Introducing price caps on staple grocery foods has has been introduced in France and is planned in the United Kingdom, but is not a priority in New Zealand, Commerce Minister Duncan Webb says.
The cost of living crisis is putting extraordinary pressure on NZ households and food price inflation is at its highest level in 36 years. Statistics NZ's food price index rose 12.5% in the year ended April, the highest annual rate since late 1987.
NZ is not alone in experiencing rocketing food prices. Food inflation was 14.9% in France in April year-on-year, and food prices in the UK rose 19.1% for the same period, the second-highest increase in 45 years.
In March, agreement was reached in France with most major supermarket retailers to cut prices for selected staple food items.
French Finance Minister Bruno Le Maire said then that retail groups would cut prices for a wide range of foodstuffs, the choice being left to retailers’ discretion, "to the lowest possible level" until June.
The UK government is also planning a voluntary cap on the price of basic food items such as milk and bread, similar to the deal struck in France, UK media has reported.
Here, Commerce Minister Duncan Webb says his priority is addressing food-price inflation by tackling excess profits in supermarkets through the Grocery Industry Competition Bill.
He says while price caps may help address short-term affordability concerns, there can be unintended consequences including discouraging producers from supplying goods due to reduced profitability, they may stifle innovation, and lead to shortages or lower quality products in the long run.
“I am moving at pace to address the issues identified in the Commerce Commission’s market study into the grocery sector,” Webb says.
“The cost of living is top of mind for many New Zealanders. The Grocery Industry Competition Bill empowers new grocery retailers to have access to a range of wholesale groceries at reasonable prices. Once passed, the Bill will impose wholesale regulatory requirements on the major supermarkets to open a wholesale market. Improving competition in the grocery sector will contribute to lower grocery prices for consumers, better quality products, wider ranges, and better service in the long term.”
The Grocery Industry Competition Bill is currently working its way through Parliament.
It aims to improve competition in the supermarket industry and among the measures included is forcing the current big two – cooperative Foodstuffs and Aussie-owned Woolworths – to open up their wholesale networks to competitors at prices that could be set by a regulator if they don't make deals in good faith.
The Commerce Commission published a market study into the grocery sector in March 2022. It found competition was not working well.
Countdown, which is part of the Australian-owned Woolworths Group, declined to comment on price caps.
The supermarket chain says it will freeze prices on more than 100 "key grocery lines" with its Great Price for Winter Programme, which will run until 20 August.
It says milk, tinned tomatoes, mushrooms, margarine, potatoes, muesli bars and chicken will be among the products where prices won't rise.
Countdown-brand light blue milk will stay priced at $5.69 for three litres, a 400 gram tin of tomatoes will remain priced at $1.40 while a 4 kilogram bag of potatoes will be $10.
Countdown's Commercial Director for Packaged Goods, Steve Mills, says the company knows that affordability has never been more important to its customers.
"While we certainly can’t control all of the factors that are contributing to inflation, we hope that holding the prices on these key products goes some way towards helping New Zealanders this winter."
Raewyn Bleakley, Chief Executive of the New Zealand Food and Grocery Council which represents supermarket suppliers, says with escalating input prices and a tight labour market, freezing prices can cause challenges to any business, and the suppliers it represents are no different.
“Food and grocery suppliers are in a highly competitive environment and are constantly looking for efficiencies and having to balance many factors beyond their control. Setting the prices they sell their products at to retailers involves negotiation and it is entirely up to the retailers what they set the price that the products appear on the shelves at and consumers ultimately pay.”
Worryingly for the Government and Webb, food price inflation is still rising; with annual food price inflation of 12.1% in March and 12% in February.
Annual food prices rose less quickly in January, with a 10.3% increase and annual food price inflation rose 11.3% in December and 10.7% in November.
But showing how quickly food prices have moved, in August 2022 overall food inflation was 8.3% annually, a rise then that had not been seen for 13 years.
41 Comments
Price controls could work in NZ on a temporary basis. Especially as food price inflation appears to be price gouging by supermarkets and not a result of supply and demand. You just need to go to Countdown to see the number of past their best before date items on the shelves - the waste is massive.
Price controls don't work.
They do in Japan. Approx 25% of the goods and services for which Japanese consumers pay are subject to government rules and regulation, i.e. de-facto price controls.
https://japanoptimist.substack.com/p/whos-afraid-of-inflation-not-japan
Yep, see Switzerland too (widespread price controls). Spain has also effectively capped price of energy, fuel etc. France has done similar. Unsurprisingly, these countries have also had much lower inflation than comparable countries. Why? Not just because they tackled a core component of their CPI, but because they stopped higher input costs flowing through into the wider economy (look at what fuel, fertiliser and interest rates have done here).
It's not rocket science - unless of course you're a mainstream economist and you have blind faith in the point at which two intersecting curves meet on a meaningless plot.
What's a staple? Veges or pizza, fruit or KFC?
This would start racial battle for sure!
Are cars a staple in the Greens eyes . Nope its bikes!
Ever noticed that every dumb TPM policy is Never linked with A fiscal cost analysis!... do they have a economist in thier whare?
What has happened to The maori caucus? Have they really been silenced or have they be brought out.
Where is Mahuta and where is her results sheet!?
Ideally, you want to control prices and introduce rationing at the same time. Otherwise you drive up demand while discouraging supply, so the balance is found through shortages instead of price.
Price controls and rationing were used very effectively in the US to control inflation during WW2.
[Webbs says while price caps may help address short-term affordability concerns, ...they may stifle innovation, and lead to shortages or lower quality products in the long run.]
Why would the government not put temporary price caps on key food essentials to address short-term affordability now while average kiwis are suffering from overpriced bills from supermarkets price gouging. Then let the new legislation supposedly fix the long term issue??
How hard can it be?
The truth is price controls don't work even in the short term. The focus should be on addressing the root causes of inflation, such as monetary mismanagement and excessive government intervention, through sound monetary policy, fiscal discipline, and reducing barriers to market entry and competition. The answer is not more regulation/legislation.
There are divergent views on price controls overseas, even from some economists.
There are divergent views on price controls overseas, even from some economists.
This is true, but there is an argument that if private bank credit creation is weighted towards consumption and punting on house prices, you're more at risk from inflation and related crisis.
Tell us all how you will ration broccoli if you are not going to ration by price?
Will you issue broccoli vouchers? Will it be per household, by age, by race (some need more broccoli than others).
A free market with price signals is the way to increase supply. Remove those signals then guess who wont be planting broccoli on any time frame?
The issue is with middlemen. As you say, with price controls the middleman (price maker) will not sacrifice margin, they just won't purchase and it'll be the growers that lose (stop planting broccoli). Foodstuffs don't care if kiwis can buy broccoli, they only care if they can make a healthy margin. If they can't insert their cut between the wholesale and enforced retail, then why would they bother?
Although, maybe growers will do well out of it if the price control for a broccoli = growers market rates. Consumers forced to these markets if they want broccoli.
Dumb example. Try petrol or diesel. Set a min and max price per litre and manage gate price at ports - put Govt subsidy in when price is over $2.50 and increase excise duty when price goes under $2.30. Consumers and businesses get a nice stable price so cost of production is smoothed and sudden price increases don't push on other prices..
Wouldn't setting just a max per liter price achieve that?
Result: Min $0. Max $2.50.
Manage gate price at ports and subsidize? BP sends a ship of 91 but sets the price at $3 per liter because they know the Government will stump up the difference. Might as well send them a blank cheque. Maybe we don't subsidize, but we introduce carless days to cope with the shortage of fuel.
We already have daily reporting on fuel costs - actual cost, retail mark-ups, gate price etc. It's one of the most closely watched prices in the country (google MBIE petrol prices). The floor and ceiling (corridor) model is well understood and has been used through history. The idea is that it is cost neutral to Govt, but economy is shielded from sudden moves in prices. I'm all for car free days by the way (and for car free cities!)
Yep, you can’t fix inflation through subsidies. If something becomes expensive then less people need to consume it, they need to change their habits.
You can get a loaf of wholemeal bread for $1.30 at New World and a bag of frozen beans for $2.99. People need to change what they are buying.
Supermarkets have had per-customer limits on heaps of things in the last few years - toilet paper, flour, etc. Do you think during the pandemic it would have been better for them simply to charge as much as the market would bear for those items? It seems to me like that would have been a bad thing, and that short term rationing on that level was a better solution.
Price controls only worked during WW2, when John Kenneth Galbraith used them in the United States to limit inflation; which is why they were used in the 70s.
But that worked ONLY because the United States had effectively 10% forced savings in war bonds for all civilians (and military personnel) and was the only major industrial economy on earth which wasn't devoted to total wartime production and the only stable currency to flee to. The 10% forced savings drained money from the economy (so it couldn't be spent on consumer goods, driving inflation) while infinite human and social capital was spent training millions of men for the war effort. The productivity gains were IMMENSE from utilizing all slack human capital, which limited/slowed inflation to an extent.
Trying to impose price controls when we hardly manufacture anything is a disaster in the waiting.
Muldoon showed us price controls were stupid. Let's not repeat.
We need competition. So allow the markets to have a maximum of 50 outlets in each group. (NW currently about 250).
No need to supervise the breakup, they can work out how to separate.
So multiple chains with choice for consumers and suppliers both.
Remembering big is not efficient here. Big makes it's money from control.
Think about the thing known as "the retail cycle"
There is always somebody coming in with a new and better model. Think Farmers and 100 years later The Warehouse.
The major business focus of our incumbents has to keep the new clever innovators out. Efficiency and competitiveness is not the way to success for them.
Gojiji. A six store indian based small shop chain. Excellent vege and cheap basics.
Does not try to reflect the big supermarkets, not for everybody. But a good example of the multiple and differing things that will pop up in the niches.
We need variety and options.
You've got price caps on certain things already anyway.
How do you suppose you are still able to buy a kilo of cheese and 500g of Butter for the same price it was(or lower)18 months or so ago?
They are losing money hand over fist on a fair few items.
Sure they put the price of other things up to compensate but who gives a fuck if a pot of pesto goes up.
Its a stupid idea. Forcing supermarkets to hold prices down will simply mean they switch suppliers. Why buy expensive UK produced pork and make no profit when you can import cheap Chinese pork and still make a profit selling at the price cap? Farmers then go out of business. Any attempt by supermarkets to pass on the price cuts to suppliers will see suppliers divert their supply to export markets instead of domestic. A whole host of supply chain effects will ripple through the economy. And when the price cuts eventually come off, the country will still be stuck with substandard imported products and a shortage of quality produce because its still being exported, and prices will still go up.
That can of home brand tomatoes that countdown is price capping at $1.20 was selling for 0.90c in late 2019.
That is a 33% price increase. Maybe you get 44000 cans in a container. Maybe that container cost you $5000 all up from Italy to NZ in 2019. So 11c a can. When freight costs went crazy during covid those increases maybe added another 14c per can in freight cost. So at 1.20 retail they were better than covering their additional costs.
The thing is. Freight costs have gone back down to close to 2019 levels. Maybe NZD 1000 per container overall more expensive now when you factor in domestic cost increases as well. So 0.02c a can.
Margin at 1.20 per can is pretty sweet and this is home brand. So no middle man . Allowing for domestic inflation that can should be no more than a dollar and probably wouldn't be if it had an Aldi home brand label on it.
I bought about a dozen of those for 60c a can earlier in the year. That's a 100% increase - insane. That's actually something I've noticed quite a bit of - the cheaper basic things (flour, oats, tinned tomatoes, rice, pasta etc) have increased more percentage-wise than the more expensive things. That sucks, because it means if you were already buying budget basics to start with, your grocery costs have increased more as a percentage than people who were buying nicer stuff and are more able to reduce their costs by trading down to less luxurious items.
And this margin effects the prices of the non-home brand item. Even if prices of Watties tomatoes came down, Countdown would not reduce the price of them in store because then they would have to cut the price of their home brand tomatoes to maintain the price gap between brands. Why would they want to do that?
Has anyone noticed the dire shortage of frozen chickens at the moment? Having to go to multiple supermarkets now to find one, and you are lucky if you can get your hands on a tiny 1.3kg chicken as there are no others to choose from. My local Pak n Save seems to have stopped selling them altogether as the space they used to occupy in the freezer has now been replaced with other products.
Its also June, when the Great Egg Shortage was promised to be over. But there are still limits on eggs and ridiculous prices (one major Pak n Save is now only selling eggs in cartons of 6 and restricting shoppers to purchasing one carton).
Where are all our eggs and chickens going?
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