Supermarket: High food prices not so black and white - Dr Jacqueline Rowarth

Supermarkets have borne the brunt of complaints about margins and profits, Dr Jacqueline Rowarth writes. Photo / Sylvie Whinray

THREE KEY FACTS

• People turned to home baking and vegetable growing during the Covid lockdowns.
• Supermarket food prices, especially fruit and vegetables, have come under scrutiny.
• Price escalation can lead to people trying to find cost-cutting alternatives.

Dr Jacqueline Rowarth, Adjunct Professor Lincoln University, is a director of DairyNZ, Ravensdown and Deer Industry NZ. She is also a member of the Scientific Council of the World Farmers’ Organisation.

OPINION

With food prices rising and spring in the air, it isn’t surprising that people are turning their attention to what vegetables and fruit they might be able to grow themselves.

Garden centres and gurus are poised to assist, in the flesh, in media, or online.

Specials are tempting and all you need to know about raised beds, potting mix and cloches is a call or click away.

Except that, as we found during the Covid lockdown, growing your own food isn’t as simple as it sounds.

Nor is making it.

During Covid, supermarkets were emptied of flour as people turned to making their own bread and cakes. How many households still do?

The recent butter price escalation led to an investigation into the cost-benefit of churning your own.

The conclusion was that although the price of the ingredients was less than buying a block of butter, the time factor and energy required to turn ingredients into butter escalated the cost.

When we buy any food item, we are paying somebody for the resources and effort that we don’t have to put in.

Labour, land, seed, agrichemicals, sowing, harvesting, processing and transport are covered in the final purchase price of the item we intend to consume.

And within that price is a margin.

Supermarkets have borne the brunt of complaints about margins and profits.

One article published in August suggested that having more supermarkets (that is, competition) would reduce the revenue for each supermarket.

What appeared to be missed was that, by serving more people, the New Zealand supermarkets were offering a service for less than that being charged in other countries.

Using the data presented, in the UK and Australia, the revenue per person appears to be 40% and 23%, respectively, higher than in New Zealand.

Further, revenue is income which is not the same thing as profit.

The comments on the article continued the “New Zealanders paying too much” theme, without considering that in New Zealand food is subject to GST, which it isn’t always overseas, and that New Zealand farmers do not receive Government support (taxpayer money) which they do overseas.

Listen to Jamie Mackay interview Dr Jacqueline Rowarth on The Country below:

Nor did the comments consider the economies of scale achieved by having large purchasing power for a globally small population.

Purchasing power is not always to the benefit of farmers and growers, but it is important for negotiating with the importers of a significant quantity of food.

That food was valued at $8.5 billion in 2022. In 2024, the Office of the Auditor General reported that New Zealand had more than 3700 registered food importers.

The supermarkets deal with these importers, just as they do with processors (for meat and dairy products) and growers.

The supermarkets also create a heap of the ready-to-eat food that is forming an ever-increasing proportion of food expenditure.

StatsNZ data indicate that in 2011, ready-to-eat food was 13.28% of food expenditure, increasing to 17.80% in 2020 (last release).

That’s a 34% increase and covers the increase in wages of the people doing the food preparation.

The Reserve Bank Inflation calculator indicated that in 2011, the cost of $1 worth of food would be $1.10 in 2020, but $1 in wages in 2011 would be $1.31 in 2020 – a 31% increase.

This would suggest that the food producers and supermarkets aren’t benefitting a great deal, yet they are the ones taking the risk in the growing of the food and stocking of the display cabinets with ready-to-eat perishables.

Economies of scale also help farmers and growers survive.

Machinery to cut down on labour, agrichemicals to reduce pest and disease and improve the quantity and quality of harvestable material – advances in agri-technology have allowed productivity gains that allow food to arrive in the supermarkets at a price that has, mostly, increased less than the increase in wages.

Certainly, there was a blip during the Covid years, but overall, food is a smaller part of household expenditure than in the past, and restaurant meals (up from 7.62% in 2011 to 9.43% in 2020) and ready-to-eat food are a larger part of the basket.

Nitrogen has played a part in the productivity gains, and the latest NGO swipe at its use, with a plea “for the sake of people’s health, a stable climate and healthy freshwater ecosystems”, ignores the consequence of removing synthetic nitrogen from the production system.

Food would become more scarce (organic production systems indicate the problem).

Food would increase in price (organically produced food indicates the difference).

Food insecurity would escalate (economics 101 supply and demand).

Home gardening would not be enough to compensate.

It takes a financial outlay, and considerable time in tending (including watering) until harvest – and peak harvest usually coincides with produce being cheap in retail outlets, including supermarkets.

There is satisfaction in your own “home-grown” but there is also frustration and disappointment in a poor harvest.

There is a lot to be said for economies of scale, whether in professional farmers and growers or supermarkets.