Prices at the dairy chiller on the way up as world prices boom

The price of milk, butter and cheese is to rise at the grocery store chiller as global dairy prices hit a seven-year high.

Local market heavyweight Fonterra Brands says it’s told its New Zealand customers wholesale prices for milk, cream, butter, cheese and spreads are increasing due to bumper world dairy prices.

Tight global milk supply is attributed with driving prices higher.

Average increases are 10c for a 2-litre bottle of milk, 67c for 500gm of butter and $1.17 for 1kg of cheese, said Fonterra Brands managing director Brett Henshaw.

The extent to which supermarkets and grocers pass these wholesale increases on to customers is up to them – as a supplier Fonterra said it can only recommend retail prices.

In November the weighted average price of 2 litres of standard milk was $3.73 and a 1kg block of milk cheddar cheese was $10.90, according to Statistics NZ. A 150gm pottle of yoghurt was $5.53. These were the cheapest offerings in supermarkets.

New Zealand exports 95 per cent of its dairy product, and Fonterra Brands, the New Zealand division of the country’s biggest export business, pays its parent company the same price for product as it fetches offshore.

Fonterra Brands managing director Brett Henshaw said the introduction of the wholesale price increases would be staggered over the first three months of this year.

Fonterra collects around 80 per cent of the country’s raw milk production and is by far the biggest supplier to the retail dairy market.

The country’s two supermarket chains Foodstuffs and Countdown have been approached for comment on if, how and when they will pass on Fonterra’s wholesale price increases.

Confirmation of more dairy product price rises comes as New Zealand records an annual increase in inflation of 4.9 per cent, the highest rate since 2011. In the three months ending September 30, the consumer price index rose by 2.2 per cent. Excluding quarters where GST was increased, it was the strongest quarterly increase in consumer inflation since 1987.

And while New Zealand dairy farmers would have been delighted with a 4.6 per cent jump in the average price on Tuesday night’s Global Dairy Trade commodities auction, its largest single gain since March 2020, the result threatens more pressure on prices at the local dairy chiller.

While Fonterra Brands was quick to emphasise one GDT event does not impact its pricing, it said consistent increases in world prices leads to rises in the price Fonterra Brands and other dairy brands pay for their milk supply.

Consumer NZ chief executive Jon Duffy said retail price rises meant some New Zealanders would have to think twice about buying a block of cheese, which he termed “a food staple” – or “find an alternative or go without”.

New Zealanders were already paying high prices for food, he said.

“This is going to bite that little bit harder for New Zealanders.”

Meanwhile, Fonterra dairy farmers are eyeing a record price for their milk.

ASB economist Nat Keall said the bank had revised its 2021-2022 season farmgate milk price forecast up to $9.10/kg milk solids on the back of the latest GDT result.

Westpac senior agri economist Nathan Penny said the strong result cemented his bank’s forecast at $9/kg.

The average price of wholemilk powder, which determines the milk price paid to farmers, lifted 5.6 per cent to $US4082/tonne. Cheddar and butter prices set record highs.

ASB’s Keall said the underlying global demand for dairy and supply balance should keep prices supported over the rest of the season.

Responding to lifting global prices, Fonterra in December raised and narrowed its forecast farmgate milk price range to $8.40-$9/kg up from $7.90-$8.90.

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