Cheesed off: What's going on with the price of a 1kg block of NZ cheese?

Cheese prices are on the rise in New Zealand. Photo / 123RF

Strong global milk prices aren't the only reason for the stratospheric price of a plain old household staple 1kg block of cheese - you can also blame New Zealand's lack of supermarket industry competition.

Consumer NZ chief executive Jon Duffy said while a contributor to the high price of cheese at the chiller is continuing strong international market prices for our commodity dairy product, there is another culprit.

"We understand there will be a record milk payout this year so prices are high and have been for a while. That is one contributing factor but there are others. The state of the supermarket industry is another."

New Zealand has just two supermarket chains, Australian-owned Countdown, and New Zealand's Foodstuffs, which operates the New World, Pak'nSave and Four Square outlets.

Online prices for a 1kg block of cheese on Monday ranged from a special low price of $8.99 for homebrand Pam's at Foodstuffs outlet Pak'nSave, to a high of $15.49 for Mainland brand at Foodstuffs New World. At Countdown, prices ranged between $10.60 for Countdown's home brand to $12.50 for named brands. At New World you could also buy a named brand 1kg block for $10.99 and Pam's edam cheese for $10.59.

Duffy said the price of 1kg cheese blocks "at the top end" had hit $20 recently.

He noted that as New Zealand dairy farmers anticipate a record farmgate payment for their milk this season, the Commerce Commission is "in the final thinking phase" of its study into the New Zealand grocery sector.

"Its preliminary report identified a range of issues showing new Zealand consumers were paying more at the check out than they should be and cheese is no different from any other price ...

"The commission identified that supermarket prices are significantly over what they would normally expect in a competitive market - and very high by international standards.

"So what in effect is happening is that we have a product with a price set by the international market but New Zealand consumers don't have the constraints that a competitive supermarket sector would place on the final price, after the profit supermarkets would take out, to protect them from the super-high price of cheese."

Duffy said cheaper supermarket home brand cheese offerings had a sting in the tail.

"The findings of the commission's preliminary report was that the proliferation of homebrands reduced choice for consumers on the shelves - yet another outcome when you have reduced competition.

"(It means) Domestic suppliers are struggling for shelf space. If you look at where profit and margin goes, if you own the shelf space you are vertically integrated so you have all the distribution and are effectively producing the product ... you've got the whole shooting match tied up.

"You have the ability to undercut your competitors (suppliers) and control whether they are even able to compete."

Consumer NZ chief executive Jon Duffy. Photo / Supplied

The Herald asked Countdown and Foodstuffs questions about 1kg block cheese prices, including the reasons, whether they were at record levels, what their margins were, and if further price rises were likely.

Countdown's written response: "The price of most 1kg cheese blocks including Countdown's own brand has not increased since the beginning of May this year.

"However, across the board, the cost of a 1kg block of cheese has increased over the last two years, both on the wholesale and retail side. There are a lot of factors that go into determining retail prices, including the cost of the product
that we pay to the supplier, the cost to us to sell the product (including transport, distribution, paying labour through the supply chain, the cost of running our stores etc), and GST of 15 per cent is added at the end.

"At the moment, there are a number of factors putting additional pressure on the price of cheese here in New Zealand including global milk supply, rising labour costs and high farmgate milk prices."

Foodstuff's written response: "Some factors, like product demand, seasonality and if the product is on or off special or promotion that week, have always played a role in the price that appears on shelf.

"However, the impact of Covid-19 has added complexities to food prices, which are largely responsible for the continued rise over the past six months ... knock-on effects include: an exponential rise in commodity prices, global demand, fuel and power prices worldwide, an international shipping crisis and a skills shortage in New Zealand that are impacting on New Zealand retailers, importers, growers and manufacturers. We expect the knock-on effects ... to continue for some time and, like other commodities, we can anticipate the price of cheese to be impacted too.

"Cheese, along with many other products in our supermarkets, are subject to fluctuations in price. Due to low supply and high demand, the international cheese market is booming and we are competing for the same in-demand stock. The export market plays a significant role in the price shoppers see in store."

Foodstuffs said it had "not increased prices as a result of the alert level 4 lockdown".

So where does most of the milk come from to make New Zealand's family favourite 1kg block of cheese?

Dairy co-operative Fonterra collects around 78 per cent of the country's raw milk production. Fonterra is the country's biggest business and the world's sixth-largest dairy company by revenue.

Owned by dairy farmer-suppliers, it is the world's largest dairy exporter.
New Zealand exports 95 per cent of all its dairy production.

Fonterra also makes dairy products for the New Zealand consumer market, including cheese under the Mainland and Anchor brands.

It says its New Zealand manufacturing division Fonterra NZ Brands buys milk to make its products from the Fonterra parent company at the same prices Fonterra earns on the international market - the Global Dairy Trade (GDT) market.

Fonterra chief executive Miles Hurrell told the Herald global prices for cheese had increased 39 per cent over the past year.

"When there's a sustained increase in GDT prices we can reasonably expect that these will flow through to consumer retail prices eventually.

"While FBNZ has held the price it sells cheese to its retail customers for most of the past year, from 1st May we increased our price per block by an average of 6 per cent (or 50 cents) to reflect some of the increase in the global wholesale price of cheese."