Food prices: What’s really driving the high cost of fruit and vegetables?

The president of a fresh produce association says the latest data for fruit and vegetable prices is good news and a positive sign the cost of produce was finally levelling off, after the disruptive weather that ruined many crops across the country.

Fruit and vegetable prices increased 5.4 per cent in August 2023 compared to August 2022, new data from Stats NZ shows. In the year to July 2023, they increased 6.2 per cent.

However, the cost of kūmara has continued to skyrocket. The latest data showed kūmara were 234 per cent more expensive last month than in August 2022, with the per-kilo price increasing from $3.79 to $12.64. Prices for other fresh produce items have also surged - 1kg of pumpkin increased 58 per cent year on year, while cucumber prices jumped 30 per cent.

President of industry association United Fresh, Jerry Prendergast, said the steep kūmara prices were “directly” connected to the weather destroying crops in Northland earlier in the year, where the majority of the country’s kūmara is produced. He said around 60-70 per cent of the region’s crops were down after the storms.

“You can draw a direct line to that.”

The fundamental driver behind supermarket prices is supply and demand. The more of a product there is on the market, the lower the price, and vice versa. When weather events destroy crops and there are fewer on the market, the price goes up.

“Generally, if it’s plentiful, the price will go down. If it’s not, then the price will go up,” said Foodstuffs’ North Island merchandise manager, produce and butchery, Brigit Corson.

“We’re driven by market pricing. We need to keep the produce moving, we want to keep the produce fresh. So there’s no incentive for us to keep the price high and not be moving that produce. Produce is perishable.”

Last year, the Commerce Commission declared competition was “not working well” in the supermarket sector and recommended addressing the imbalances in bargaining power between the major grocery retailers and many of their suppliers by introducing a mandatory grocery code of conduct.

Chief executive of large-scale produce supplier Leaderbrand, Richard Burke, said his company negotiates how much of a certain product can be sold before putting seeds in the ground. The companies agree on a price that is considered the “right value” to move that amount of product.

Burke stressed Leaderbrand was a large-scale supplier and processes may differ among smaller suppliers.

“If there’s a lot (of a certain product) we’ll lead the market down so we can sell all of our product,” he said.

“We know what margins the supermarket has and if we’ve got a lot of supply and we’re trying to stimulate some demand, we’ll agree with our customers [supermarkets] around what margins [to] charge so that we can get the price on the shelf cheaper so we can move more volume.”

Rising costs, including increased transport and freight costs and wages for staff, were all adding to the cost of harvesting produce, Burke said.

“This cost of living that everyone’s facing, I think it’s the same for us as a supplier.”

“Our roads are rubbish... and all of those things add cost to us as a supplier because our [transport] contractors want to charge us more because it’s costing them more money. On top of that, there’s labour. Everybody wants to be paid more money and we’re paying our staff more money, no question... but all of that adds cost to our harvesting cost.”

Leaderbrand chief executive Richard Burke. Photo / Supplied

Perhaps the most significant impact on the price of fresh fruit and vegetables has been Cyclone Gabrielle and other periods of persistent or significant rain that have hit producers hard. It’s been estimated, for example, the cyclone has cost apple and pear growers in Hawke’s Bay $270 million in lost earnings.

United Fresh president Prendergast said bad weather impacted every major growing region in New Zealand, including citrus harvests in Tairāwhiti Gisborne, kiwifruit farms and kūmara crops in Northland.

“We saw some catastrophic events. To see weather challenges in every major growing region at some occasions during last year was quite extraordinary. I don’t think we’ve seen that for decades.”

Leaderbrand’s Burke said the company’s North Island farms were heavily affected. The direct effect of the cyclone was not as impactful as the persistent rain that followed, preventing the ground from drying to be able to plant crops.

“We never dried out and we went into winter and it just stayed. We just literally could not get the plants in the ground. Gisborne and Matamata have been so wet, it’s really disrupted out planting cycle,” Burke said.

“What you’re seeing now is not a lot of product coming out of Gisborne because June and July was so wet. What we’re doing is we’re harvesting right now a product that we planted in June and July.”

Overall, annual food prices were 8.9 per cent higher in August 2023 than in August 2022. Westpac senior economist Satish Ranchhod said although food price inflation was slowing, it remained “painfully” high for households.

The latest data compares with food price increases of 9.6 per cent in the 12 months ended July 2023 and grocery food price increases of 11.9 per cent in the same period.

The results were close to expectations, Ranchhod said.

“We also doubt they would have been a big surprise to the Reserve Bank who, like us, expects that inflation will gradually ease from its current high levels,” he said.