What will happen to food prices in 2024?

Friday, 19 January 2024

A trip to the supermarket has become a more stressful experience for many New Zealand households in the past two years, as food prices have soared.

Food price inflation hit a rate that had not been seen in 30 years in the middle of 2023, and a food cost survey run by Otago University recorded its biggest jump ever.

One shopper told Stuff “even Pak’nSave makes me anxious”. A kilogram of chicken breast that would have cost $12.88 in October 2020, according to Stats NZ, cost $15.612 in October last year. Eggs jumped from less than $5 for a six-pack to $7.30.

But there were signs of improvement towards the end of the year and some prices even dropped.

So what can we expect from 2024?

Mark Smith, a senior economist at ASB, said the bank expected food price inflation to reach single digits, around 2%, by the end of this year.

Henry Russell, an economist at ANZ, said relief could come quickly. He said, as long as there was not any weather disruption, food prices could fall quite sharply over summer, led by seasonal falls in fruit and vegetable prices.

He said these had the potential to be larger than usual as growing capacity normalised from weather-related disruption.

“But in thinking about how far food prices can fall, it’s important to bear in mind broader cost pressures for producers remain, and so prices should fall but to some new normal. Indeed, over history it’s actually quite rare to see sustained falls in food prices in nominal terms.

“But given that food price inflation has far outpaced broader inflation in the past few years, there is scope for some correction as supply normalises, and as New Zealand prices continue to move back into line with global patterns.

“Picking the timing of any correction is highly uncertain. We’ve seen some encouraging signs in recent months of broad-based declines in food prices and we wouldn’t be surprised to see some decent falls over summer. But that said, another negative supply shock could only be just around the corner – be it shipping disruption, el Nino or climate impacts…”

Raewyn Bleakley, chief executive of the Food and Grocery Council, said it appeared as though the recent easing trend would continue.

“There are many factors that push up prices in New Zealand, ranging from the cost of fuel, wages and regulation, a shortage of skilled staff, and our relatively small scale and position at the bottom of the world away from the main shipping lanes and the effect that has on the cost of imported food and ingredients, to the popularity and strong demand of our goods overseas, the war in Ukraine, and the lack of retailer competition from having just two major supermarket chains.

“Unfortunately, in the past year we’ve also experienced the dramatic effect weather events can have. Suppliers operate in an extremely competitive domestic market and like all businesses if they don’t pass on cost increases then they won’t survive.”

Infometrics chief economist Gareth Kiernan said the biggest influences in 2024 would be fuel, fertiliser and finance costs.

Fertiliser prices pulled back by about 8% over the first half of 2023 to be only marginally up from a year ago, although they have still risen 51% in the last three years, he said.

“Interest rates are now close to their peak, so both those trends suggest less upward pressure on prices going forward.”

But fuel prices and transport costs remain a problem.

Internationally, the weaker global economy placed some downward pressure on export commodity prices and that was starting to flow through into lower prices, for example, for dairy products at the supermarket, he said.

“Financial markets are concerned that central banks will need to keep interest rates around their current high levels for longer than previously thought to get broader inflation under control, which could keep global demand relatively subdued, and therefore weigh on export commodity prices as well.”

He expected to see some mild downward pressure on prices for less processed products, such as meat and milk, to show through during 2024 if global demand remained relatively soft.

“Fruit and vegetable prices should also continue to moderate as long as favourable weather conditions lead to an improvement in supply volumes, although I note that international horticulture prices are the one export area that is holding up relatively well at the moment – so any price falls might not fully reverse out some of the increases we saw earlier this year.

“In contrast, more processed grocery foods are unlikely to decline in price – higher production costs that have occurred during Covid-19 are likely to have become quite embedded and are less easy to reverse out.”

Richard Burke, chief executive of Leaderbrand, said there was still an element of crystal ball-gazing in working out the direction of prices from here.

Most growers had gone through a tough period in recent years, with disruption to their planting and low yields, he said.

“The market has been quite tight for some time and we’ve seen some quite high pricing.”

He said, going into summer, growers had become more aggressive about planting crops. Some had been rewarded with good growing conditions and others had not.

“It generally has led to more product in the market and recently market prices have been quite low, particularly when you look at the current cost of production.”

He said growers would have to decide how aggressive they wanted to be over the summer. The more they were willing to push out more volume, the more likely it was that prices would come down. B

“How much area are they going to plant, how much risk are they going to take. I would have thought prices would have been subdued compared to the previous couple of summers. There will be more volume around.”

But he said some growers were still cautious after the experience of recent years.

“I certainly think from our point of view we are looking like we are going to have a solid corn season. We’re out there trying to push that. It looks like that will be pretty good value from pretty early on.”

He said some growers were also affected by issues such as roading, which could affect their ability to get crops out.