Michael Parker: Stop kowtowing to unfair prices

Despite hosting the world's most efficient dairy industry, we face some of the highest prices. Photo / Paul Estcourt

Just recently the price of milk has been in the news. It has been news to me since my daughter began to drink milk around 10 years ago.

In 2001 the price of Anchor milk at the local dairy was $3.40 for 2 litres. At the time there was virtually no competition and limited access to cheaper brands of milk.

Gradually I noted other dairies were offering milk for 2x2 litres for $5, though not at my dairy. I was told by the owner that Fonterra had offered free fridges to dairy owners (value $5000) if only Anchor milk - the Fonterra premium brand - was stocked.

Since those times Anchor milk has risen to $3.70, then $4.30, then recently to $5. Ironically milk price rises have usually coincided with each new marketing campaign.

So we have had "megamilk cow" with extended horns and biceps, "funky cow" with a "spotty" cartoon cow and now "the dot with lines" - is this a surreal milk shed representation? Price changes have also brought changes in bottle designs so there is now a moulded anchor on the milk bottle.

During this time other milk brands have risen in price (for 2 litres); Meadow Fresh now retails for around $4.30, Fresha Valley for around $4.10 and Pams Milk is now around $3.70. Dairy Dale, Fonterra's budget brand, retails for around $3.50. The only maverick brand is Cow and Gate retailing at $3.30 or under with a 2 for $6 special.

As previously reported, our milk prices are more expensive than in Britain, Australia and parts of the USA. Yet paradoxically we are told we export more milk than any other country, and we are to be proud of our dairy sector as our largest exporter.

What has been the policy that has given a land flowing in milk such expensive milk for consumers? The milk monopoly has used a "cash cow" approach to New Zealand consumers.

That is setting the price to have consistently high and stable profit margins. This is combined with the recently revealed rapacity of a supermarket chain with an excessive mark-up recently freezing milk prices until the end of 2011.

Let's have a look at milk prices.

Estimated costs (per 2 litre) to Fonterra - 60-75c mark-up 100 per cent.

Cost to supermarket - $1.50 to $1.75 - mark-up 100 per cent.

Cost to supermarket consumer, around $3 to $3.50.

Add GST of 45c to 75c.

Mark-ups are probably higher for the premium Anchor brand. So New Zealand consumers face mark-ups of perhaps 200 to 250 per cent. Quite a stable profit margin indeed, the cash cow being well milked.

However, whenever the price of milk and cheese are raised there is a "bleat" (or, not to mix metaphors, a "moo") from a Fonterra talking head that the price of this international commodity is high and New Zealand consumers have to expect prices to be in line with international markets.

What follows is reasoning against this argument. First, the economics. New Zealand consumers are not getting the downstream benefits of the most efficient dairy industry in the world.

We are overcharged for milk and cheese prices compared with prices in other countries. Costs of milk production prices including supermarket supplier price strangling and consequent mark-ups also need to be reviewed. Why can't we have lower dairy prices in our own country with such a competitive advantage?

Secondly, consequences for lower socio-economic groups. As Brian Rudman reported on February 23 on this page, prices affect consumers, especially the poor. The Otago University paper he quoted indicated that one-third of children drink milk only once a week, with around 17 per cent not drinking milk at all (or less than monthly).

The most affected by the cost are Maori and Pacific people. Non-milk drinkers often turn to soft drinks. A discount brand of soft drink costs around $2.50 for 2x1.25-litre bottles. In my own suburb I often see children returning from the dairy with breakfast supplies of bread and soft drink.

Flow-on physiological effects are well publicised with increased risk of obesity, diabetes and heart disease with such poor dietary intakes. Linked to the second consequence may be marred brain growth and health.

What happens to our youths' cerebral brain mass, to children's neural connections when they are fed soft drinks instead of milk? (Professor Peter Gluckman, the Prime Minister's chief science adviser, could perhaps answer this question).

Thirdly, lack of choices. Many smaller rural centres may not have access to the cheaper milk brands, meaning they have to pay the price on premium milk brands of $4 or more.

Finally it could be argued that New Zealanders owe our national competitive advantage for success in many fields to milk and dairy products' contribution to bone and brain growth and sustaining energy levels.

Combined with stable housing, education and skill sets learned in a variety of environments - such as farms, cities, bush, mountains, beaches and seas - have all contributed to the versatility and adaptability Kiwis are known for across the world.

So let us not kowtow to this giant cash cow and continue to demand a lowering of milk and cheese prices, with better access to cheap milk for small localities and poorer urban centres.

* Michael Parker is a father of three, and a summer smoothie maker (usually with powdered milk) from Ranui in West Auckland.