Slicing and dicing meat and poultry prices

This article examines price movements for three consumers price index (CPI) meat categories between the March 1981 quarter and the June 2010 quarter.

The three categories are:

• poultry
• beef and veal
• mutton, lamb, and hogget.

The article also examines the changing relative importance of these three meat types in the CPI food group over the same period.

Meat and poultry in the CPI

Meat and poultry purchases account for about $1 of every $40 spent by New Zealand households. At the time of the 2008 consumers price index (CPI) review, meat and poultry purchases (excluding takeaways and meals out) accounted for about $25.25 of the average household’s weekly expenditure.  However, while New Zealanders consume a significant amount of meat, New Zealand exports a large share of its meat production.

Meat and poultry are included in the food group of the CPI basket. Household spending on meat and poultry has changed over time as tastes, incomes, and food production technologies have changed. The CPI undergoes periodic reviews to ensure that the goods and services included in the basket and their respective weights remain representative of the purchases that private households make.

Food price movements

Figure 1 shows that food prices increased by 259 percent between the March 1981 and the June 2010 quarters.

Food prices increased at an annual average rate of about 9.7 percent, from the March 1981 quarter until the March 1990 quarter. During this period, as figure 1 shows, food prices were affected by the 1982–84 price freeze, the introduction of GST in the December 1986 quarter, and the increase in GST in the September 1989 quarter. The growth rate then slowed over the next 10 years, with prices increasing, on average, by 1.4 percent per year from the March 1990 quarter to the March 2000 quarter.

In more recent times (from the June 2006 quarter to the June 2010 quarter), food prices have increased more rapidly again with an average increase of 4.4 percent per year. The upward pressure on food prices was felt internationally during this period, with increased demand from emerging countries like China and greater demand for grain crops due to increased bio-fuel production.

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Figure 1

Food’s significance in the CPI basket

Table 1 shows that in the December 1980 quarter, food accounted for 19.62 percent of the CPI basket. Food’s significance in the CPI basket has slightly decreased over time.

Following the latest CPI review, in the June 2008 quarter, food’s significance in the index was 17.83 percent. Note that slight changes in the scope of the CPI over time have affected food’s significance in the CPI basket. For example, up until the June 1999 quarter, mortgage interest payments and residential sections were included in the CPI basket.

Table 1

Poultry price movements

Figure 2 shows that between the March 1981 and June 2010 quarters, poultry prices increased by 124 percent, which is considerably less than the 259 percent increase for food over the same period.

Poultry prices reached a peak in the June 1990 quarter, and then generally followed a downward trend for the next 16 years. Poultry prices decreased in total by 20.0 percent by the September 2006 quarter, during a time when food prices increased overall by 31.3 percent. Poultry prices did not return to the June 1990 quarter level until 17 years later in the June 2007 quarter.

The Poultry Industry Association of New Zealand attributes the decrease in poultry prices experienced between 1990 and 2006 to improved economies of scale and productivity. For example, the production of poultry meat has become more efficient. In 1979, the average broiler chicken took 64 days to grow to a 2kg weight, whereas in 2006 it took 35 days on average.

However, in recent years the price of poultry has increased, with a notable increase in the March 2007 quarter when prices went up 15.2 percent, followed by a further 6.9 percent in the June 2007 quarter.

The cost of producing poultry meat includes feed, processing and packaging, storage, distribution, and marketing. About 60 percent of the cost of producing poultry is the cost of feeding the chickens grain.

Figure 2 shows that feed, grazing, cultivation, and harvesting prices (as measured in the farm expenses price index (FEPI)) were relatively flat from 1989 to 2001. Grain prices increased in 2001 and 2002, and again in 2007 and 2008 (when grain shortages due to increased bio-fuel production were experienced). Figure 2 shows that poultry prices increased at about the same time as these two periods when feed prices rose.

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Figure 2

Poultry’s significance in the CPI basket

Unlike the other meat categories, the relative importance of poultry in the CPI food group has increased since the 1980 review. In the December 1980 quarter, poultry had a weight of 2.5 percent of the CPI food group. However, in the most recent review (implemented in the June 2008 quarter) poultry had increased in significance, accounting for 3.4 percent of the food group.

Table 2

Beef and veal price movements

Figure 3 shows the price changes of beef and veal compared with the overall price changes for food from the March 1981 quarter to the June 2010 quarter. The price of beef and veal increased by 254 percent over this period, while the CPI food group increased by 259 percent. However, export prices rose by only 96 percent over the same period.

While export and domestic prices have tended to follow a similar pattern, the difference in the overall change between the June 1981 and June 2010 quarters appears to be attributable to two periods in time. The first is between the December 1985 and December 1989 quarters (which includes both the introduction of GST in 1986 and the increase in 1989), when domestic prices increased by 62.3 percent, compared with a 36.6 percent increase in export prices (which are not subject to GST).

For the following 11 years, changes in export and domestic prices followed each other closely. However, the second time when differences are particularly noticeable is between the December 2000 and December 2009 quarters, when export prices decreased by 26.0 percent and domestic prices increased by 32.7 percent.

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Figure 3

Beef and veal’s significance in the CPI basket

The relative importance of beef and veal in the CPI food group has decreased over the past 30 years, as shown in table 3. In the December 1980 quarter, beef and veal accounted for 7.2 percent of the CPI food group. This weight has generally decreased during subsequent reviews and at the most recent CPI review, implemented in the June 2008 quarter, the weight given to beef and veal was 3.5 percent of the food group.

Table 3

Mutton, lamb, and hogget price movements

From the March 1981 quarter to the June 2010 quarter, mutton, lamb, and hogget prices increased by 366 percent, which is substantially more than the 259 percent increase for the CPI food group over the same period.

In the first two-thirds of the period, from the March 1981 quarter to the June 1999 quarter, mutton, lamb, and hogget prices increased overall at a similar rate to the CPI food group, rising by 175 percent, compared with a 162 percent increase in food prices. However, between the June 1999 and June 2010 quarters, mutton, lamb, and hogget prices increased by 69.7 percent, while food prices increased by 36.9 percent.

Export prices followed a similar pattern to domestic prices over the period examined, with prices increasing and decreasing at similar points in time. However, in general, export prices have increased at a slower rate than domestic prices, with export prices up by 155 percent over the period examined, compared with 366 percent for domestic prices.

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Figure 4

Mutton, lamb, and hogget’s significance in the CPI basket

The significance of mutton, lamb, and hogget expenditure in the CPI basket has generally fallen over time. At the December 1980 quarter, the weight of mutton, lamb, and hogget in the CPI food group was as high as 3.6 percent. However, at the most recent review in 2008 its weight had fallen to 1.3 percent of the food group.

Table 4

Food, meat, and poultry price movements

Figure 5 shows the price movements of all three meat categories. Over the 29-year period, poultry prices (up 124 percent) rose by considerably less than the two other meat categories and food overall.

Mutton, lamb, and hogget prices (up 366 percent) rose by more than the other two meat categories and food overall.

The price of beef and veal, despite being more volatile than food prices overall, experienced the closest overall price change when compared with the CPI food group. The overall change (up 254 percent) compares closely with the overall change in food prices of 259 percent.

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Figure 5

 

Over the past three decades, the relative importance of poultry in the food group has increased, while the relative importance of beef and veal, and of hogget, lamb, and mutton, in particular, have declined. This suggests that consumers have reacted to the different relative price changes for these categories of meat by buying more poultry (which showed the lowest relative price increase) and less of the two other meat categories.

Figure 6 shows how prices of each of the three meat categories have changed relative to the CPI food group.  From this we can see that poultry prices have decreased relative to food prices throughout most of the series, while beef and veal prices have hovered around overall food prices. Mutton, lamb, and hogget prices have increased relative to food prices over the past 10 years.

Figure 6

 

1. Based on expenditure figures (mainly from the Household Economic Survey) for the year to June 2007, expressed in June 2008 quarter prices. 
2. http://www.pianz.org.nz/PoultryFarming/history.php 
3. In figure 6, the price index time series for the three types of meat have been deflated by the CPI food group.

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