Nicola Willis, Fonterra CEO discuss butter prices, no immediate relief

New Zealanders hoping Finance Minister Nicola Willis’ long-teased meeting with Fonterra chief executive Miles Hurrell on Tuesday might result in cheaper butter will be disappointed.

The main outcome from the meeting seems to be the suggestion Hurrell will publicly explain the different components of the price of butter, which Willis said will come later in the week.

“He was so good at communicating about [butter prices] I have encouraged him to provide that information to New Zealanders,” she said.

That marked a change from Tuesday, when Hurrell was so keen to get away from 1 News’ questions on butter prices that he was filmed crossing Lambton Quay when the pedestrian sign was illuminated red.

Speaking about the meeting on Wednesday, Willis said Hurrell was “candid” about the way butter is priced - and he pointed the finger at supermarkets for prices being quite as high as they are.

When asked whether anything raised in the meeting would lead to lower prices, Willis said, “All roads lead back to supermarket competition.”

“I continue to believe that is the most powerful lever the Government has on this issue. We will never be able to control global dairy prices, but we can influence the amount of competition in New Zealand’s grocery sector,” Willis said.

Willis said she had three main reflections on her conversation, the first was that “the large proportion of the price of butter at the supermarket is dictated by global demand for butter”.

“There’s a story to tell there: butter, which was once an unfashionable product, has gone into huge demand globally and that’s reflected in the price people are willing to pay for it internationally,” she said.

She had been told by Hurrell that when the global dairy price comes down, butter prices in New Zealand are expected to come down too.

She added that high prices had a positive upside.

“It’s worth noting that when the price is high that is hundreds of millions of dollars of export revenue coming into our country,” Willis said.

The second issue raised was retailers.

“What Miles acknowledged, and what every New Zealander can see, is that supermarkets make choices about what margin they charge for butter. Now this is at the margin, it is a small proportion of the overall price that you pay, between 5% and 10% of the overall price shared between Fonterra and the retailer.

“What is clear is that different retailers make different decisions about what margins they charge,” Willis said.

Willis, who once worked for Fonterra, revealed the fact she was meeting Hurrell last week. While the meeting was already scheduled, she let it be known she planned to raise the cost of butter with him.

The third point raised by Hurrell was that the dairy giant was itself squeezing costs out of the system to ensure prices could be lower for shoppers.

On Wednesday, she expressed regret that the significance of the meeting had spiralled out of proportion.

“I’ve been very surprised at the almost breathless excitement of the blow by blow of what happened in that meeting,” Willis said.

It is not clear what, if anything, Fonterra could do to lower the cost of butter, given the main driver of the price Kiwis pay is the price our dairy fetches on the international commodities market.

Willis praised the success of these exporters in Parliament on Wednesday, noting exporters, including dairy, are delivering an export-led economic recovery.