4 Oct 2008

Consumers may not benefit from lower dairy prices

2:24 pm on 4 October 2008

Lower world commodity prices for dairy products may not necessarily mean cheaper prices for consumers, an economist has warned.

In the past year, shoppers have born the brunt of hefty price rises at the cold shelf, with figures in the year to May showing milk and cheese prices rose by 23%.

The Westpac bank economist, Dominick Stephens, says the fall in world commodity prices comes at a time when the New Zealand dollar is lower.

"When dairy prices were peaking, the New Zealand dollar reached 80 cents US. That meant that the overall increase in dairy prices on New Zealand shop shelves was not as great as the increase in prices on world markets," he said.

"The same will apply on the way down - the New Zealand dollar is falling along with world dairy prices. So the shop shelf decline will not be as great as the decline in world prices."

Mr Stephens says supermarkets have also had to contend with rising costs for fuel, wages and electricity.

He says supermarkets appear to have reduced their margins in the past year, and could actually seek to expand them now.

Earlier, reports suggested a likely drop in the cost of dairy products.

The managing director of Fonterra Brands, Peter McClure, estimates prices will ease, particularly for butter and cheese, before Christmas.

As for the price of milk, Mr McClure says that is determined by the payout to farmers.

While a lower payout has just been announced, he says regulations will not see prices change for a month or two.

Foodstuff's general manager for retail services George Sutherland says the market is already extremely competitive and it pays for people to shop around.

Foodstuffs operates the New World, Four Square and Pak 'n Save supermarkets.