Cheaper milk still some way off

Last updated 10:05 17/07/2014

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Consumers should not expect cheaper milk, butter and cheese immediately, following the big fall in dairy prices yesterday.

Industry analysts and supermarket chains say the impact from the lower prices in the latest dairy auction might not be felt for many months, and the falling prices would hit farmers' incomes and the economy in general.

Fonterra brands spokesman Peter McClure said the farm-gate milk price set the import costs for milk producers and that hadn't changed.

"If it does change in the future we might see some movement," he said.

The farm-gate price, usually announced quarterly, was kept "at arms-length from us [Fonterra Brands] by Fonterra corporate", he said.

Waikato University Professor of Agribusiness Dr Jacqueline Rowarth said milk was "cheaper than it has ever been" thanks to rises in consumers' salaries that had outpaced food price hikes.

"Although people complain about food prices they forget that salaries go up and food has not been going up as fast," she said.

"With the drop in payouts it is the farmer who will absorb the cost."

Salaries had risen on average 1.6 per cent over the past year, while food prices had gone up 1.2 per cent, she said.

A Countdown Supermarkets spokesman said: "Countdown's dairy prices reflect the prices we pay our suppliers. If a price decrease comes through from our suppliers then we will pass that on to our customers. We haven't had anything confirmed at the moment."

Rowarth said consumers should be more concerned about the impact of a lower dairy payout than looking for cheaper supermarket prices.

The payout through to October this year is expected to be $8.40 a kilogram of milksolids, but analysts are predicting it could be as low as $6 the following season.

"For every $1/kg of milksolids that the payout drops, that's the equivalent of about $300 in every New Zealander's back pocket," Rowarth said.

"That $300 would possibly pay for their entire milk consumption for a year, so actually they should be thinking about the benefits when the price goes up."

Consumer New Zealand chief executive Sue Chetwin said consumers should expect to see a drop in the price of dairy products at some stage, but it was "contingent on supermarkets passing those price cuts along". 

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