Why New Zealand food can be cheaper overseas than here

Overseas, consumers are indulging in New Zealand-made products at a cheaper price than back home.

Time again we hear news of Kiwi items cheaper around the globe while back here its horror at the checkouts.

New Zealand's grocery prices are among the highest in the world, ranking sixth for the highest food prices in the OECD.

Stats NZ has time again reconfirmed what Kiwis already know - food is getting more and more expensive. Its most recent food price index, released on Thursday, rose 12.5 percent from a year ago.

Earlier this week, a tweet highlighted the issue when it found onions grown in New Zealand were selling for two-thirds of the price in the UK than at home.

The onions were selling for UK$0.95 per kilogram which works out to be roughly just under NZ$2. In comparison, the same onions were selling for $2.99 a kilogram in Countdown.

But it's not just onions donning a cheaper price tag around the globe.

New Zealand lamb mince was also sold cheaper overseas while the same brand of cheese was almost $10 more than across the ditch. 

While experts say a lot of these times the overseas grocers could be selling the products at a loss it poses the question - why is food made in New Zealand often more expensive than it is overseas?

GST on food

In New Zealand, a Goods and Services Tax (GST) of 15 percent is added to the price of food.

In some overseas countries, they don't have this tax bumping up the price of food. Five OECD countries don't apply a tax to certain food items including Mexico, United Kingdom, Australia, Canada and Ireland. While many European countries apply a reduced rate to some food items.

Most food is exempt from the United Kingdom's version of the tax with the exception of the likes of fizzy drinks and lollies. 

Australia has exempted some food from its goods and services tax, however, there are specially prescribed rules as to what food it applies to. 

Te Pāti Māori has long been calling to remove GST on food while Labour in 2011 campaigned on removing GST from fruit and vegetables - but it was later scrapped. NZ First added to the debate in 2017, proposing to remove GST from "basic food".  

"GST is a regressive tax that targets lower-income whānau who are forced to spend nearly every cent they earn," Te Pāti Māori said.

"Food is a right and a necessity and should never be taxed."

Te Pāti Māori co leaders Rawiri Waititi and Debbie Ngarewa-Packer.
Te Pāti Māori co leaders Rawiri Waititi and Debbie Ngarewa-Packer. Photo credit: Getty Images

But critics said removing GST will see food prices will drop but not by the full amount of GST.

"Basic economics teaches us that when something is taxed, producers and consumers share the burden of that tax," Canterbury University economics lecturer Stephen Hickson wrote in The Conversation.

"The price rises for consumers but producers have to absorb some of that extra cost. When the tax comes off, therefore, the reverse happens, and producers and consumers share the cost reduction."

Critics also expressed concerns over the complexity of selective GST and possible costs associated with exempting some products and not others. The Government would also have to find a way to make up all the revenue lost from removing GST from food - which would likely come in another form of tax.

Our size

All the way at the bottom of the world is New Zealand, population: Five million. 

Compared with countries like Australia, Uk and US, New Zealand has a lot fewer people, a smaller market and our economies of scale means the production of goods here usually costs more. 

"Part of it [higher food prices] is the size of the market, the distribution of customers, how costly it is to set up the infrastructure," Principal Economist at Cognitus Economic Insight Richard Meade told AM earlier this year.

"A country like New Zealand has some obvious challenges because we are a fairly low population," Dr Meade said. 

"We're quite spread out, we don't have very many concentrated cities, so if you want to service the New Zealand economy you actually need to have a certain number of distribution centres around the country."

And, Dr Meade said, distribution centres come with a hefty price tag.

He said due to the price, a company can only have so many of them which tends to limit how many competitors you can have in any single market. 

Supermarket competition

A lack of competition in the supermarket sector is a driver behind the pain at the checkout. 

New Zealand's grocery market is dominated by two supermarket giants, Foodstuffs and Woolworths.

Markets such as the UK for example have far more supermarket chains and so more competition, which can help to lower prices. 

In 2022, the Commerce Commission found competition in the grocery sector is "not working well for New Zealand consumers" with smaller retailers unable to compete effectively against the two main players. Meanwhile, the duopoly was making about $430 million a year in excess profits.

It released a report with a range of recommendations for the Government to "shake up" the grocery sector and an action plan was set with the introduction of the Grocery Industry Competition Bill.

As a part of these recommendations, a grocery commissioner was appointed on Tuesday. The new commissioner's, Pierre van Heerden, role is to keep supermarkets in line with new rules in the Bill which passed its third and final reading in June.

Pierre van Heerden has been appointed as the grocery commissioner.
Pierre van Heerden has been appointed as the grocery commissioner. Photo credit: AM

But as Prime Minister Chris Hipkins said last month, you can't turn a lack of competition around overnight. 

"We're not going to suddenly have big, new players everywhere over the country."

So for Kiwis wanting cheaper onions or lamb - you might just have to fly to the other side of the globe.