Soaring food prices in New Zealand are set to continue with the recent softening in commodity markets doing little to slow the rise in food price inflation.
This will mean Kiwi consumers should brace for further pain at the checkout over the coming months, according to Rabobank.
Speaking on the podcast “A Look Inside the Grocery Baskets”, Rabobank senior agricultural analyst Emma Higgins said New Zealand’s food price index was up by 6.6% in June in comparison to the same month last year. The index measures the changes in prices that households pay for food.
“When we unpack these numbers, we find broad-based food price inflation – with grocery food prices up by 7.6% on 12 months ago, restaurant meals and ready-to-eat food prices up by 6.3%, meat, poultry and fish prices up by almost 7%, and fruit and vegetable prices up by 5.5%,” she said.
“Everyday food stables have risen rapidly, which will be very apparent to shoppers at the supermarket checkout, and these increases will be impacting most New Zealanders.”
Rabobank senior food retail analyst Michael Harvey said the significant food price inflation is being driven by a mix of local and global forces.
“It’s been very wet in New Zealand over recent weeks and the sodden conditions throughout July have impacted growing conditions for vegetables in many parts of the country,” Harvey said.
The ongoing conflict in Ukraine and the lingering impacts of covid-19 mean food producers are also facing supply chain shocks, high energy costs, high distribution costs and labour shortages, he said.
“And with all these factors at play, margins are under pressure downstream within the food supply chain, and we’re seeing higher production costs getting passed through to food retailers.”
Despite some softness now coming through in commodity markets for energy and agricultural product prices, Harvey said food prices are likely to continue climbing rapidly in the immediate future.
“The recent drop in energy and agri commodity prices is from really high levels. And it would take a sustained fall in these prices and at least a few months for these price drops to flow through to downward pressure on pricing for raw food materials here in New Zealand.
“We’re still yet to see this, so we do caution against the view that we are past peakfood price inflation just yet.”
Harvey said food price inflation is high across the globe and, with price rises generally exceeding wage growth, this is impacting consumer purchasing power. Food price inflation is high in mainland Europe, across the Americas and in parts of Africa.
It is lower in China and Southeast Asia, although those countries tend to spend a higher proportion of their household income on food, in some instances up to 40%; as a result, only small increases in food prices can make a significant difference.
Higgins said it will be several months before the full impacts of food price inflation on consumer behaviour are known, but one likely outcome is consumers “trading down” their food purchases.
“This basically means a shift of the sales channels, so we might see more consumers moving away from purchases via the food service channel and into purchases via food retail or switching from speciality stores to supermarkets,” she said.
It might also see customers switch to private label brands rather than more expensive alternatives, such as shoppers opting for the house brand instead of buying the fancy milk at the supermarket, she said.
“We saw this type of trading-down behaviour at the start of the pandemic when retail sales benefitted as restaurant trading took a hit, and obviously that was due to restrictions on movement, but this time around we may see retail perform better as customers look to manage their wallets more closely.”
Higgins said the recently released half-yearly results of global fast-food giant McDonald’s provide some evidence that “trading down” behaviour is becoming more prominent around the world.
“McDonald’s have just released their second quarter results, and they themselves are suggesting consumers are being squeezed by inflation and they’re starting to see price-sensitive customers choosing cheaper menu items and buying fewer combo meals.”
