Rising prices

A trip to the supermarket to buy milk, butter and cheese costs around 50 percent more than it did five years ago (see the graph below). That rise is almost double the 26 percent jump in food inflation over the same period.

Consumers are told the amount they're forking out simply reflects what's happening in the rest of the world. Rising international prices inevitably mean increases in domestic prices – so get used to it.

But that's not the full story. The amount we pay also has a lot to do with the level of local competition – and there's hardly any sign of it. Our domestic milk market is dominated by one giant supplier and two big supermarket chains.

That's not the case elsewhere. In the UK, wholesale and retail competition has seen fresh milk prices drop by just over one-and-a-quarter percent in the year to February. Over the same period, milk prices here rose seven percent – and that’s excluding the October 2010 GST increase.

Dollar for dollar, we're paying more for milk than the Brits. Data from the UK's DairyCo show the equivalent of two litres of milk averaged NZ$2.11 in UK supermarkets over the five months to February 2011. Statistics New Zealand’s Food Price Index shows that the cheapest 2-litre bottle here averaged NZ$3.63 ($3.16 ex GST).

The make-up of the Kiwi market could mean we're paying more than is fair. Statistics New Zealand data show price hikes were higher here when world dairy last spiked about three years ago. In the year to May 2008, domestic prices jumped 23 percent. UK prices rose as well – but the increase was lower (16.6 percent). And it was also lower in the US (11 percent) and Australia (10 percent).

Guide to the table
Data are from Statistics New Zealand's Food Price Index.