Comment: Food prices may have increased, but if it wasn't for the productivity of farmers, consumers would be parting with even more cash, writes Dr Jacqueline Rowarth.
StatsNZ reported last week that Food Prices increased 3.5 per cent in the year ending January 2020.
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It seems that every time the supermarket (or whatever food outlet) is visited, prices are up, and this year the statistics back the feeling. What is sometimes overlooked, however, is that over time salaries and wages have increased more than food.
The Reserve Bank Inflation Calculator Shows that in the five-year period between 2014 Q4 and 2019 Q4 (latest information) food increased by 5 per cent and wages by 14 per cent.
In the last decade (from 2009) food increased 14 per cent and wages by 30 per cent.
Over time, food has become a smaller part of the household income. This is because agricultural productivity has enabled more food to be produced from each hectare and hour worked. The consumer has benefitted.
Another release from StatsNZ last week showed productivity gains in various industries.
Agricultural labour productivity has increased by 3.7 per cent a year since the Global Financial Crisis (GFC), retail trade by 2.9 per cent, construction by 1 per cent and accommodation and food by 0.5 per cent. Arts and recreation dropped 0.5 per cent a year. The only sector to achieve more than agriculture was telecommunications and IT at 4.0 per cent a year.
Multifactor productivity has also grown in agriculture. At 2.7 per cent a year since the GFC it has contributed more than any other sector.
Without these gains, food would have been more expensive than it is.
Globally, inputs of technology – mechanical, electrical, chemical, biological and information management, have made the difference.
What is referred to as the yield gap – the difference in yields between developed and developing countries - is approximately 40 per cent and reflects access to the technologies.
New Zealand is a leader in using and developing technologies, managing resources and turning the outcome into prosperity for New Zealanders.
This was acknowledged in the Legatum Prosperity Index in 2016 when New Zealand ranked number one of 149 countries. The authors wrote:
"There is an old Māori proverb, 'he kai kei aku ringa' – 'There is food at the end of my hands.' It speaks to a resilience; an ability to use your basic skills and resources to create success. This New Zealand has done in abundance. For the past decade, this remote island nation of just 4.7 million has stood out as the best deliverer of prosperity in the world – the best at turning its resources and the skills of its people into prosperity."
This very success could be used to argue that food should be cheaper.
Many people have pointed out that food in New Zealand appears to be more expensive than in other countries.
They don't realise the taxation differences between countries and the fact that other countries subsidise their farmers by transferring tax revenue to food producers.
In the UK, for instance, a report published last year by the National Audit Office said 42 per cent of UK farmers would have made a loss between 2014 and 2017 without direct payments from the EU.
New Zealand removed agricultural subsidises in the mid-1980s. The innovation and productivity gains apparent in agriculture here have been attributed to that revolutionary decision.
Over the years there have been many visits from many officials from many countries examining the process and outcome. Despite high-level agreements that subsidies distort production, and statements that they will be reduced, no other country has removed support for domestic farmers, probably reflecting concerns for domestic food security.
When food is scarce, prices increase.
We see the effect in the increase in price of vegetables and fruit during cold temperatures and the effect on kumara and potatoes during floods. Bananas and pineapple shoot up in price when a cyclone destroys the plantations. Drought in Australia affects the price of bread in the North Island.
Food is a global resource but is treated nationally, and we forget that we import approximately 50 per cent of what we consume – including 60 per cent of pork products, some beef and lamb - many fruits and vegetables as well as biscuits, muesli bars, sugar, chocolate, tea, coffee ...
Of interest in the debate about the expense of food is The Economist's Big Mac Index.
Listen to Jamie Mackay's interview with Dr Jacqueline Rowarth on The Country below:
In January this year, a Big Mac cost 24 per cent less in New Zealand than in the United States at Market Exchange Rates. When corrected for GDP per person the difference was 16 per cent less. The Economist suggested that this means the NZ dollar is 9.6 per cent undervalued.
The Big Mac Index is a light-hearted approach but shows the potential for misunderstanding in international comparisons.
Sticking to New Zealand data, it is clear that the cost of food has not increased as much as income, thanks to the productivity of farmers.
Research and development, commended by the OECD last year in "Trends and Drivers of Agri-environmental Performance in OECD Countries", will continue to make advances to the benefit of everybody.
- Dr Jacqueline Rowarth CNZM CRSNZ HFNZIAHS has a PhD in Soil Science. The analysis and conclusions above are her own and should not be attributed to any of the organisations with which she is affiliated. You can contact Dr Rowarth at firstname.lastname@example.org