Who's creaming milk prices?

By Amelia Wade

The cost of milk to suppliers has dropped by almost a fifth in a year, but the cost to consumers has dropped by only 3c. Photo / Thinkstock
The cost of milk to suppliers has dropped by almost a fifth in a year, but the cost to consumers has dropped by only 3c. Photo / Thinkstock

The cost of milk to suppliers has dropped by almost a fifth in a year, but the cost to consumers has dropped by only 3c.

The last time the wholesale price was at this level we were paying more than 30c less than we pay today.

But New Zealand's major supermarket chains and the country's main milk supplier all say their profit margins have not changed. Fonterra said its margins had decreased.

In the last dairy year - July 2011 to July 2012 - the average price for two litres of raw milk was $1.14 and consumers paid an average of $3.59 for the same amount.

However, in the 2009 to 2010 dairy year, when the cost of two litres of raw milk was the same, consumers paid an average of $3.27 a bottle - a difference of 32c.

The data on the average cost of raw milk was supplied to the Herald from an industry source.

Progressive Enterprises - which owns Countdown - said its profit margins on milk "haven't really changed" throughout the years.

When asked why consumers were paying an extra 30c for two litres of milk, the chain's spokesman, Luke Schepen, said he didn't know.

"You'd have to speak to those people in the area in the supply chain.

"I can only speak for the prices in our supermarkets. And the fact is that the price we pay our suppliers for the product is what it is and is largely reflective of the supply and demand nature of milk."

Mr Schepen said they always tried to offer "really competitive prices" on milk. "The price we pay reflects the price on the shelf."

The spokeswoman for Foodstuffs, which owns New World and Pak'n Save, confirmed their margins on milk also had not changed.

Fonterra Brand's director of communications, Graeme McMillan, said the extra 32c average for the last dairy year compared to the 2009 to 2010 year was likely down to factors including inflation and an increase in GST.

The company's managing director, Peter McClure, told the Herald: "We want milk to be available and affordable to all New Zealanders.

"We have put a lot of work into this and there was a major reset of prices back in April which saw us reducing our margins. This in turn flowed through to lower prices in shops."

Fonterra Brands was satisfied that New Zealanders are getting a fair deal on milk prices.

"And consumers are also telling us that the prices are at the right level. After years of consumption decline we have recently seen consumption increasing," he said.

In its 2012 financial results, Fonterra announced a lower Farmgate Milk Price of $6.08 per kilogram of milksolids, down from $7.60 last year, which it said was the result of lower commodity prices and a strong New Zealand dollar.

Boutique grocer Nosh Food Market has reintroduced a two litre bottle of milk for $1.99, as it was at the start of the year before raising its prices to $2.49.

But it has been able to drop its prices once more after its bottler, Green Valley, lowered its cost price for milk last month. The lowered price will be effective until December.

Director Clinton Beuvink said to sell the milk for $1.99 for two litres they would run at a "small loss".

"Our business isn't just built around milk sales ... supermarkets have loss products too, it's just what they choose to do it on. For us, we'd rather make a loss on something like milk rather than potato chips."

He hoped their price drop would force other retailers to do the same.

"We've always had the position that with milk, as a retailer, we should be careful about our margin expectations. Milk is a product we don't feel high margins should be taken on," he said.

Consumer NZ chief executive Sue Chetwin said she believed Nosh's milk price drop was a market ploy to get people into their stores and only they could know if it was sustainable.

"But there are service stations and dairies that have milk cheaper than what you can get it at the supermarket and they're certainly not regarding it as a loss leader, so if they're still making profits from it, you have to ask yourself the sort of profits the supermarkets are making on milk."

She said that even though the cost of milk had come down in recent months, she believed New Zealanders were still paying too much.

- NZ Herald

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