The Cost Of Food
The Cost Of Food
Hon Heather Roy, ACT Deputy
Leader
Saturday, November 8 2009
Food prices came under scrutiny this week after a New South Wales Associate Professor, having analysed figures from the Organisation for Economic Co-Operation and Development (OECD), said that grocery prices in Australia and New Zealand had risen 41 percent and 42.5 percent respectively since the start of 2000.
According to Professor Zumbo - an Australian commentator on competition, consumer and franchising law - New Zealand's food prices have increased faster than every other major industrialised nation except Korea, with Australia next in line. He puts this down to a lack of competition given that both the Australian and New Zealand supermarket sectors are dominated by two major players: Foodstuffs and Progressive Enterprises here in New Zealand, and Coles and Woolworths across the Tasman.
Consumer
NZ supported Professor Zumbo's claims, concluding - along
with many others - that New Zealand's supermarket duopoly
was responsible for the grocery prices rising. Competition
is the tool that will bring lower prices and, while more
players in the market would be welcome, I can't give any
reassurance that profits are sufficient to make it
worthwhile for another major player to enter the market.
The Warehouse has, in recent years, tried to expand into
grocery lines. It has experience in discount retailing,
and considerable public loyalty, but its foray into
groceries was reported to be unsuccessful.
It is easy
to look at one set of figures and come to a conclusion, but
the full picture is important. Professor Zumbo based his
findings on OECD figures but there was no accompanying
discussion by media commentators, opposition MPs or the
public about the rate of inflation over that period or other
economic factors affecting individual countries that were
being compared.
It is also a fact that the cost of
food items regularly fluctuates, affecting the people's
decisions people when purchasing goods. For example: the
price of cheddar cheese peaked in September 2008, with the
cheapest available 1kg block costing an average $11.19. By
August 2009 the price had dropped 25.1 percent to $8.38.
Although cheaper now than a year ago, average cheddar cheese
prices are still 23.7 percent higher than in August 2006.
Meanwhile, the price of milk peaked in August 2008: the
cheapest available 2L bottle of standard milk cost $3.36
but, a year later, cost $3.19 - 4.8 percent less than the
year before, but 7.7 percent higher than August 2006. The
price that producers of goods charge is also a significant
factor but this too has eluded the debate.
These price
rises and decreases occur under the influence of a range of
factors, such as the price of fuel and weather conditions.
Increased fuel costs mean increased transportation costs,
which are then passed on to the consumer. Weather, with
changing seasons or situations such as drought or floods,
plays havoc with the supply of fresh fruit and vegetables.
Where there is high demand and limited supply for these
items, prices will inevitably rise. Statistics New
Zealand's Food Price Index shows that, in the three years to
June 2009, food prices underwent a 20.8 percent price rise -
a proportion of which can be attributed to increased cost of
fresh fruit and vegetables.
It should also be noted
that any analysis of a country's food prices must take into
account the consumers' purchasing trends. In New Zealand
there is an increasing trend toward the purchase of organic,
GE-free and free range products - items that are often
significantly more expensive to purchase. These prices add
to the average cost of the general food price
range.
Last year an Australian Competition and
Consumer Commission (ACCC) grocery inquiry considered food
price movements in Australia compared with those in a number
of other countries, including New Zealand. According to
the ACCC from 2002-07 Australian food prices increased
around 20.3 percent compared to 7.7 percent here even though
our overall consumer price inflation was similar.
The
ACCC found that a range of factors significantly contributed
to the increases in food prices in Australia. These
included drought, natural disasters, and the international
commodities boom. When there are better economic gains to
be made by selling produce overseas, local buyers must bid
higher for those items. The ACCC's view was that any
possible weakening in the level of competition in retailing
is unlikely to have been a significant contributor to food
price inflation in Australia.
Taking this into
account, it appears unlikely that the food price rises New
Zealand has experienced are the result of collusion by our
two supermarket chains. This is further supported by the
fact that the Commerce Commission - charged with monitoring
the sector and ensuring that price fixing does not occur -
is not investigating the supermarket
sector.
Complaints of duopoly behaviour fall on deaf
ears for those New Zealanders living in areas where there is
no competition. Residents of towns such as Wanaka, where
there is a monopoly situation with just one supermarket and
frustratingly high grocery prices, tell me they would be
delighted to have a situation where both supermarket chains
have stores. They would relish choice, and prices would be
lower through competition. In some cases it would seem
that local bodies have refused consent to a second
supermarket and this inevitably allows the only player in
town to charge what they like.
So what can consumers
do to lower their weekly grocery bill? Many people already
shop around. The large advertisements in newspapers every
day, and flyers in mailboxes, make this easy. Supermarkets
now routinely engage in loss-leading product-selling tactics
to compete for customers who can, and do, take advantage of
this and frequently buy different items from different
stores. Speciality stores such as butchers and farmers
markets are also alternatives which provide consumers with
choice that saves them money.
There have of course
been calls for 'Government to do something' - if anyone
seriously thinks government should interfere in, or enter,
the supermarket trade they should look around for any
example of government running a business well. There isn't
one.
Lest We Forget
This week was one of
commemoration, remembrance and celebration as the world
celebrated two events that changed the course of world
history - the 20th anniversary of the collapse of the Berlin
Wall, and the 91st anniversary of Armistice
Day.
November 11 1918, was the day WWI hostilities
ceased on the Western Front and which is generally accepted
as the official end of the 'Great War' - a conflict to which
New Zealand sent 103,000 troops to serve overseas. An
estimated 18,500 were killed and 20,000 wounded. WWI is
particularly significant for Australia and New Zealand,
marking the birth of the proud ANZAC tradition that has
become an integral part of our national history, pride,
thinking and identity.
Almost 71 years later to the
day, on November 9 1989, there was more cause for
celebration as the East German Government told its citizens
they could visit West Germany and West Berlin for the first
time since the Berlin Wall was erected in 1961.
Dubbed
the 'Anti-Fascist Protection Wall' by the Communist East
German authorities and the 'Wall of Shame' by their Western
counterparts, the 'Berliner Mauer' was a symbol of the Iron
Curtain separating Western Europe and the Eastern Bloc. Of
the 5,000 people who tried to cross it and escape from East
to West, around 100 and 200 were killed or
died.
Following the East German Government's 1989
announcement crowds of East Germans crossed the wall, joined
by West Germans on the other side as a celebratory
atmosphere prevailed. The following weeks saw the wall
chipped away by the public, heavy machinery was later used
to dismantle the rest, and the re-unification of Germany had
begun along with the re-introduction of democracy to Eastern
Europe.
ENDS