High prices a matter of supply and demand

00:30, Aug 19 2011
WINTER GREENS: Vegetables for sale at Nelson Fruit and Vege.

Mark O'Connor winces when fruit and vegetable prices skyrocket.

Lettuces selling for $5, broccoli and cauliflowers over $4, tomatoes at $1.80 each and capsicum at $5 – as has happened over recent weeks – do little to help the industry's profitability or image, says the general manager of Appleby Fresh, one of Nelson's largest growers.

Instead, they are invariably a sign of a serious supply shortage brought on by bad weather – which means that only those lucky few growers in unaffected areas benefit.

He would much rather have a steady volume of produce to sell at prices that don't scare off consumers or cause them to switch to frozen equivalents. It's more profitable. Also, shortages often mean quality suffers, which further annoys buyers.

However, growers have little control over the weather or what consumers ultimately pay. Despite suspicion over the margins supermarkets make – a touchy subject in the industry – prices are largely the result of supply and demand, as this season has starkly demonstrated.

A potent combination of extreme weather in Queensland and New Zealand, higher fuel costs and the rise in GST has pushed vegetable prices up 15.7 per cent in the year to June, with economists warning that more rises are likely.


It is a recipe for discontent – but don't blame growers, who have also been finding it tough going, says Mr O'Connor, who bluntly describes the year as a disaster.

It started when an abnormally warm autumn produced an early flush of vegetables which flooded the market, sending prices so low that growers struggled to make money.

"We were harvesting hundreds of crates of cauli for nothing," says Mr O'Connor.

That was followed by a month of extremely wet and overcast weather in late June and July, which left fields so waterlogged that new crops were ruined and couldn't be replanted. "We lost about 30 to 40 per cent of a block of 200,000 broccoli." Bacterial rot added to the damage.

Elsewhere, glasshouse production ground almost to a halt through a lack of sunshine. Colder weather since has meant crops – already weeks behind – have been slow to grow.

What made it worse was that much of the country, including major growing areas such as Pukekohe, Gisborne and Horowhenua, was hit. A major grower near Levin lost millions of dollars' worth of crops to hail.

As a result, there are big shortages of many winter crops, particularly leafy greens such as lettuce, broccoli, cauli, spinach and silverbeet, which are likely to last for a while longer. Not surprisingly, prices have soared.

Mr O'Connor says he and other local growers aren't benefiting because their production is well down. He's harvesting only a fraction of what he normally does in August, barely enough to keep his staff working.

"People forget that if you have got higher prices, you don't have the volume."

Oversupply and low prices are much more common, he says.

"People have got to realise that they get a good deal 80 per cent of the time; they get it cheap. They grizzle when we have high prices once in a while, but everyone else is paying more for everything, so they've got to pay a bit more."

Colin Benge, who runs fruit and vege shops in Nelson and Stoke, is another who says high prices aren't good for business.

Despite shops trying to source the best deals, customers complain about being ripped off, reduce or switch their spending, and sales go down.

"But whether the price is high or low, we are not making any more money. We are just putting our little clip on and keeping it as lean as we can, because we want to keep selling stuff."

Still, this winter some products have reached a tipping point where the price is so high that people won't buy it, he says. He's temporarily stopped stocking spinach because he would have had to charge $6 a bunch.

Sales of broccoli – which was almost $3 a head last week – are only a tenth of what they were a few months ago. Likewise, consumers have balked at paying steep prices for out-of-season tomatoes, up to $18 a kilogram in supermarkets – the result of floods in Queensland reducing the supply of normally cheaper fruit.

Caulis have gone from 99 cents a head during the autumn flush to more than $5, while Mr Benge has heard of lettuces selling for $9 in Invercargill, three times what Nelsonians pay.

While it is tough for customers, it is the free market working, he says.

And there are still vegetables that offer good value, such as carrots, pumpkin and potatoes.

"It shouldn't cause anyone to go hungry, but I do feel the pain of people who would like it to be a bit more stable."

Stoke New World manager Peter Harman sings much the same tune, saying supermarkets don't make any more money when fruit and vegetable prices are high, as customers cut back.

"We've got to cover our costs but we certainly haven't lifted our margins. If anything, we have taken a little bit of margin loss.

"We're in the same boat as everybody else."

While declining to say what margin the store routinely made on vegetables, it was not among the highest in the store, he said.

"If people want tomatoes all year round, there is always going to be a seasonal lift in price."