Setting the record straight: Why food prices are more expensive in NZ than in Australia

Red kumara prices in New Zealand (left) versus purple kumara prices in Australia (right). Photo / Facebook

It's no secret that food prices here in New Zealand are creeping up in cost, but have you ever wondered why they're so costly compared to places overseas?

There are several factors as to why food prices are higher here than in Australia, says New Zealand Food & Grocery Council spokesman Brent Webling.

Population size

Australia is five times bigger than New Zealand, with a population of 25 million compared to New Zealand's 4.5 million - they produce more.

To put it into perspective: "We're less than the population of Sydney," Webling said. "That means the economies of scale in Australia are vastly different to ours. They can produce more items for less because they have longer production runs."

We export a lot

Economic growth in New Zealand's growing markets in Asia and the East are partly to blame for rising costs, Webling said.

"We can also put some of the blame for our high prices on the economic growth in our growing markets in Asia and the East.

"As the standard of living rises in those countries, our high-quality food exports are in even higher demand, and that puts pressure on prices. Short of introducing our own subsidies, that means we pay more as well."

The cost of New Zealand-made butter hit an all-time high last month - peaking at $4.80 for 500g block of butter - and surpassing the price of buying French butter in New Zealand supermarkets.

Mark Robinson, Fonterra head of farm source, told NZ Herald Focus that the sky-high prices were due to the global standard set in the wider market.

"We need to set our prices based on what we can sell our product for abroad because otherwise you would question why wouldn't you just go and sell it abroad," he said.

"Our model in New Zealand is export-driven and that's not just dairy, that's all of agriculture, so we rely on our global markets to set the price in New Zealand and that's for a lot of things not just dairy, beef and lamb."

Domestic food prices

As long as New Zealand continues to get premium prices for its highly sought-after goods in international markets, prices domestically will not reduce, Webling said.

"Food companies think very carefully before passing on increased costs, but to a large extent they are at the mercy of factors outside their control," he said.

Food prices rose at their fastest annual pace in more than six years as increasingly expensive vegetables were made more scarce by wet autumn weather.

The food price index climbed an annual 3.1 per cent in the year ended May 31, the biggest annual increase since September 2011 when prices were artificially boosted by the hike in GST to 15 per cent, Statistics New Zealand said.

Fruit and vegetables prices have been pushed higher due to wet periods.

"As for the price of fruit and vegetables, they are high because a very wet autumn has restricted growth and destroyed some crops, leading to shortages."