Rants, Raves, Reviews

The Price of Milk

By Gary R, in , posted: 10-Jul-2007 19:35

I am not referring to the movie here but literally the actual price of milk in our fair land of 'milk and honey'. I have been laying off the political rants recently but this one really got to me so I thought it was worth a mention.

Last night on Campbell Live was a story regarding the increase in our milk prices which are attributed to an increase in international commodity prices brought on by demand from China, drought in Australia and increased Ethanol production in the US which means more land is being used to grow corn rather than heifers.

Our ever benevolent government chose the Rt. Hon Pete Hodgson to be the point man to answer the hard questions from John Campbell.

John asked Pete why Coke is cheaper than milk. Pete stated that Coke is a 'bad product' which is cheaper because Coke International use their flagship product as a loss leader and that 'milk is a better food' so milk should be more expensive.

My take is Coke is not a 'bad product' in moderation, Coke International make a lot of money off Coke and generally it is the Supermarket that uses Coke as a loss leader. Coke is also a luxury product whereas milk is a necessity so why is a necessary food product more expensive than luxury fizzy water? If I was Coke I would sue Pete for slander.

John pointed out that in Australia and the UK there is no GST equivalent on milk but in NZ the government gets up to .55 cents GST from each sale of 2litres of milk. Pete said that successive governments had looked at this issue but decided that it was to complicated to introduce a tax system that excluded some items. Too complicated? Pete we are 4 million people, Australia and the UK are much bigger countries and they manage it.

John asked what Labour were going to do about the price of milk. Pete implied that they had already done enough through 'Working for Families' which is a 'smarter transfer of buying power'. He also went to great pains to point out that yesterday Labour dished out fruit to '28000 school kids' and that other great Labour initiative of banning 'junk food' from school canteens.

What the? Seriously Pete you really have no idea what people spend money on. You hand out money in benefits which the recipient treats as exactly that - money. I really don't think people are buying milk or food with the hand-out but if they are then how come you also hand out fruit to 28,000 school kids?

I know this is not exactly scientific but I have looked at milk prices overseas and converted to NZ dollars as a comparison, the prices are per litre averages and are current:

UK - $1.32
US - $1.12
Aus- $1.19
NZ - $1.69

The prices here in NZ actually vary dramatically with Woolworths charging $2.79 (Home Brand) for 2litres and up to $4.49 for Anchor. Milk is milk, it all comes from cows. So why the price difference? Well I would suggest that Woolworths actually use the Home Brand as a loss leader but anyway it is still a big difference in price. Anchor is a brand of Fonterra who are this countries largest company and a virtual monopolistic powerhouse. At a difference of nearly $2 in price between a 'no brand' and Anchor it doesn't take an accountant to realise that Fonterra must be 'milking' it.

What I can't work out is why milk is (sometimes) more expensive than petrol. We import oil and the pricing is dictated by greedy Arab oil cartels (OPEC). Oil is also a finite resource. On the other hand milk is 'made in NZ' and it is virtually an infinite resource. From collection to the pasteurisation and bottling to the delivery to our shops it is a simple and cheap process but we pay international prices. There is no processing into milk powder, currency exchange, international shipping and distribution or promotion costs which means the local margins must be huge.

What it does really go to show yet again is that our government has truly lost it, they are very much out of touch with reality and they seem to think that throwing money at a problem will make it go away. Their stance on the price of milk is such a stark contradiction to the current advertising campaign (costing millions) trying to promote healthy drinks as the first choice for children.

'Make water or milk the first choice' it says. Well, I suppose water is still free as long as you don't live in Auckland.

It is ironic that milk goes up in price just after hearing that Fonterra will be making record payouts to farmers and that an extra $1.5b will be pumped into the economy.

Other related posts:
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Permalink to The Price of Milk | Add a comment (12 comments) | Main Index

Comment by sbiddle, on 10-Jul-2007 20:43

Trust me - Woolworth's don't lose money on House Brand milk. It's simply a house brand product whereas the likes of Anchor have a marketing budget, extra distribution costs and merchandising costs.

The price of milk is a sham, particularly when it keeps going up. We're a primary producing country and people can't afford to buy it.

As for the Rt. Hon Pete Hodgson he's a just a plonker and his answers on the show is further proof that like most Labour MP's he has absolutely no sence of reality.

Comment by paradoxsm, on 11-Jul-2007 00:19

remember new zealand food prices are typically based on what we can sell it for overseas, an international supplyand demand rather than a local sup and dem. It's the oldest price gouging known. At least the farmers are doing well unlike some years back.

Milk is milk? Then why do the cheap milk's like home brand amd cow and gate taste so much better and last well past the use by date? Something anchor has never achieved.

I think the nicest milk is sunlatte, it's not pasteurised either which is interesting.

And why is fonterra crap yogurt (the starch and gelatine thickened ones) almost $5 and yoplait usually bout $3.29?

Metchinkoff is less even and it's a premium product made by fonterra!

And yet they try to regulate cellphone prices while the food, power, and water go through the roof!,.....

Comment by TinyTim, on 11-Jul-2007 09:38

Jama, thank you for raising this, and I agree totally milk is a rip off.

Some more points:

- Baby formula = heavily processed cows milk, is only marginally more expensive (per made-up litre) than fresh milk (certainly cheaper than the 'toddler milk' you can buy which has added iron)

- our GST system is a lot cheaper to run than in Australia, UK etc because it is across the board and there are no exemptions. I would guess if they started varying the tax rate the cost to administer would go up and the rates would have to increase

- When Woolworths (Australia) bought Woolworths (NZ) they said they would purchase the cheapest products over both countries. Maybe their own brand milk already comes from Australia? (New World etc also have their own cheaper brands which come from NZ)

- And why can't our local dairy and service station stock some of the cheaper brands rather than anchor???

Comment by robscovell, on 11-Jul-2007 11:50

Just a comment on the relative prices around the world. Remember that the NZD is now somewhat overvalued, so many things look like they are more expensive here than overseas (esp. US and UK) if you just use the exchange rate to convert prices.
I saw a report in the Herald that a Big Mac costs more here than in the US because of the exchange rate -- a good reason to say that the NZD is overvalued.
It's a bit of a minefield to compare relative costs/prices between countries because there are other factors involved. For example, UK salaries are much higher than here, but so is the general cost of living. However, the ratio between average salary and average cost of living here makes it marginally less costly to live here than in the UK in terms of the amount of work you need to do just to survive.
I agree with you on GST on essential foods. It is a pathetic excuse to say that it would be difficult to manage differential GST rates. The UK has had differential VAT rates since VAT was invented in the 70s. This was before the widespread use of computers, which make it even easier to deal with now. When I worked in a bookshop in Edinburgh, we sold books (VAT-free) and candles (VAT liable). The till had a VAT and a non-VAT button. Easy. In these days of scanners, the underlying database in a retail program just needs an extra field for GST/VAT or non-GST/VAT. It doesn't take a master of data normalisation to work that one out ...

Comment by xlinknz, on 11-Jul-2007 14:56

Anyone have the breakdown of 2L milk price ie how much woolworth make & how much fonterra make

The show said 0.55c GST and approx the same for the farmer what about the rest ?

I suspect both the Supermarkets and Fonterra are gouging and why not - no one is stopping them i.e. the govt

Maybe John Campbell needs Fonterra and Progressive on the show ?

Author's note by Jama, on 11-Jul-2007 14:59

Typically - Fonterra refused to front up on Campbell Live.

Comment by MsLawyer, on 12-Jul-2007 08:43

The price of milk in NZ is already determined under the law. The Dairy Industry Restructuring Act 2001 (DIRA) - which allowed the creation of Fonterra - dictates the price Fonterra can charge other FMCG companies (Goodman Fielder) and its competitors (OCC, Tatua, etc) for the milk Fonterra supplies to those companies - those companies could also have their own supply, eg Gisbourne Milk. Companies supplied by Fonterra can then add on whatever margin they like, but the market for milk in NZ is competitive as evidenced by the large variance in what consumers can pay for a bottle of milk - notwithstanding that what's in the milk in terms of protein, etc does vary.

The price of milk calculated under the DIRA Act is primarily based on Fonterra's total payout, and given Fonterra exports 95% of its milk received (in powder form, cheese, casein, etc), Fonterra's payout is based on world commodity prices, (in USD) which given the appreciation of the kiwi is offsetting the commodity price increases.

Comment by Jeffthechef, on 12-Jul-2007 09:32

TinyTim, you can get the cheaper brands from dairy's and petrol stations (In Wellington at least) The Dairy Dale brand usually sells at the local BP station for $3 for 2 litres.

Have any of you guys tried milk outside of NZ?!?! It is utter pap!! I swear there is less milk solid in US milk than there is in tap water, and that was the standard homogenised stuff, the trim/slim milk is water!

We may get ripped for the price on the shelf for brand milk, but it sure is a damn sight more "milky" than many other countries.

Comment by sbiddle, on 13-Jul-2007 07:45

Profit on a $2.90 ish bottle of 2l house brand milk is around 25c for the retailer. Profit on a $4.30 ish bottle of 2l Anchor is round $1

Comment by Kiwi Italiano, on 9-Oct-2007 11:07

When it comes to economics and world markets I must confess my ignorance up front.

Having made that clear, can someone please help me understand why our internal prices should be dictated by overseas c economies and their consumption of our NZ-made products (milk being one but also add timber)?

Thank you

Comment by Anne-Marie Amende, on 28-Jan-2008 21:40

I too am absolutely disgusted by the supposed "progress" our country is making in terms of supporting families. I cannot understand why I should be forced into having to choose products that I do not enjoy, and that I do not agree with on principle due to the amount of numbers on the package, aimply because they are a cheaper option than the New Zealand butter my family loves.

We use milk powder regularly so the price of liquid milk is not really an issue, but milk powder prices are sky rocketing too! And as for cheese - there is just no substitute.

I have always put butter and cheese in my trolley at the supermarket as necessities...now they are gaining luxury item status...and I feel hard done by as a New Zealand mother! Why should my growing children have less than what they deserve, which are dairy products that are healthy, home grown and affordable?

Who do we confront about this and what stand can we take when the government is obviously only concerned about an international market instead of the average New Zealander wanting to do what's best for their family.

Someone please start a protest outside Fonterra for me!! (I'm a South Islander)

Comment by nonrev, on 9-Aug-2008 07:26

its now august 2008 and i can tell you from my recent oz trip that 3 liters of milk there is cheaper than 2 liters of milk here. Any discussion about currency rates doesnt take into account such vast differences. Cheese was cheaper and yes (if you look on the back of the ozie brands packets) some of it is made up of new zealand cheese. Gas is $1.40, the sun shines there in the winter, they still have overtime rates and they have Deans.

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