Cheese war sees prices tumble to two-year lows

Countdown supermarkets are selling cheese as low as $6.99 for a 1kg block until tomorrow. Photo / Dean Purcell

Cut-throat competition between the country's supermarket giants is resulting in some of the best cheese deals seen in years, with 1kg blocks of mild, colby and edam selling for as little as $6.99.

That's a far cry from the days of early 2008, when 1kg of tasty cheese was selling for up to $16.15 and a 1kg block of mild for $13.95.

But an economist says the cost of the family staple is likely to increase later this year as the North Island drought drives agricultural commodity prices up.

Countdown communications manager Kate Porter said the supermarket chain launched a $6.99 deal on its Signature Range 1kg mild, colby and edam cheese blocks last weekend.

The offer, the lowest price the company has offered on 1kg blocks nationally for at least two years, lasts until March 17.

"It's a very competitive market at the moment ... so we are seeing [competitors] responding really heavily to each other, which is great for the consumer," said Ms Porter.

Foodstuffs New Zealand, the other half of the country's supermarket duopoly, has also been offering a $6.99 deal on 1kg blocks.

"As a New Zealand-owned company, Foodstuffs - and our brands New World and Pak'nSave - price sharply to ensure we stand toe-to-toe with our Aussie competition [Countdown] and offer our customers the best possible deals," said communications director Antoinette Shallue.

While competition is the main factor driving the current cut-rate cheese deals, retail prices on the product have been dropping steadily for the past couple of years.

The monthly weighted average price for a 1kg block of mild cheddar dropped 22 per cent between February 2011 and the same month this year, from $10.78 a kg to $8.38, according to Statistics New Zealand.

International cheese prices have seen a similar decline over the same period.

Retail milk prices have seen a more modest drop, with the cost of a two-litre bottle of standard homogenised falling 11 per cent from $3.63 in February 2011 to $3.26 last month, according to Statistics New Zealand.

But BNZ economist Doug Steel said the tide was starting to turn, as the drought looked as if it would push dairy prices, including cheese, higher.

"That will eventually flow through to the supermarket prices," Mr Steel said.

Prices in dairy co-op Fonterra's GlobalDairyTrade auction surged to their highest level since June 2011 last week.

The GlobalDairyTrade weighted index - the average price of a basket of products - has been tracking steadily upward since August last year.

There was typically a six- to nine-month lag between international prices of dairy products and their impact on New Zealand retail prices, although there were many other components built into retail pricing, including fuel and labour costs, Mr Steel said.

Fonterra Brands managing director Peter McClure said there was a link between international and local cheese prices but retailers ultimately set prices, not the dairy co-op.

"Cheese is often a competitively promoted product and prices can vary as much as $3 to $4," Mr McClure said.