Fonterra wholesalers were told dairy prices were rising and a hospitality boss said cost increases would be passed on to customers.
Fonterra Brands chief executive Brett Henshaw told customers late last year that he would increase wholesale prices in stages during the first months of the year.
Global dairy prices are at an all-time high, which has driven up the wholesale price that Fonterra Brands and other companies paid for the milk needed to make their products, he said.
Inflation also drove up the price Fonterra Brands paid for other goods and services used to make its products, he said.
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“FBNZ has done everything possible to mitigate these price increases for its customers.”
In March, Fonterra announced that its half-year profit fell 7% to $364 million because it was unable to pass on record milk costs to the dairy products it makes.
Figures from Stats NZ show the cost of dairy products on supermarket shelves has also risen since the start of the pandemic.
Since March 2020, a 1 kilogram block of cheddar cheese has gone from $10.14 to $12.24.
The cost of a two-litre bottle of milk rose from $3.63 to $3.88, and a 500g block of salted butter rose slightly from $5.38 to $5.42.
This week, figures from Stats NZ showed the cost of food rose 3.1% in the March quarter and New Zealand’s inflation rate hit a 30-year high of 6, 9%.
Mark Scully, owner of Speights Ale and chairman of subsidiary Hospitality NZ, said it was no surprise that Fonterra was raising prices.
Dairy, along with other proteins, was a major cost of entry for hospitality establishments, he said.
“The killer for us is protein,” Scully said.
“The costs will certainly have to be passed on.”
Because of the way cost structures work in hotel businesses, any increase in the wholesale price was multiplied when it was passed on to customers, he said.
“A dollar increase in the price of your goods probably translates to nearly $3 on your plate.”
Hospitality businesses were eager to welcome guests back after Covid-19 kept them away, so they could delay passing through price increases until tourists returned, he said.
“I’m sure a lot of people will carry lower margins in the meantime to try and entice their locals.”
Most hotel businesses would buy their products through a wholesaler, rather than directly from a producer, he said.
Dairy prices hit a new record high at the Global Dairy Trade auction last month, surpassing a previous high set in April 2013.
However, this week global dairy prices have fallen, with the World Dairy Trade Index falling 3.6%.
ANZ said the result was actually stronger than expected as larger bid volumes were expected to weigh more heavily on prices.
Fonterra cited demand issues including: the war in Ukraine, lockdowns in China and the economic crisis in Sri Lanka as reasons he had more inventory to sell than expected.
ANZ agricultural economist Susan Kilsby said it was unclear how much Fonterra was raising prices for wholesalers because those prices were not made public.
“It’s not too transparent.”
Fonterra tended to set local prices based on the price situation in the global market, she said.
“We’ve certainly had strong international price increases that are reasonably transparent through the Global Dairy Trade auction.”
She said prices had been high for powdered milk, butter and cheese, and it was no surprise that Fonterra raised its wholesale prices.
Wholesale prices tend to be longer-term contracts that are revised periodically, she said.
She said global dairy trade prices had a direct impact on wholesale and retail prices.
“That’s generally how New Zealand has operated. It is influenced by the world’s largest market.
Other inflationary pressures such as labor and packaging material costs would also have increased input costs, she said.
“Labour would definitely be a big component.”
She said it could take two or three months for dairy price increases to trickle down to retail prices.