Shopping shock

As food prices shoot upwards at an alarming rate, JOHN McCRONE looks at whether there's any chance of them coming back down again.

Agflation: the word does not exactly trip off the tongue, but its meaning is clear enough. Economists say we are moving into an era of permanently higher food prices.

For 30 years, the cost of the weekly family shop has been heading the other way. Due to intensive-farming techniques, cheap Third World production and more competitive distribution channels, food prices in real world dollars have dropped an astounding 75 per cent.

Households used to spend a third of their budgets on groceries. The latest Statistics New Zealand figures show it is now just 16%. The average weekly spend is $156 (with perhaps surprisingly nearly a quarter going on restaurant and takeaway meals).

Thank goodness food has been relatively cheap. With housing, power and, more recently, petrol all putting sudden strains on the family purse over the past few years, food has been one of the easiest areas for people to make economies. When money gets tight, you can always trade steaks for sausages, muesli for Weet-Bix, pastries for bread and jam.

But now we face agflation -- agricultural inflation -- with food prices taking off, too.

Worldwide over the past year -- except, bizarrely, in drought-striken Australia -- food prices have leapt ahead of ordinary inflation.

Rabobank agribusiness analyst Hayley Moynihan ticks off the list. In New Zealand, inflation overall ran at 3.2%, but food inflation was 5.4%. In Europe, it was 3.2% and 6%. The United States fared better at 4.3% and 4.7%. But developing nations really felt the squeeze. Food-price inflation in Brazil was 10% and in China -- where pig disease sent pork prices silly -- it reached 18%.

As Kiwis, we certainly know all about last year's sudden sharp hike in milk prices. Our farmers talk of "white oil". The rest of us are complaining about paying $15 for the family block of cheddar last week, $16 this week. The official figures from Statistics New Zealand are that milk rose 16% in 2007, cheese 37%.

However, what has escaped the attention of many is that grain prices have been soaring, too. Lincoln University agribusiness professor Keith Woodford says that in the past few months, every kind of planted crop, from wheat to rice to soy beans, has shot up by 30% to 50%. So expect bread, pasta, baked beans and other staples to be following dairy up the charts.

Woodford says the hit from butter and milk is most obvious because they are both perishables and raw ingredients. We see all the price rise almost immediately. With other products, the impact will be more insidious.

Icecream and biscuit price changes will lag because milk-powder suppliers are locked into long-term contracts and warehouses take time to empty.

The doubling in the price of wheat must hurt bread. Yet Woodford says there is only 20c worth of flour in a loaf, so the effect will be muted.

But on the other hand, he says that poultry and livestock are fattened on grain. Well, in New Zealand, the cows mostly eat grass. But grain-fed cattle overseas will push up global prices, and our local market rates will be dragged along with them.

Chicken and eggs certainly depend on grain. Poultry prices have already leapt 28% over the past year.

"Wheat prices are still going up almost every week internationally, so there are still a lot of flow-on effects to come through," Woodford says.

The speed at which the global food economy is shifting gears has caught even industry experts off-guard.

In countries such as India, Vietnam, Argentina, Venezuela, Egypt and Russia, governments are being forced to bring in forms of price control.

Last month, 10,000 people took to the streets in the Indonesian capital, Jakarta, to protest soy bean price rises. Mexicans have been marching over the cost of their tortillas, Senegalese over rice, Indians over onions, Italians over pasta. Overnight, it has become a big political issue.

In the carpark of central Christchurch's Pak 'N Save, there is no sign of citizens ready to riot. Mildly perturbed seems the extent of it so far.

Piling the yellow bags into their boots, most customers reply that they have not needed to change their shopping habits. But closer questioning reveals some adjustments are already being made.

Debbie Swan, of Halswell, a young mother with three girls, says nappies have just dropped off her shopping list so now her supermarket budget of $200 a week goes a bit further, anyhow.

She is keen on a healthy diet so the children drink premium unhomogenised milk. Three cartons of Farmhouse poke out of a bag. Yet Swan confesses that she has just started buying supermarket-own-brand for cooking. The tweaks have started.

"My food bills have definitely gone up in the past year. There's been a real bump," Swan says.

Wynn Corby, a Waltham solo dad with a 13-year-old and 10-year-old, says petrol prices may have made him rethink long country trips, but he still dines on the same menu. The price hikes are yet to bite.

Pondering it though, Corby says some things have been moving out of reach for a while now. For instance, roast leg of lamb is special occasion stuff these days: "I mean paying $30 for one of those things that holds a sheep up!"

As the new era of agflation takes hold, many people may find items starting to fall off their shopping list, never to return.

Cutting back will be a blow to the middle-class ego. It is hard enough as it is walking past supermarket counters laden with smoked salmon, fancy chocolates and gold-medal wines.

 

You studiously look the other way while wondering who are all these people who can afford to buy such things?

But for the poorest in the community, the fast-rising price of basics is going to be more than a prick to their pride.

Across town, the City Mission food bank is opening its doors. Two Maori children haul their trolley to the serving hatch, no parents in sight. Even on tip-toes, the older one cannot quite make the counter.

They are handed white plastic bags bulging with donated boxes of Weet-Bix, toilet rolls, budget cans of beans -- enough to see a family through three or four days. For those who want it, a barrow of rather wilted celery has just arrived from the Rolleston Prison gardens.

It is supposed to be a crisis service. But Christchurch has several food banks. Customers will do the rounds.

Christchurch City Missioner Michael Gorman says there is evidence the pressure is cranking up another notch.

"The demand is certainly not decreasing. For the first time I can remember at Christmas we had queues. People were waiting outside at 6am, scared we might run out I suppose."

The food bank mainly used to serve the addicted and the afflicted -- those really unable to cope with life.

Now, Gorman says, there is a whole new class of working poor. They have jobs. In fact they often have two or three. But the jobs are so unskilled, so badly paying, that after rent, heating and other immovables, there is too often no cash left to feed the family.

Lee-arna Niven stops to tell how bad it can be.

Niven says it has been a rough year for her anyway. Bills have got out of hand and she owes $120 a week to two different finance companies. However, she can remember a time when she was poor yet able to afford a roast.

More recently, the weekly budget stretched to a kilo of sausages, a kilo of saveloys, a kilo of mince. That did her and her two boys. Now meat is completely off the menu. And cheese has just followed: "It is not an option any more," Niven says.

"Food has always been a big budgeting issue, but it's different because the average benefit and average wage have not changed, yet the price of food has. The last year's been the hardest ever.".

Niven has taken to pouring the milk on her 14-year-old son's cereal herself, to ensure it lasts. Fortunately, she says, bread and eggs have not increased in price too much yet.

When circumstances allow, Niven grows her own vegetables -- a skill she picked up at a community garden. And she will pinch fruit off people's trees rather than see it rot.

"It pees me off to see it all being wasted. So I'll go round and raid a plum tree and freeze everything."

There was a real low point for her over Christmas when she had $19 to last the week. Niven says she ended up not eating for four of the days.

The cost of food is what all her friends are talking about, she says.

And do not be surprised to see a sharp rise in shoplifting and petty crime. She knows teenagers from poor homes stealing because they have empty bellies. It is not a drug habit they are feeding. One acquaintance has just been up in court for nicking a couple of peaches and a nectarine worth 90c.

Gorman adds that he sees women putting up with toxic relationships simply because the man can put food on the table for her kids.

A gflation is going to place a new kind of strain on both budgets and society.

Winsome Parnell, a nutrition researcher at the University of Otago who has studied "food insecurity", says the three obvious responses to rising food costs are to cut back in quality, cut back in quantity, or find cheaper substitute foods.

Not many of us will simply eat less. But we may decide to halve the size of our steaks or spread the butter more thinly. Others may completely rethink their menus, learning the benefits of "peasant cooking".

Authentic Moroccan or Mexican recipes are healthy and tasty as well as cheap, featuring plenty of pulses, bean and in-season vegetables.

However, experience shows it is food quality which is most often sacrificed when dollars are tight. Perishables are the first to go because waste is expensive. Which means fruit and vegetables of course. Cheap fatty cuts and junk food creep on to the menu.

Perhaps everyone should be home baking and organic gardening, but that is not a realistic expectation, Parnell says.

So agflation means bad diets are only likely to get worse for most, with the obvious social consequences.

There is still the question of whether the current bout of agflation is just a blip or a harsh new fact of life. The same economists who did not see it coming might now be getting carried away about it marking some fundamental change.

After all, one of the points about food is that there is more scope for personal choice -- ways to balance the budget -- than with other kinds of household spending. And just as individual families can adjust, so global consumption and production patterns may also respond to what is cheap, what is expensive.

The grumbling has already started. We grow most of the stuff here -- cheese and lamb is our birthright -- so farmers should somehow be forced to sell it at traditional prices. And why do we have GST on food when Australia doesn't?

But Lincoln's Woodford says New Zealand stands out in the world for its lack of distorting agricultural subsidies and other forms of protectionism. A truly free market is what we are trying to urge on other nations, particularly the US and Europe.

That is the purpose of the still-stalled Doha trade talks. Ironically, it would make us wealthier and better able to afford the fine export-quality food we produce.

In recent years, this virtuous nakedness is why our farmers have been so squeezed by falling commodity prices. But now it is their turn to benefit, while consumers feel the pain.

If cheese blocks go to $20 and two litres of milk hits $5 in an election year -- if they ever start shaking placards down at the carpark of Pak 'N Save -- then tunes might be changed. But in a life already complicated with many budget worries, agflation looks a new one to add to your list.

 

- © Fairfax NZ News