Dairy companies are defending accusations Kiwi consumers are paying too much for dairy products, blaming international demand for pushing prices up.

A block of butter now costs $5.67, which is more than 60 per cent higher than this time last year.

Milk prices are up 7.5 per cent, while cheese has risen 12 per cent.

Malcolm Bailey, the Chairman of the Dairy Companies Association, said when international demand for dairy increases we all pay more.


"Given that we export about 95 per cent of the dairy products produced in New Zealand, New Zealanders have to accept they pay pretty much the world price."

The record prices are slicing profits in our bakeries.

Martin Meehan, the owner of Kidds Cakes and Bakery in Christchurch, said butter has "gone through the roof" in the past six weeks.

He said it costs a lot more to make pastries, quiches and croissants, but so far they haven't put prices up.

"[It's] a constant battle between keeping up a level of quality and the taste, and justifying the sort of price that we are having to pay for butter and cheese," Meehan told Newstalk ZB.

He said the books are looking fairly tight.

"We also have a minimum wage price [rise] coming through now, so if you stick that on top of the butter and the cheese, two major products that we use, it's pretty tough."

The prices are making it harder for bakers such as Meehan to avoid using margarine as a butter substitute.


He said his business uses as many natural products as they can but it's getting tougher, but he'd rather put prices up than use more processed products such as margarine.

"We like to produce baked goods that don't have all the numbers that go with it. It looks like a sort of chemical mix you're getting for breakfast when you eat them," Meehan said.

An end could be in sight though. Bailey said that in the past few weeks prices have started to come down.

He said supply had increased to meet demand, we just haven't seen it in the Food Price Index yet.

"There's always a lag between the price rising in New Zealand and statistics capturing it, so things are already easing a bit," he said.

However, he dismissed calls for subsidised prices for New Zealanders.


Bailey said the higher prices flow through into the economy and underpin better paying jobs.

"The only way of having New Zealanders pay less for dairy products is for the Government to offer some sort of subsidy, and that doesn't really make a lot of sense."