We're paying more for milk but less for eggs

Food prices have attracted a lot of attention over the past year or two, with annual food price inflation hitting a high of 10.8 percent in the September 2008 month. Although the rate of increase in food prices has started to slow – with food prices increasing 6.8 percent in the year to May 2009 – food prices are still a hot topic of conversation. This article examines how food prices have changed over the past 50 years compared with overall inflation, and takes a close look at how specific food items have fared.

Figure 1 shows how prices in the food group of the consumers price index (CPI) have moved over the past 50 years in relation to the price movements for the overall CPI. Food group prices have generally increased in line with the overall CPI, except for some periods when food prices increased more rapidly (and then remained flat).

Figure 1

The first of these more rapid increases began in the June 1979 quarter when food prices increased 9.6 percent, compared with a 4.5 percent increase in the CPI. Increases in the fruit and vegetables, and the meat, fish, and poultry subgroups contributed to this. During this time milk prices were also increasing, doubling between 1980 and 1982.

Higher prices for the meat, fish, and poultry subgroup were the main driver of the sharp increases to food group prices starting in the September 1989 quarter, when the food group increased 6.6 percent compared with the overall CPI movement of 3.5 percent. Both movements were influenced by an increase in GST from 10 percent to 12.5 percent in July 1989.

Likewise, the increase beginning in the March 2001 quarter was also due to higher prices for the meat, fish, and poultry subgroup. The food group increased 2.5 percent in this quarter compared with a 0.2 percent fall in the CPI.

During the periods of increase beginning in both the September 1989 quarter and the March 2001 quarter, increasing export prices for meat were also recorded.

The increase in food prices starting in the June 2006 quarter was initially due mainly to increases in the fruit and vegetables, and the meat, poultry, and fish subgroups. The grocery food subgroup contributed to this increase from the December 2007 quarter with higher prices for dairy products and for bread and cereals. These increases are consistent with increases in export prices for meat and dairy products, and with import prices for cereals and cereal preparations over the same period.

The following table shows the average prices of selected food items every decade over the past 50 years. Prices for each item are given in the fourth column as they were at the time, indexed using the food group of the CPI to put the prices into current dollars in the fifth column, and expressed in today's dollars and units in the sixth column. The table illustrates how the price of each item has changed relative to today's prices. Where earlier sizes are significantly smaller or larger, prices will not be strictly comparable.

Table 1

After allowing for general food price inflation, the price of a dozen eggs has become substantially cheaper over the past 50 years, now costing about 65 percent less in today’s dollars than in 1959. The price of sausages has stayed reasonably constant. Flour prices have fallen in real terms since 1.5kg bags were first tracked in the 1970s, and sugar prices are now also relatively cheaper.

Although it is difficult to compare the price of milk due to the change in the size collected, it is apparent that milk has become more expensive. Up until the 1980s New Zealand's milk industry was heavily regulated. The New Zealand Milk Board, established in 1953, oversaw 44 district milk authorities that were responsible for, among other things, setting producer and consumer prices. A government subsidy was paid to make up the shortfall between the two prices. Price fixing was removed in 1976, followed by the removal of the subsidy from 1 April 1985 (1)(2).

Figure 2 shows the average price of milk in New Zealand during the period from 1956 to 1984. The retail price of a pint of milk doubled in February 1976 to 8 cents from 4 cents. Three years later, in April 1979, the price rose from 10 cents to 15 cents. There were four further increases between 1980 and 1982, when the wage/price freeze started, which saw the retail price double from 15 cents to 30 cents.

It is also worth noting that from 1937 until 1967, milk was delivered free to schools throughout New Zealand daily. Children received half a pint of milk each.

Over the past 50 years food prices have generally moved in line with overall inflation. However, some items – such as milk – have become more expensive relative to the rest of the food basket, while others – such as eggs – have become cheaper.

⁽¹⁾Smith, M and Signal, L. Global influences on milk purchasing in New Zealand – implications for health and inequalities. University of Otago. 2009. Available from http://www.globalizationandhealth.com/content/5/1/1

⁽²⁾Gillmour, S. History of the New Zealand milk board: A study of the corporatist alliance between the state and the domestic milk sector. Lincoln University. Agribusiness and Economics Research Unit. 1992. Available from http://researcharchive.lincoln.ac.nz/dspace/handle/10182/246

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