly food bills.
We pay export market prices on locally-produced foods, including dairy, meat, fruit and fish;
We pay 15 percent GST (Goods and Services Tax) on all locally produced foods;
We are faced by the market control of the Supermarket Duopoly. Two companies which dominate all sectors from suppliers to buyers.
There is a fourth issue, set to dominate food price changes over next few months: the impact of rocketing fuel prices, higher food prices and food chain disruption costs arising from the Iran-Israel/U.S. conflict.
First: Global commodities (like dairy, meat, fruit, fish) sell overseas for top dollar. That means the local market must match those prices to keep food on domestic supermarket shelves.
Thus, the overseas price becomes the benchmark for local retailers.
Because New Zealand is a major net exporter of food, local prices are tethered to international commodity markets. If global demand spikes, local prices follow suit.
Why, farmers ask, if we can get better prices offshore, should we sell locally at lower prices?
Why, when land prices are so high, should we lower domestic prices while seeing farm debt continue to increase?
This is called the “Export Parity Floor.” If a farmer can sell a cut of meat or a dairy product to an international buyer for more, they will not sell it locally for less, unless they are required to.
Second: in New Zealand, 15% GST is applied to everything, including all food. No exceptions.
In Australia, basic unprocessed grocery staples like meat, fresh fruit, vegetables, milk and bread, are GST-free.
The non-GST taxed foods include: fresh fruit and vegetables; raw meat (beef, lamb, chicken) and seafood; dairy (milk, cream, butter, cheese, yoghurt); bakery products (bread loaves and rolls, flat breads); pantry staples (flour, rice, oats, pasta, sugar, salt and cooking oils); spreads (honey, jam, peanut butter, Vegemite); baby food (infant formula, prepared baby meals); beverages (plain bottled water, tea, coffee, 100% fruit juice).
Third: In New Zealand (and Australia) the grocery market is dominated by the “Supermarket Duopoly,” which has collared a strong concentration of market power that allows it to dictate to suppliers, dictate local prices, mark-ups and promotions, and in some cases dictate even land prices in retail-zoned areas, including land banking sites to prevent competition.
Here the duopoly is Woolworths and Foodstuffs, across the Tasman it’s Woolworths and Coles.
The problem the New Zealand duopoly poses is currently unchallenged: government has not proposed changes which offer short-term or even mid-term solutions to their market control.
“Long-term structural reform has done little to meaningfully reduce supermarket pricing pressure, and with cost-of-living concerns continuing, households remain exposed to pricing that may be difficult to justify,” Consumer NZ head of research and advocacy Gemma Rasmussen said in March.
Shoppers are “continually” affected by unfair or excessive pricing and “don’t have time to wait for long-term structural changes to be implemented and take effect.”
Some economists already predict higher food prices caused by the Iran conflict will begin to appear on grocery shelves about now, while inflation will remain above 3 percent for the rest of the year.
Australia, meantime, has stepped into the grocery playing field with major new pricing-gouging fines, tens of millions of dollars of fresh regulator funding and significant controls on monopoly activity from 1 July.
Fines, funds and laws to control gougers
While New Zealand struggles over how to better control this country’s grocery duopoly, new Australian price-gouging laws will see their duopoly Woolworths and Coles facing stiff government actions.
These include new rules as well as massive fines which include “stacked” sanctions, or rising levels of fines. From next month, new Australian price-gouging laws could see Woolworths and Coles facing the greater of:
- an AUD $10m (NZD $12.2m) fine; or: three times the value of the benefit derived by a price-gouging incident or: 10 percent of company turnover for the past 12 months;
- The Australian Competition and Consumer Commission (ACCC) will police the new “excessive pricing” regime;
- Government is increasing ACCC funding by A$30m ($NZ37m) to address “harmful or misleading conduct” in the supermarket and retail sectors.
It is also:
- Implementing ACCC recommendations to improve transparency of prices, price trends, promotions and loyalty programmes;
- Funding CHOICE (the consumer body) to give shoppers more supermarket price information;
- Ensuring ACCC is notified of supermarket acquisitions by Woolworths and Coles and can scrutinise land acquisitions under reforms to merger laws;
- Making it easier for supermarkets to enter the market with incentives to cut planning and zoning red tape under the National Competition Policy backed by Australia’s National Productivity Fund.
- Investing A$50m ($NZ61m) to provide access to low-cost essential product and governance support to improve food access and security in remote First Nation communities.
As one observer noted, the Australian government’s aim is to ease some of the pressure on consumers.What is the New Zealand government plan?
