Prime Highlights
- Fonterra boss Miles Hurrell tells locals no to cheap butter demands on the grounds of global market commitments.
- 80% of the price of butter is dictated by international demand, leaving little room for local price reductions.
Key Facts
- New Zealand butter prices have increased by close to 46.5% year-on-year to $8–$11 per 500g block.
- Fonterra sells approximately 95% of its output overseas and international prices have direct implications for farmers’ returns.
Key Background
Fonterra chief executive Miles Hurrell absolutely excluded lower butter prices for New Zealanders alone. Addressing an outing in Christchurch, Hurrell said a two-tier price system would be unfair to Fonterra’s 8,500 farmer-shareholders who depend on stable export returns. He further said the butter price is supported by 80% from overseas markets, which are now oversupplied with record demand from China and other big importers.
The sharp jump in global dairy prices has had a huge impact on local consumers. Latest figures by Stats NZ have shown that New Zealand butter was up 46.5% over the past year, with a 500g block of butter costing an average of $8 to $11. A steep increase in price was the reason behind increased inflation, which brought extra pressure on the cost of living for families. Hurrell also stated that although Fonterra provides the product, supermarkets place the ultimate retail price, which includes logistics costs, processing, and distribution.
Supermarket groups such as Pak’nSave, New World, and Woolworths reported they are doing everything in their power to make butter as cheap as possible. Pak’nSave, for instance, had its butter at around $8.29 in May, the cheapest of the big supermarkets. But ministers such as Finance Minister Nicola Willis think the most effective way to cut prices over the longer term is to raise competition among the supermarkets rather than asking manufacturers to cut costs.
The increased price of butter is also being experienced by small business companies, including bakeries, which have begun testing alternatives such as margarine or oil to adjust to the price increase. Despite all such efforts, analysts foresee prices for butter to continue to be high in the short term, masking relief to consumers.
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