Butter prices: Why they might not fall as fast as they rose

The global dairy trade auction is only one factor that goes into the price of butter. Photo / 123rf

By Susan Edmunds of RNZ

Finally, some good news for butter lovers: global prices are falling.

But there remains some bad news: any fall in the price you see at the supermarket is not likely to be as fast or as large as the increase you experienced when prices were on the way up.

The price of butter has been one of the big consumer issues of this year.

In July, the price of butter was up about 50% on last year.

In October, Stats NZ said the average price of a 500g block of butter was $8.50, up from $6.67 a year earlier and $4.83 in 2024.

But butter prices fell about 12% in the most recent global auction and are down a third from the peak.

Infometrics chief executive Brad Olsen said that meant retail prices were likely to fall, “but likely not nearly as quickly as they went up”.

Olsen said Stats NZ data already showed a flattening of prices. In August, 500g was $8.58.

“You’ve started to see the early effects of the price boost coming off.

“The difficulty is you’ll have a whole range of factors coming in there.”

He said some butter contracts would have been locked in when prices started to increase.

“They now need to get through that stock that was already in there … there will be a whole lot of contracting elements, I expect, that were in there.

“That’s often why you find it easier for prices to go up, but not come down quite as quickly.”

Foodstuffs said that was the situation for its supermarkets.

“Changes in global prices don’t flow through to the checkouts immediately,” a spokesman said.

“There is a lag because we lock in butter supply contracts on a quarterly basis.

“These help create certainty for suppliers and stability for customers, avoiding week-to-week price swings.

“As each contract rolls over, any shifts in commodity prices are then reflected in the prices customers see on the shelf.

“The biggest part of the price customers pay at the checkout is the price we’re charged by suppliers and we work hard to buy well and run our business efficiently so we can keep prices as low as possible.”

He said New World and Pak’nSave in the North Island had been selling Pams butter at a loss for the past two and a half years.

But Olsen said there was also more dairy available now than previously and that should mean downward pressure on prices.

“It’s not huge, but you are now seeing the largest increase in global dairy supply, at least from major exporters, in about three years.

“So there is a bit more of expansion coming through there.”

He said it would also be challenging for prices to fall because people had become accustomed to the higher price.

“So that does sort of set a bit of a new normal for what people are clearly willing to pay.

“I guess it depends on how much people have changed their consumption.

“Another data point that isn’t butter, but potentially gives you a bit of a view on it is what’s happened in the last couple of years to olive oil prices, which of course skyrocketed quite a bit.

“They’ve now started to pull back quite a bit as well, nowhere near back to what they were before the big spike, but they are definitely on the downward decline.

“That did seem to take quite a bit after you started to see olive oil future prices start to pull back, for retail prices to then follow.

“And it does suggest sometimes some of the changes on the pullback side can take sort of up to six months to really start to show through just because of all of those contracts that are locked in and sort of pricing changes that will happen.”

A Woolworths spokesperson said the global dairy trade auction was only one factor that went into the price of butter.

“We are also seeing the NZ dollar weaken versus the US dollar.

“This affects pricing as the GDT auctions are conducted in US dollars.

“These factors are reviewed quarterly by suppliers; therefore, our retail price is set quarterly.

“We did see some global price relief on butter last month and this meant we could pass on lower prices to Kiwi customers across all major brand butter.

“We know it’s a tough time for Kiwi households and we’re working hard to keep butter prices as low as possible, for as long as possible.”

- RNZ