A Southland bakery says it will raise prices next week as butter costs climb following another strong Global Dairy Trade auction. Experts say higher international prices could soon flow through to supermarket shelves.
Dairy prices rose at the latest Global Dairy Trade (GDT) auction, with the average price up 5.7% to US$4301 (NZ$7299) a tonne.
Butter prices have jumped 6.1%, continuing a run of increases this year.
Luella Penniall, who owns Kaye’s Bakery in Invercargill, said the rising cost of butter is already forcing difficult decisions.
“We’ve got a price increase going through on Monday,” she told TVNZ's Breakfast.
"That decision has been three months in the making. I hope we won’t have to increase it again."
Penniall said butter is a key ingredient in many bakery products, meaning price rises quickly flow through the industry.
“I would like to have all our biscuits made with pure butter,” she said.
"We’ve looked at American butter for our business, but it’s very high in water."
To keep some products affordable, the bakery has already had to adjust recipes.
"Over the years, we’ve been doing a small percentage of margarine in some of our range to meet a price point.
"I can’t see it going back to how it once was."
Global demand pushing prices up
Agricultural economist professor Alan Renwick from Lincoln University said the latest rise reflects tightening supply and strong global demand.
"It has been a bit of a turnaround after the falling prices at the end of last year," he said.
“For New Zealand we’ve passed the season peak and available supply has reduced – as expected – but that still creates pressure, particularly as demand seems to be increasing."
He said overseas demand had been a major driver.
"There seems to be increased demand – particularly from China – but also in other parts of the world."
Tensions in the Middle East may also be a factor.
"There are some who suggest that the increased geopolitical tensions have put upward pressure on price due to volatility in freight and energy markets," Renwick said.
Higher prices could reach supermarket shelves
A Foodstuffs spokesperson told Breakfast any shifts in commodity prices "won’t be reflected in the butter prices customers see on the shelf until May 2026".
"We know butter is a staple in many New Zealand households, and we remain committed to keeping butter as affordable as possible for our customers."
Renwick said consumers in New Zealand may not see the impact immediately, but higher international prices are likely to flow through over time.
"There is a lag between changes in price in the GDT and our prices in supermarkets," he said.
"At the moment we are benefiting from the earlier lower prices, but these higher prices are likely to feed through in the next few months."
Butter already sells for around $7 to $9 for a standard 500g block at many supermarkets, depending on the brand and whether it is on special.
Renwick said while butter makes up a relatively small part of household spending, rising prices could still influence how people feel about inflation.
"Research highlights that we are heavily influenced by food prices when setting our expectations of inflation, so this could have wider implications for the economy."
When approached by Breakfast, Fonterra referred to a butter price explainer on its website.
The dairy co-operative said it focused on keeping the costs it can control as low as possible.
"As a farmer owned co-operative, our role is to collect, process and sell farmers' milk to customers here in New Zealand as well as globally, working to get the best price we can for our farmers.
“Selling it for less would mean a business choosing to sell at a loss or giving a subsidy. That’s not a sustainable model for any business long term, particularly when we compete in global markets.”
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