A trip to the supermarket has become a miserable and taxing experience for many people in Aotearoa as food prices hit an all-time high.
But knowing Australians are paying less for the same food across the ditch is just rubbing salt in the wound.
Re: News wanted to find out exactly why this is happening and why there’s a price difference. Here’s what we found.
Australians don’t pay GST on most food
Each week financial research website Interest.co.nz has been doing a price comparison of the same 46 healthy grocery items using prices from the Countdown New Zealand and Woolworths Australia websites.
Keep in mind Countdown is owned by Woolworths, so it's the same company providing this food.
On February 15, the basket of groceries in New Zealand hit a record high costing $230.42.
But in Australia, those same groceries were NZD$210.01 so $20.41 cheaper.
A big reason for this price difference is because in Australia, a goods and services tax (GST) isn’t added to most groceries like fruit and vegetables, milk, bread, eggs, cereals, and tea and coffee.
In New Zealand, 15% GST is added to all food.
Why can’t we just take the GST off food?
Economic commentator Bernard Hickey says when New Zealand’s GST system was introduced in 1986, it was made as a “pure system” so it was cheap and efficient to run.
“They decided early on to have a very simple system to avoid all of those disputes around what is healthy and what isn’t like with Australia, and instead have GST on everything,” Hickey says.
“Except of course, no GST on income from rent or property sales, mortgage costs, and insurance costs,” he laughs.
Economic commentator Bernard Hickey says lack of supermarket competition is a key reason why food is more expensive in New Zealand. Photo: Supplied.
There have been several calls to remove the GST on food in New Zealand to help with the cost of living crisis, however, the Government has repeatedly shut this down.
A Te Pāti Māori petition calls on the Government to remove GST from all food to help people cope with rising costs and make healthy food more accessible to low-income communities to reduce the prevalence of obesity and diabetes.
The Government has said this will cost it $5 billion per year.
“If we take tax off food, then we have to find that money somewhere else,” Hickey says.
“So that’s why some people don’t want to open that Pandora's box. And to be frank, a GST is a wonderful tax to ensure poor people pay a high percentage of tax.”
When the comparison website Finder did a food price comparison between Countdown and Woolworths in 2022, they found if you exclude the 15% GST on food, New Zealanders still paid 9% more than Australians for groceries.
So what else is hiking up the price?
New Zealand’s shape and size makes food distribution difficult and expensive
Melbourne and Sydney are two densely populated areas that each have about five million people - the entire population of New Zealand.
But in New Zealand, we don’t have densely populated areas like this.
“The biggest blob we have is Auckland but it’s broken up into different areas, spread really far out and there’s lots of water which stops it from being easily connected,” Hickey says.
This makes food distribution around Auckland, let alone the whole of our skinny, spread out country, really difficult and expensive - especially with the rising cost of fuel, he says.
“If we had everyone in the North Island move to Hamilton and everyone in the South Island move to Christchurch and we get five million people in each to help with economies of scale, we would see cheaper prices like Australia,” Hickey says.
“But that’s not going to happen.”
New Zealand’s economy of scale makes things expensive
A lot of the fresh produce you buy in a supermarket is made in New Zealand.
But New Zealand Food and Grocery Council spokesman Brent Webling says our small population actually makes this food more expensive to produce.
“When you compare this to countries we often aspire to be like – Australia, the UK, and the US – that have very much bigger populations than us, they can produce more items for less because they have larger production runs.”
There isn’t enough supermarket competition in New Zealand
New Zealand also only has two big grocery chains - Countdown, which is owned by Woolworths in Australia, and Foodstuffs which is a cooperative that owns stores like PAK'nSAVE and New World.
Hickey says “because of a lack of competition, we know that the profit margins here are higher than in some other countries”.
The Commerce Commission found in March last year that the supermarket sector is making more than $1 million in excess profits a day.
“This duopoly used to be the same in Australia but a few years ago the German discount supermarket chain Aldi came to Australia which made a lot more competition,” Hickey says
“There's been hopes that something like Aldi would come to New Zealand. But they take a look at the map and the size of our population and see it as a bloody nightmare.”
Webling says the Government has made moves to introduce more competition by enabling independent retailers to access the main retailers’ wholesale products so retailers like Supie, Warehouse, Costco, and Chemist Warehouse can “aggressively compete with the major retailers” with low prices.
The global market sets the price
Another issue is how valuable and in demand our exports are overseas.
“As our exports, particularly dairy products and meat, fetch higher prices around the world, the pressure goes on what New Zealanders have to pay for them,” Webling says.
“This is because the price of the raw materials is the same at the farm gate, no matter where they are being sold. So, we pay a price that matches what the overseas market would deliver to our exporters.”
Essentially, why would local farmers sell their product cheaply in New Zealand if they could get twice the price selling it somewhere else?
Climate disasters destroyed crops and land
Because a lot of our produce comes from New Zealand, the recent climate disasters have destroyed crops and land in the Far North and down the East Coast.
“That has put pressure on prices of fresh produce which also flows through to the price of canned and frozen products,” Webling says.
“Imported ingredients and products have also been affected by the war in Ukraine, the shortage of ships and containers globally, and the subsequent cost of freight.
“We are a long way away at the bottom of the world and that makes the cost of importing products high. And as the price of oil increases, so do prices.”
Well shit, will food ever get cheaper then?
Webling says we have not seen a sharp rise in the cost of food like this since World War II.
All of these factors combined with rising inflation have created a perfect storm for ridiculously expensive food and it is hitting New Zealanders even harder than other parts of the world.
“Hopefully things will ease over time,” Webling says.
“A third big retailer introducing competition, an easing of the supply chain problems, and a halt to the war in Ukraine, which has pushed up prices of wheat and cooking oils, and a continued easing of global freight costs would all combine to make a difference.”
Webling says some countries are starting to see food prices improve but it will take longer for this to happen in New Zealand because of our size and remote location.
So what can we do?
Local online supermarket start-up Supie has deliberately lowered its prices to undercut the big supermarkets in New Zealand, so shopping here could save you money.
If you are in the Wellington, Manawatū, and Auckland regions, Wonky Box is a fresh fruit and vegetable subscription that delivers odd-looking or surplus produce that's at risk of going to waste. This means the fruit and vegetables are usually cheaper than what you find in supermarkets.
If buying in bulk suits your lifestyle, getting a $60 membership at Costco in West Auckland gives you access to discounted food and products.
Shopping in reduced to clear sections and visiting markets and local shops around closing time can also save you money.
To get in touch with the author of this article, email zoe@renews.co.nz
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