Katherine Rich: Food prices need to be in context

Across the street from the Food & Grocery Council’s office in Wellington is a fresh-food shop with a footpath billboard. Recently it proclaimed “Food is our common ground, a universal experience.”

It’s an obvious-enough statement, and it’s why anything to do with food, be it quality or prices, makes news. That’s especially so around the second week of each month, when Statistics NZ dishes up its latest food-price data.

Inevitably, the news stories are about the overall rise in food prices (even though some individual food groups drop), and often the media draws comparisons with countries with which we have something in common, culturally. These stories have become formulaic: our food bills are compared to those of our Australian cousins, the media finds an ex-pat Kiwi to talk about how much cheaper food is across the ditch, and a short shopping-list comparison is done. Predictably, talkback fills with people asking why, in a country that is one of the most efficient producers of food, our prices seem higher than in other countries. It’s a fair-enough question because, on the face of it, food prices are in many cases higher here than inAustralia.

But all is not what it seems. Although international comparisons are interesting, they are often misleading, and must be used with qualification.

To begin with, every country with which we compare ourselves is much bigger than us. That means their economies of scale are vastly different to ours. They produce more items for less because they have larger production runs. As well, currency exchange rates differ, and some still have significant agricultural subsidies to prop up local food production, both of which can greatly affect the price of goods and further distort comparisons withNew Zealand. And there is our location and geography, which lumbers us with high transport costs – as the price of oil rises so does the price of consumer goods.

As for the rise in the price of our own goods, particularly dairy and meat, we can put some of the blame on economic growth inAsiaand the East. As the standard of living there rises and the expanding middle class develops a taste for the type of (quality) food we produce, so demand rises and up goes the pressure on prices. Short of introducing our own subsidies, that means we pay more as well. As long asNew Zealandexports to those countries and collects top dollar then that’s the way it will be.

There are also the twin factors of wages and affordability. Even though each month a lot of the focus is on prices, in the end it comes down to how much we earn and how much we can afford at the supermarket. The Global Financial Crisis has made it tough. We are a low-wage economy. Many people don’t earn as much as those in other countries. That means when prices rise, we feel it more at the checkout than our Aussie cousins do. It’s genuinely hard for so many of our citizens.

But as we contemplate this seeming never-ending spiral of price rises, there’s something else to consider, and it may come as a surprise. Kiwis are actually better off now in terms of their food expenditure than we were in generations past.

 According to the latest Household Economic Survey, we spend 17% of our disposable income on food (based on $178 of the $1010 average weekly income after tax). Of course, 17% is high for many on fixed incomes and others struggling with the weekly shop, but it’s a much smaller proportion than we have ever spent on food. In the 1950s it was about 50%, and by the next generation it was closer to 30%. This means, relative to incomes, food has never been cheaper or more affordable than it is now.

So, are food prices higher than five years ago? Yes, but there’s no one factor responsible. Although food companies think very carefully before passing on increased costs, to a large extent they are at the mercy of influences outside their control. Despite that, food prices are competitive when compared to other countries – you just have to remember it’s not always comparing apples with apples.