{"id":109499,"date":"2021-03-13T16:49:09","date_gmt":"2021-03-13T16:49:09","guid":{"rendered":"https:\/\/fin2me.com\/?p=109499"},"modified":"2021-03-13T16:49:09","modified_gmt":"2021-03-13T16:49:09","slug":"liam-dann-never-mind-the-tomato-wars-food-prices-are-set-to-rise","status":"publish","type":"post","link":"https:\/\/fin2me.com\/business\/liam-dann-never-mind-the-tomato-wars-food-prices-are-set-to-rise\/","title":{"rendered":"Liam Dann: Never mind the tomato wars, food prices are set to rise"},"content":{"rendered":"
OPINION:<\/strong><\/p>\n Brace yourself, food prices are set to rise sharply.<\/p>\n Although, just to confuse things, we had news last week that the price of most basic foods has fallen in the past year.<\/p>\n Overall, the<\/span> Stats NZ Food Price Index was up just 1.2 per cent for the 12 months to February.<\/span><\/p>\n But when you stripped out prices rises for restaurants, take-aways and ready-made meals, most food items saw a price decrease.<\/p>\n This was bad news for those of us who like to complain about our grocery bill.<\/p>\n Some readers were sceptical of the official numbers.<\/p>\n It certainly feels more like prices are always on the rise and I enjoy moaning about that as much as the next shopper.<\/p>\n Perhaps it is just that we just tend to notice price rises more than falls.<\/p>\n But then its hard to argue with the “tomato wars” that hit headlines last week.<\/p>\n A glut of locally produced tomatoes caused a supermarket price war to break out, with prices going as low as 8c a kilogram.<\/p>\n The so-called tomato wars were a marketing stunt of course, a loss-leader that supermarket owners were using to draw in shoppers.<\/p>\n But the Stats NZ figures also confirmed that tomato prices were at a 12-year low.<\/p>\n Like everything these days, the long shadow of Covid is hanging over the industry.<\/p>\n Shipping costs made it uneconomic to export large volumes of tomatoes which, combined with pretty good growing conditions, has cause this local glut.<\/p>\n Anyway, we should enjoy these prices and make tomato relish while we may.<\/p>\n The good news for those who enjoy complaining about their grocery bill is that food prices are almost certain to rise from here.<\/p>\n That’s because global food commodity prices are the highest they’ve been in seven years.<\/p>\n It takes a few months for prices to flow through from commodity markets to supermarkets, but they always do.<\/p>\n On balance, commodity price spikes are good news for New Zealand.<\/p>\n The country is such an enormous net exporter of food that the current surge will mean billions of extra foreign-exchange dollars pouring into the economy.<\/p>\n Global dairy prices are up more than 25 per cent since the beginning of the year alone, and more than 40 per cent since this time a year ago.<\/p>\n That kind of increase will push the total value of our dairy exports above $20 billion and is the equivalent of finding a couple of spare wine industries down the back of the couch.<\/p>\n Given the big hole that tourism dollars are leaving in our current account, this is very good news.<\/p>\n It won’t offset that loss but it will soften the blow.<\/p>\n And that’s not to be dismissive of our $2 billion wine export sector either.<\/p>\n Every drop counts.<\/p>\n New Zealand wine exports bucked the global trend and grew during the pandemic.<\/p>\n In fact, most of our commodity exports are performing well.<\/p>\n <\/p>\n The latest ANZ commodity index showed the value of New Zealand food exports up by 3.3 per cent in February to reach its highest level since April 2014.<\/p>\n That marries with the United Nations Food and Agriculture Organisation’s (FAO) Food Price Index,which was up by 2.4 per cent in February.<\/p>\n This was its ninth month of consecutive rises, taking it to its highest level since July 2014.<\/p>\n A Rabobank report looking at the cause of the price spike seems to think it runs deeper than just pandemic disruption and will be sustained.<\/p>\n Agricultural commodity prices have surged almost 50 per cent since mid-2020, Rabobank said.<\/p>\n It identified La Nina weather restricting supply and resurgent global demand as two big drivers (along with market speculators and a low US dollar).<\/p>\n So it looks very much like commodity food exports are coming to the rescue of the New Zealand economy again.<\/p>\n A couple of seasons of high food-export prices couldn’t be better timed to see us through until ourborders reopen and our hardest-hit industries can rebuild.<\/p>\n It is true that the returns of a dairy boom aren’t shared evenly.<\/p>\n But they do flow through the economy and create activity which should prevent things grinding to a recessionary halt.<\/p>\n An agricultural commodity boom will certainly have to be factored into Reserve Bank equations.<\/p>\n It may create more inflationary pressure than had been expected and that may mean interest rates rising sooner.<\/p>\n I’ve been writing a lot about inflation lately because where it lands post-Covid seems to be the big economic debate of the age.<\/p>\n It flows through to interest rates and investment markets and can be fairly abstract stuff.<\/p>\n Where inflation gets real for most people is when they see their grocery bill going up.<\/p>\n This what is worrying the economists watching global commodity prices.<\/p>\n <\/p>\n Rising food prices particularly bad for the poorest nations in the world, many of which are net food importers.<\/p>\n Sharp jumps in food prices can bring political instability. The Arab Spring revolutions of 2010 kicked off with riots about the price of bread.<\/p>\n Food-price inflation is not great for the poorest people in this country, either.<\/p>\n Food is a bigger fixed cost relative to income for those on low wages so food inflation hits the poorest hardest.<\/p>\n Even as a net beneficiary of higher global food prices, New Zealand won’t be immune from the risk of the trend further widening an already worrying wealth divide.<\/p>\n