New Zealanders are now paying some of the world's highest prices for basic foods such as milk, chicken and eggs. That may be good news for our farmers and our export economy, but it's hard on family shopping bills. Money editor Susan Edmunds reports.

After an 11-hour flight from Hong Kong this week, the brightly lit McDonald's restaurant by the arrivals door at Auckland International Airport was a familiar and welcome sight for US travellers Kara O'Brien and Gerry Doyle.

The couple have been travelling the world for the past three years, so Doyle says they have become somewhat experts in the Maccas of the world. And they quickly noticed that New Zealand prices were high by international standards.

"We spent HK$36 for two burgers and two lots of french fries in Hong Kong, that's about US$5."


In New Zealand, those same burgers sell for $5.20 apiece.

Doyle says they have been able to sample lots of cheap burgers on their travels. Hong Kong McDonald's outlets are among the world's cheapest. And in Abu Dhabi, they paid the equivalent of about US$1.50 for a burger.

Each year, Britain's Economist magazine publishes its famous "Big Mac Index".

The index began as a light-hearted way of comparing the purchasing power of different currencies, premised on the assumption that the bean-counters who work beneath the Golden Arches are so fiendishly clever and sensitively attuned to their local fast-food markets that they know exactly how much they can sell their burgers for.

What the latest edition reveals is that Western Europeans, Canadians and Aussies pay the most, in real terms, for Big Macs. But Kiwis are paying more for their burgers than junk food consumers in Britain, the United States and Asia.

The scary thing is that McDonald's, indeed, packaged fast food generally, is the cheap option in this country.

So if we're above the odds for Big Macs, then we're paying through the nose for good, healthy fresh food. It's not the supermarkets' fault, but our weekly grocery shopping expedition is bleeding us dry. It's expensive to eat badly; it's exorbitant to eat well.

Despite being the bread basket of the world for meat and milk products, New Zealand can expect the prices we pay for basic foods to get worse, economists say.


Also wheeling his bags through the arrivals gate was Murray White, a 31-year-old New Zealand lawyer returning from three years in Germany. The Big Mac Index shows he would pay a little bit more of his weekly income for a burger in Germany, but he says almost all other food products are cheaper there.

The Herald on Sunday carried out an investigation of food prices, comparing New Zealand, Australia, the United States, United Kingdom, Singapore and South Africa with consumer price index data and 80 off-the-shelf supermarket prices, ordered online.

Both in raw dollar terms and relative to the median weekly income in each country, New Zealanders faced bigger food bills than many of their overseas counterparts.

Milk is especially expensive. A survey of supermarket prices found most New Zealanders are paying about $5.49 for three litres. The average price of the other five countries surveyed was $4.76. New Zealanders spend 0.85 per cent of their median disposable income on a 3 litre container of milk compared with 0.45 per cent of Australians' disposable and just 0.4 per cent of that of people in the United Kingdom.

This is the kind of information that has prompted complaints about milk prices over recent months. This week it was announced that the Commerce Commission will monitor milk pricing in New Zealand to rein in Fonterra's market power. Primary Industries Minister David Carter says Fonterra, which controls about 90 per cent of the raw milk market in this country, will have to make available to the public information about how it sets its milk price, and have to sell 200 million litres more milk a year at a regulated price to other dairy companies.

Federated Farmers says the milk price is forced up here by the 15 per cent GST, and artificially driven down by government subsidies for dairy farmers in other countries.

"This means consumers are paying more for milk, albeit, indirectly through their taxes," says spokesman Willy Leferink.

Like the supermarkets, our cow cockies insist they're not to blame for the price we pay at the checkout. According to Jacqueline Rowarth, Massey University professor of pastoral agriculture, dairy farmers get only 34c, on average, out of every $7.50 Fonterra payout. She says: "Farmers get very little of what we are paying."

Which begs the question: where's our money going?

MEAT, ESPECIALLY chicken, is also more expensive in New Zealand than in the other countries surveyed. Countdown was selling a size 14 frozen chicken for $10.49 this week, a fairly typical price.

But in raw dollars, that's more than shoppers in the other countries pay. In relative terms, that $10.49 will swallow up 1.63 per cent of the weekly median disposable income, nearly three times what it would in the US.

The December Food Price Index shows the price of meat, poultry and fish increased 3.7 per cent last year, more than any other food apart from non-alcoholic beverages. Fresh chicken pieces went up 3.9 per cent, and sausage prices increased 6.2 per cent, Statistics NZ says.

But the high prices are not limited to meat and dairy products: margarine rose 8.5 per cent last year, and chocolate biscuits increased 4.7 per cent, partly due to less discounting by retailers.

Auckland University Associate Professor Rhema Vaithianathan helped the Herald on Sunday analyse the prices for the 80 food items, and compare them with the five other countries.

She found pasta, butter, most root vegetables and frozen veges are relatively cheap compared with other countries. So too a dozen beers from the supermarket or liquor store.

But New Zealanders are often paying more for chicken, baby food, tomato sauce, and staples such as milk, eggs and bread.

Prices are rising around the world, she says, driven by the increasing cost of food for the world's poorest people and changing demographics.

"As Indians and Chinese enter middle class, they increase protein consumption and that drives meat and dairy prices."

If more people have the inclination and money to buy milk and lamb, then farmers can charge more for it. If they charge China and India more, then we have to pay them a higher price too. The difference is, we don't have the efficiencies of scale in our transport and retail infrastructure that characterise bigger countries.

BNZ chief economist Tony Alexander says the problem is not that food prices are high in this country - but that our incomes were low. "We're a poorer country, that's why our ratios look high. Prices are determined significantly by the international market."

But he also acknowledged the "usual culprits" - the distribution chain and wholesale inefficiencies.

Compared with five years ago, the price rises for food in New Zealand are eye-watering. A Statistics NZ report this week shows fresh milk has risen 24.1 per cent, bread prices are up 40.9 per cent and cheese has soared by 51.3 per cent. Wages, by comparison, have risen just $5 an hour on average.

There's a silver lining to this cloud, the money men insist.

ANZ chief economist Cameron Bagrie says higher food prices will be a boon for our farming economy: "While that means it will cost us more to eat, New Zealand as a country is very reliant on the fortune of commodity prices."

LAST YEAR, Jemma Barrett was one of the thousands of Kiwis to join the exodus to Australia. Now, she's earning $6.50 an hour more, and paying $50 a week less for food.

She can't get over how much cheaper her grocery bill is across the ditch. "It's insane how different it is."

She thinks New Zealand shoppers get an unfair deal. "Bacon and bread is cheap in Australia. I know people in New Zealand are getting ripped off."

Compare that with Jill Stanford, who has migrated from South Africa to New Zealand. She had to change her spending habits, she says, after discovering that staples such as bread, eggs, and milk can cost twice as much here. She says red meat like lamb costs about 10 per cent more.

American travel blogger Alastair Bland is cycling around New Zealand this month. He noticed the high prices as soon as he left the airport - and he's been telling the world through his blog at the Smithsonian magazine.

"At the large national grocery chains, basic vegetables and fruits seem to be two to four times the price of the same produce in America," he says.

"Bulk items, like nuts, have been killing me since I began cycling. Pecans are four times the price of pecans in America, almonds twice the price. I walked out of a New World market the other day with several days' worth of trail food from the bulk section, like figs, almonds, hazelnuts. It was one mixed bag with a price tag of almost $40. Beer is very expensive - about 50 per cent more than in America. Coffee is two to three times the price I'm used to in California."

Luke Schepen, spokesman for supermarket owner Progressive Enterprises, says food prices can vary between countries depending on things such as taxes.

"Take a product such as baked beans, for example. There's no VAT/GST on baked beans in the UK or Australia, and only 7 per cent in Germany, compared to New Zealand's 15 per cent." He has an explanation, too, for the relatively high price we pay for free-range eggs. "In some countries farmers are subsidised to produce free-range eggs which can bring down the price," he says.

There is pressure on retailers to raise prices further, he warns. "We operate in a global food market.

"The price of a product is made up mainly of the price we pay to our suppliers, then the costs to transport the product to our stores and the costs of running a supermarket such as paying our employees and keeping the lights on, and then a retail margin."

Supermarkets are high-volume, low-margin businesses: "Our profit margin in our supermarkets is 4.66 per cent before we pay interest and tax and this margin has not changed much over the years.

"After we pay interest and tax our net operating profit is under 2 per cent. In other words, for every dollar that our customers spend in our stores, we make less than two cents."

BACK AT Auckland International Airport, Americans Kara and Gerry turn their backs on the enticing seats outside McDonald's, and turn up their collars to wheel their luggage out into the rain. They hope to stay away from McDonald's during their time here, instead planning to sample some high-priced local cuisine.

"But who knows," Gerry says. "All it would take is one 3am trip to a bar and it could all change."