The value, and rising price, of milk

Two weeks ago, the United Nations Food and Agricultural Organisation updated its Food Price Index, a measure with which, since 1990, it has attempted to chart global prices.

The FAO said its index showed prices had reached a peak in January that was the highest recorded, that food had been rising steadily in cost for the previous seven months, that international competition for corn and wheat was the main cause, and that the long-standing upward pressure on prices was not abating.

Furthermore, they were not expected to abate for months, and had become a major concern for countries which must import food to supplement local stocks, and which had large numbers of poor households spending most of their income on food.

Economists have been predicting this trend for some years largely because the rate of population growth in many poorer countries is outstripping affordable food supplies.

For New Zealand households with young children contemplating their rapidly increasing food bills, all this will have very little relevance, yet it is extremely relevant to the prices being charged here for some essential commodities.

One of these is bread, which has steadily increased in cost because of global pressure on wheat prices. Another is milk where, although domestic consumption is only 5% of production, the local price paid must match or nearly match the global prices won by Fonterra.

Even so, the company maintains it is already subsidising the local price by not passing on some production costs, which it cannot control.

Food prices have generally risen in the past two months, and not only because of the increase in GST. For the year to January 31, they rose by 3.8%, according to Statistics New Zealand, and for January alone, by 1.8%.

But for the full year, fruit and vegetables prices increased by 8.1%, restaurant meals and ready-to-eat food by 4.1%, grocery food prices by 3.9%, meat, poultry, and fish by 1.6%, and non-alcoholic beverages by 1.1%.

In the face of calls to do something about the cost of food, especially the price of milk, the Government has argued its tax cuts were intended in part to compensate, particularly for the GST increase.

But with the prices of basic commodities likely to continue to rise, the pressure for some form of further compensation will continue. The Government is unlikely to be sympathetic, and nor should it be.

The Prime Minister responded with accuracy when he was asked in Parliament on Wednesday about concerns at rising levels of poverty, as measured by the numbers on benefits.

Mr Key said people who resorted to food banks did so out of their own poor choices rather than because they could not afford to buy food while on a benefit. If one budgets properly, one can pay one's bills, he said.

That is the truth of the matter. It is true for beneficiaries just as it is true for anyone else. It does not mean the community should be unsympathetic towards people who do find themselves in difficulty or who live in circumstances approaching hardship. Nor could it be reasonably claimed that current benefit rates were overly generous.

People on benefits were given an increase to compensate for the GST increase, and the next annual increase, due in April, will further compensate for inflation. But voluntary budget advisory services do an excellent job in many towns and cities and are often hard-pressed to meet demand.

Most people, including those living on benefits alone, are able to manage the costs of their living, and assistance is available for those who cannot.

The specific issue of the cost of milk for poorer families with young children is one that can and should be dealt with in a targeted way.

No National-led government is going to return to the days when milk prices were heavily subsidised, but with research showing many young children in low-income households do not get milk in their diet, it is in everyone's interest to avoid long-term health consequences.

The inclusion of milk at no cost as part of the breakfast-in-schools programme at low-decile schools is one possibility worth considering.

In general terms, families need to become much more aware that pressure on food prices will continue to increase, whatever the causes, be they population demand, weather-related events, or speculative trading - and the world has already witnessed this year the political consequences of hungry people.

The last global food crisis was in 2007-08. The latest is with us today.

 

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