KEY POINTS:
International dairy prices have been tumbling for months but shoppers here are unlikely to see much relief from high prices until after Christmas.
The ANZ Commodity Price Index for dairy products rose for 15 consecutive months, more than doubling to a peak in November last year but has since dropped 34.7 per cent, with historical trends suggesting it could fall by half.
Factors behind the international boom included reduced supply, drought in Australia, biofuel production and demand from emerging markets.
The fall in dairy commodity prices has not been unexpected, although the rate of decline has taken some people by surprise.
Farmer co-operative Fonterra collects and processes about 95 per cent of New Zealand's milk, most of which is exported, while Fonterra Brands sells about half the dairy products in New Zealand.
Fonterra said international milk powder prices had fallen to about US$2600 a tonne after peaking at about US$5000 late last year.
Tony Carter, managing director Foodstuffs Auckland, which operates the Pak'n Save supermarkets, said cheese and butter prices were very much related to commodity prices.
"Butter and cheese, I think, went up more dramatically than milk did this time last year when prices started going up and, I suspect, will fall further post Christmas when the world markets start adjusting," Mr Carter said.
"There is relief in sight for consumers on those two commodities and, I suspect, quite significant relief."
Foodstuffs Auckland was in discussions with Fonterra to try to get relief as soon as possible with milk, although that product did not rise as much as butter and cheese so changes were likely to be much more modest.
Statistics New Zealand's Food Price Index shows the monthly weighted average price for a 1kg block of mild cheddar cheese was $10.75 in October - little changed this year and up about 65 per cent on last year's pre-rise prices.
Similarly, a 500g block of salted butter was up about 85 per cent at $3.71 and two litres of standard milk was up about 29 per cent at $3.35.
Meanwhile, oil prices which peaked above US$147 have tumbled to about US$50 a barrel.
The oil industry tended to have a very efficient supply chain for moving products, while tasty cheese was 12 months old, Mr Carter said.
"It just takes time for it to get through the supply chain ... [as] the input prices go down it takes a while to come through the system."
The ANZ Commodity Price Index for dairy products rose for about a year and was up more than 120 per cent before the local Food Price Index for cheese began to increase.
Meanwhile, retailers did not pocket margins, Mr Carter said.
Ian Greenshields, spokesman for Goodman Fielder, whose brands include Tararua and Meadow Fresh, said the price the company paid to Fonterra for milk had increased about 60 per cent during the past 18 months to two years.
"We've seen Fonterra's announcement about falling prices to their own farmers, that has not yet been reflected in the price that we pay to them," Mr Greenshields said.
A reduction from Fonterra was expected in January, he said.
Fonterra spokesman Graeme McMillan said it was important to note that the co-op did not set retail prices - that was up to the retailers.
"Over the last 18 months, as the costs of our raw material were rising along with global commodity prices, we did not pass all of the costs on to our customers. We absorbed cost increases.
"So it would be wrong to expect a massive correction in the market, as we never passed on the peak prices.
"We also have cheese and butter inventory that was bought six-nine months ago when its commodity price was more than double historical averages, so it will take some time for this product to flow through the market."
"But the unknown quantity is the volatility of the US dollar exchange rate which has a significant impact on the price we pay for raw materials - so it is difficult to forecast now."
