Kiwi consumers should brace for further pain at the checkout over coming months with no end in sight for soaring food price inflation, according to a new podcast by agribusiness banking specialist Rabobank.
Speaking on the recently-released podcast A Look Inside the Grocery Baskets Rabobank senior agricultural analyst Emma Higgins said New Zealand’s Food Price Index – which measures the changes in prices that households pay for food – was up by 6.6 per cent in June in comparison to the same month last year.
“When we unpack these numbers, we find broad-based food price inflation – with grocery food prices up by 7.6 per cent on 12 months ago, restaurant meals and ready-to-eat food prices up by 6.3 per cent, meat, poultry and fish prices up by almost 7 per cent, and fruit and vegetable prices up by 5.5 per cent,” 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 agricultural analyst Emma Higgins
Joining Ms Higgins on the podcast, Rabobank senior food retail analyst Michael Harvey said the significant food price inflation was 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,” he said.
“As a result of the ongoing conflict in Ukraine and the lingering impacts of the Covid-19 epidemic, food producers are also facing supply chain shocks, high energy costs, high distribution costs and labour shortages.
“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, Mr Harvey said food prices were 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 peak food price inflation just yet.”
How are consumers and the food industry responding?
Mr Harvey said food price inflation was high across the globe and, with price rises generally exceeding wage growth, this was impacting consumer purchasing power.
“Food inflation is very high in many countries across the world, particularly in mainland Europe, across the Americas and in parts of Africa,” he said.
“It is lower in China and South-East Asia, however a bigger proportion of household income generally goes towards food spend in these countries – in some instances up to 40 per cent – and therefore only small increases in food prices can make a significant difference.”
Ms Higgins said it would be several months before the full impacts of food price inflation on consumer behaviour were known, but one likely outcome was consumers ‘trading down’ their food purchases.
“When we talk about trading down, 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.
“We might also see more customers opting for private label brands rather than more expensive alternatives, and the example I like to give is, instead of buying the fancy milk at the supermarket, shoppers might opt for the house brand.
“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.”
Ms Higgins said the recently-released half yearly results of global fast food giant McDonalds provide some evidence that ‘trading down’ behaviour is becoming more prominent around the world.
“McDonalds 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.” she said.
Rabobank New Zealand is a part of the global Rabobank Group, the world’s leading specialist in food and agribusiness banking. Rabobank has more than 120 years’ experience providing customised banking and finance solutions to businesses involved in all aspects of food and agribusiness. Rabobank is structured as a cooperative and operates in 40 countries, servicing the needs of about 10 million clients worldwide through a network of close to 1000 offices and branches. Rabobank New Zealand is one of the country's leading agricultural lenders and a significant provider of business and corporate banking and financial services to the New Zealand food and agribusiness sector. The bank has 32 offices throughout New Zealand.
Media contacts:
David Johnston
Media Relations Manager
Rabobank New Zealand
Phone: 04 819 2711 or 027 477 8153
Email: david.johnston@rabobank.com
Denise Shaw
Head of Media Relations
Rabobank Australia & New Zealand
Phone: +612 8115 2744 or +61 2 439 603 525
Email: denise.shaw@rabobank.com