We write a lot of news stories about the high cost of things in New Zealand. grocery shop. fuel. House prices in particular.
So when I was asked this week to try to identify something we could access at a lower cost than anywhere else in the world, it seemed like a worthwhile challenge. Good news to offset some of the doom and gloom.
It turned out to be a lot harder than I expected.
Do you have any suggestions? Email susan.edmunds@stuff.co.nz
I contacted academics at universities across the country. Economists in banks. Commentators who comment on cost of living issues. Fruit and vegetable growers. No one can determine anything.
To guide my research, I have dealt with some of the elements that make up the Consumer Price Index. At every point, I hit.
food
We produce a lot of food in this country, so I thought maybe this would get us some fresh New Zealand produce at a steep price.
But not really.
The bulk of what we plant and grow goes abroad. For example, New Zealanders only eat about 13% of the beef produced here.
It is this international market that drives the price we pay in local supermarkets. If an international buyer is willing to pay more, we will do that too.
“As the prices of our exports rise, especially dairy and meat, there is continued pressure on what New Zealanders have to pay for them,” says Raywin Bleakley, chief executive of the Food and Grocery Council.
“This is because the price of raw materials is the same at the farm gate, no matter where they are sold. So, we pay a price that matches what foreign markets can offer our exporters.
“Because our population is so small, our economies of scale in the small market mean that our goods are often more expensive to produce. When you compare this to the countries we compare ourselves to – Australia, the UK and the US – which have a much larger population than us, they can produce More items at a lower cost because they have larger production runs.This is exacerbated by the fact that it is a long, thin country and prone to supply chain disruptions, making the cost of production high compared to more densely populated locations.
She said a lack of competition in supermarkets was another factor, as was inflation.
Eric Crampton, chief economist at the New Zealand Initiative, said some things that New Zealand was cost-effective to produce were heavily subsidized elsewhere, making them cheaper for shoppers in other countries.
“So the leg of lamb here represents excellent value, bearing in mind that there is no support in the price. But it is possible that prices will fall in parts of Europe – and there will certainly be a lot of poorer countries where prices are cheaper when bought locally, Because labor is very cheap, and obtaining a product for export is very difficult.
Vegetable farmers said the country was competitive with maize but the cost of transportation had pushed the price up. Agricultural practices were also of a high standard, costing more labour, land and logistics than they would in other parts of the world, they said.
In fast food we’re probably a little better. In US dollars, we are only the 14th most expensive place to buy a Big Mac in the world out of just over 50 countries, behind Saudi Arabia, Britain, Costa Rica, Switzerland, Norway, Argentina and the United States, among others.
Clothes and shoes
While the advent of online shopping with free delivery has given New Zealanders more options for buying cheap clothes and shoes (whether that’s a good thing is debatable), we still pay more than many countries. In 2017, a study ranked this country 38th out of 167 countries in terms of cost.
Buying local clothes won’t help – clothes made in New Zealand tend to be more expensive again.
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The price of fuel is expected to rise by about 29 cents per liter starting tomorrow.
AUT marketing lecturer Amy Ehrman said she noticed prices rising when she moved here from North America. “It’s something you’d find typically in smaller markets. We have about five million here – what happens especially when it comes to global brands, they basically have more work in their supply chains, so for them it’s a matter of choosing size.”
“If you have a market like China, India and even the US, there are a lot more people you can sell to, you can create more goods and volume and make it cheaper. With a market like New Zealand, you have to ship more and have a smaller market overall.”
Reduced competition has also led to higher prices, she said.
“They have the option to make the products more expensive because – let’s say you go to the American market you have a lot of choices – whether it’s clothes and different types of shoes, you will have more brands and more choices. When there is less choice, we have less choices, so We voluntarily pay more to get the things we want.
Energy prices
We produce a lot of electricity from renewable energy sources, so you might think this means our energy prices should be cheap by international standards.
This is not the case, said Luke Blincoe, who heads Electric Kiwi. He pointed to data showing the country ranked 125th in terms of affordability. “Despite its wealth of renewable resources.”
John Bisset/Things
We have a lot of hydropower, but that doesn’t make it cheap.
Transfer
Our fuel prices are higher than many other countries, largely due to the tax component. Auckland motorists will pay around $1.30 in tax per liter of petrol at present.
interest rates
These are not in the CPI but make up a significant portion of many household costs. Our official interest rate, 5.5%, is higher than the Australian interest rate (4.35%), the Bank of England rate (5.25%), and about the same as the US interest rate.
Our home loan interest rates, at around 7.35% for one year and just over 7% for two years, are higher than the average in Australia, where you’ll pay around 6.69% for one year, and in the US, at around 6.9% (borrowers In the US (the US tends to go for very long-term fix-ups, but can be broken and re-fixed if prices fall), the 5.74% available in the UK is a two-year fix-up for first home buyers.
So far, so frustrating?
Miles Workman, chief economist at ANZ Bank, said the main reason New Zealand was not as efficient as other countries was a lack of economies of scale.
“Overall, productivity is the key to making us all better off in real terms. Without productivity in the mix, input costs and costs to the consumer are likely to chase each other – wages rise, input costs rise, which means higher prices.”
“But by adding productivity growth into the mix, and with the same amount of inputs, producers get more output, and that means a bigger economic pie overall and more scope for companies to divide that up — increasing wages, without having to increase the prices they charge. And in this world, we will tend to Until we are better. New Zealand’s productivity performance has not been great.
Sometimes things that look cheap on the surface come with fishing hooks, said Brad Olsen, CEO of Infometrics.
“If you look at low fuel prices, they’re often coming from places that not only produce fuel, but may have active government subsidies, or something like that. And they’re probably paying them back in different ways.”
He pointed to Australia, where fuel taxes are lower but some of the expenses that would be covered by New Zealand’s fuel tax were funded by general taxes. “There’s a bigger opportunity cost with general taxes — health care, taxes, education. It’s hard to compare.”
He said comparisons were only useful when they showed something New Zealand could do better. “If the question is ‘Why is New Zealand’s fuel so much more expensive than Saudi Arabia’ – it’s probably because it’s one of the biggest oil producers on Earth. Sometimes we face challenges we can’t change.