Flood impacts add challenges to food inflation fight

14 February 2023


Flood impacts add challenges to food inflation fight

Stores in the Foodstuffs co-operatives hold price increases to customers below inflation and below supplier cost increases for nine months in a row.


The numbers:

  • Stats NZ Food Price Index (FPI) shows food prices increased 10.3% for January 2023 compared to a year ago.
  • In January, the average cost increase from suppliers to the Foodstuffs co-operatives on the same products measured in the FPI basket was 9.4%.
  • On the same products, the retail price increase to Foodstuffs customers was 9.3% - meaning the co-operatives’ members held prices in their stores at 1.0% less than inflation in January, and 0.1% below cost increases from suppliers to Foodstuffs on the FPI basket.
  • This month’s Infometrics - Foodstuffs New Zealand Grocery Supplier Cost Index shows cost increases from grocery suppliers to supermarkets up 10.0%pa in January. 
  • Stores in the Foodstuffs co-operatives have held price increases to customers below inflation and below supplier cost increases since May 2022 (9 consecutive months).
  • The largest component of shelf prices is the cost of goods from our suppliers – around 68c in every dollar. Major global suppliers are signalling further price increases to come this year. 


“The impacts of January’s historic flooding across the upper North Island will likely add further challenges to the inflation fight at the checkout,” says Foodstuffs NZ Managing Director Chris Quin.

Commenting on the latest food price inflation figures released by Stats NZ today, Quin says as predicted adverse weather events are proving to be the wild card for growers, manufacturers and retailers of food in New Zealand.


“The recent devastating floods have hit Auckland’s vegetable growing regions hard at a critical time of the growing season and are making things challenging for our whole food ecosystem from paddock to plate. 


“Auckland’s wettest January on record has been really tough for local growers, with the long-term impact of the floods on crops like onions, lettuces and some root vegetables still to be felt.


“In Auckland, three of our stores in Wairau, Newmarket and Mt Albert had to close due to severe flood damage. Wairau and Newmarket re-opened within seven days but the Mt Albert store is closed for an extended period due to the impact.


“We are also facing ongoing flood-related logistical challenges and longer transport times, because of road closures and significant repairs required from Coromandel through to Northland. Damage to infrastructure is meaning longer routes and driver hours and this is exacerbating the already chronic shortage of experienced drivers.” 


Global optimism inflation has peaked, while domestic pressures remain


“Domestic price pressures remain high, including the tight labour market, pressure on wages and salaries, persistently high fuel (diesel) costs, and high feed and fertiliser costs for suppliers,” says Quin. 

Shipping costs have started to drop. In January, per container costs dropped by 12% versus December but were still up 4% in January compared to the same time last year.


“While shipping costs are starting to ease, the handling of empty containers (charged by the shipping lines) remains elevated because of portside congestion in New Zealand, so we’re still experiencing very high costs,” says Quin.


“Our co-operatives are holding food prices below inflation and through January customers have seen value on things like cauliflower (24% cheaper than the same time last year), broccoli, strawberries and lettuce. Value bread was also 8.4% cheaper than in January 2022. 


“New Zealand food price inflation over the past 12 months has remained lower than in the most competitive grocery markets (US and UK) - with food price inflation in the UK increasing 16.9% year-on-year in December of 2022.


“Central banks in the US and UK have recently made more modest interest rate hikes but have signalled they are not finished, noting that more evidence is needed to be confident high inflation has been defeated. 


“While there appears to be some optimism on Wall Street that inflation has peaked and markets are roaring back, that optimism has to be tempered with the reality of significant price hikes still being signalled, particularly by major global suppliers.”


This month’s Infometrics - Foodstuffs New Zealand Grocery Supplier Cost Index shows sustained pressure on supermarkets’ costs from supplier increases, up 10.0%pa in January, as suppliers continue to pass on higher costs that are hitting them. 


“As I said in last month’s update, there’s been a lot of volatility but we’re hoping to see a clearer picture by the end of this quarter,” says Quin. 


“In particular, we’ll be watching the RBNZ’s decisions on the Official Cash Rate next week and in April to see whether a recession is required to get inflation under control domestically and, if so, what impact that will have across our sector. The impact from the increase to the minimum wage, which comes into effect on 1 April, is still being assessed but will add to wage cost pressures across the food sector this year.


“In the meantime, we are continuing to do everything we can to help customers find value at the checkout. That means keeping a laser focus on the inflation fight by buying well, keeping cost and complexity out of the business to make sure our entire network is running as efficiently as we can.” says Quin.