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By: Erika Sirimanne

Global dairy prices decline, but Kiwi milk prices remain high

Commodity prices, particularly dairy prices, have continued to fall globally. However, much to the disappointment of New Zealand consumers, the price of milk has not followed suit. Kiwi consumers are also frustrated by the knowledge that they pay more than their Australian counterparts for milk produced in their own backyard. So, how does the price of milk compare across the world? In US dollar terms the average price of cow’s milk (including both fresh and shelf stable milk) in New Zealand during 2015 was $2.60 per litre. This is compared with US$1.30 per litre in Australia and US$1.00 per litre in the UK. Asian countries also tended to demonstrate lower unit prices, at US$1.70 per litre in China and US$2.20 per litre in Hong Kong during 2015.

Milk wars continue in Australia

Why does the price of milk in New Zealand differ so much, especially when compared with Australia? Firstly, Kiwi consumers pay Goods and Services Tax (GST) of 15% on milk products, whereas non-flavoured milk products in Australia are exempt from GST of 10%. The grocery retail landscape in Australia and New Zealand is relatively similar, with two major supermarket chains dominating sales. Nonetheless, in Australia, Coles and Woolworths have been raging a price war on milk since 2011. On Australia Day 2011, Coles announced it would cut the price of its private label milk to A$1.00 per litre, with Woolworths following in their footsteps. The price war continued during 2015 and has had a negative impact on some brands. In Australia, retail value sales of private label fresh milk have increased by 22% while retail value sales for Lion Pty Ltd’s Dairy Farmers and Pura brands declined substantially between 2010 and 2014. The $1 milk war has led to a polarisation of consumer demand towards private label at one end of the spectrum and premium brands, such as A2, on the other. The $1 milk war represents a loss-leading strategy undertaken by Coles and Woolworths, not unlike the private label bread price strategy implemented by both Progressive Enterprises and Foodstuffs in New Zealand, which started in 2014.

What about dairy milk alternatives?

How does the price of cow’s milk stack up against other milk types in New Zealand? In 2015, the average price of cows’ milk was NZ$3.40 per litre, compared with NZ$4.40 per litre for goat milk, NZ$5.10 per litre for soy milk and NZ$4.20 per litre for other non-dairy milk alternatives (e.g. rice milk, almond milk). Demand for soy milk and other non-dairy milk alternatives has increased recently as consumers become more aware of food intolerance issues, such as lactose intolerance. Furthermore, the per litre price of cow’s milk sits slightly higher than certain soft drink products, such as carbonates, bottled water and juice.

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This article originally appeared in FMCG Business.

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