Brad Olsen: Infometrics Principal Economist on rising dairy prices

The cost of dairy is climbing for consumers - the Global Dairy Trade auction seeing a 1.4% across the board. 

Why are the prices continuing to trend up? 

Infometrics Principal Economist Brad Olsen discusses this with Ryan Bridge. 

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Episode Transcript

Speaker 1 (00:00):
Right, Yes, it is the cost of living. Dairy becoming
more expensive for consumers. This as the global dairy trade
auction increase the last week one point four percent. The
whole milk powder was up five percent. We told you
about that. Farmer payouts are expected to be up massively.
As it stands, a three liter bottle of milk will
cost you and I at the supermarket almost seven dollars,
butter and yogat ten bucks. Why other prices continue to

(00:23):
trened up? Brad Olson Informetrics Principal Economists, Good morning, Bread,
good morning. What do you reckon about selling New Zealand?

Speaker 2 (00:31):
Well, I think there's two parts going on to this.
You've got both supply and demand, which is of course
the classic economists response. But on the supply side, you
look around the world and the likes of the US
and the Europeans aren't producing quite as much milk, certainly
not as much as they might have been expecting or
hoping for, so there's less going into the production cycle.

(00:51):
But at the same time, on the demand side, there's
still quite a bit of demand out there. People are
wanting to buy this stuff, and in particular I mean
to cross the entire dairy chain, but you look particularly
at some of the sort of fattier options, your butters
and the lake are quite a bit more demands to
those over time. Even China, which hadn't been all of
that strong of a buyer through parts of last year,

(01:15):
have been coming back a bit more recently, and so
all of a sudden you've got this position globally where
everyone wants more dairy is not necessarily a huge amount
more dairy, and that's pushing prices up. Now for New
Zealand farmers, that's actually sort of the best position that
we can find ourselves in at the moment, because our
dairy production is up one point three percent over the

(01:35):
last twelve months, so we've got more product that we
can start to send the way. We've got a lower
exchange rate, which means that effectively we're able to make
a bit more money as we go forward. All of
that means that the payouts delivering I think it's close
to three point four three point five billion dollars more
than last season's payouts over the year head. I mean,

(01:56):
that's good for producers, it's good for farmers. But at
the flip side, the double edged sword here is that,
as you've been highlighting, consumers are wearing that as well.
So it's a tricky balance here.

Speaker 1 (02:06):
Yeah, we just pay the world price, don't we. I mean,
we don't get special treatment here in New Zealand, and
nor should we.

Speaker 2 (02:13):
Well, it's difficult. I mean if we did get special treatment,
you'd be saying to farmers please leave some pretty seriously
good money on the table and sell it for chief
in New Zealand. I mean, you're not going to double
exports like that. But I think as well, what you
do generally see is that there's different types of products
that go into different types of markets. But yeah, the
New Zealand price is tasted to a degree by that

(02:35):
international price, making sure there's not too much of a
big gap that starts to come through, because if there
did start to be that big gap, that's where you
start to see effectively New Zealand give up some of
those international gains.

Speaker 1 (02:47):
There was a lot of talk about this at the weekend,
but other number is actually that bad. So one kilo
block of mild cheddar was up from ten dollars twelve
to This was December twenty twenty three versus December betweeny
twenty four, so chet it from ten dollars twelve to
eleven dollars and one cent, butter from four dollars forty

(03:08):
eight to six dollars sixty six, and yogat a six
pack of yogat from seven dollars sixty nine to seven
dollars seventy four. I mean, is that is that is,
you know, when you consider the price of everything else,
that win done well.

Speaker 2 (03:22):
And that's so I think the important comparison. You're right
that in general, for most products in the dairy space,
they haven't increased over the sort of a longer period
of time as much as inflation more generally has pitched up.
Now that's of course cold comfort when people are going here,
But I'm still paying more for my bottle of milk,
my butter, my cheese and everything else. And of course

(03:43):
there's a lot of variation in those prices. You'll get
some brands that cost more or less, You'll get different
parts of the country with different prices. So I think,
you know, for households, it still doesn't I mean, even
if you make a good economic explanation, it doesn't make
going and doing your shopping any easier. But I think here,
there there are clear global competition pieces that have come through,

(04:04):
and looking through some of those prices, it seems clear
that you should shop around a bit if you're able to.
If you're doing a huge amount of baking and you
need a whole lot of butter all at once, you
know it is probably worth checking out when the deals
are coming through rather than just buying whatever's first there,
because there are there is quite a bit of variation
around the traps.

Speaker 1 (04:22):
Yeah, good on your Brad. Brad Olson, Informtrics Principal Economist,
thanks so much for your time this morning. For more
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