Fonterra Brands managing director Brett Henshaw said it told customers late last year it would be increasing wholesale prices in stages over the first few months of the year.
Global dairy commodity prices are at a record high, which had led to an increase in the wholesale price Fonterra Brands, and other companies, paid for the milk required to manufacture their products, he said.
Inflation was also pushing up the price Fonterra Brands was paying for other goods and services used to manufacture its products, he said.
“FBNZ has made every effort to mitigate these price increases to its customers.”
In March, Fonterra reported its half year profit fell 7% to $364 million because it had been unable to pass on record high milk costs through to the dairy products it manufactures.
Stats NZ figures show the cost of dairy products on supermarket shelves has also been rising since the start of the pandemic.
Since March 2020 a 1 kilogram block of cheddar cheese has increased from $10.14 to $12.24.
The cost of a two litre bottle of milk has increased from $3.63 to $3.88, and a 500g block of salted butter had increased slightly from $5.38 to $5.42.
This week Stats NZ figures showed the cost of food rose 3.1% in the March quarter and New Zealand’s inflation rate had hit a 30-year high of 6.9%.
Speights Ale house owner and Hospitality NZ branch president Mark Scully said it came as no surprise that Fonterra was increasing its prices.
Dairy, along with other proteins, was a major input cost for hospitality establishments, he said.
“The killer for us are proteins” Scully said.
“The costs will certainly have to be passed on.”
Because of how cost structures worked in hospitality businesses, any increase in wholesale price got multiplied when it was passed on to customers, he said.
“A dollar increase in your price of goods translates to probably close to $3 dollars on your plate.”
Hospitality businesses were eager to welcome back customers after Covid-19 had kept them away, so they may hold off passing on price increases until tourists returned, he said.
“I’m sure a lot of people will wear lower margins in the meantime to try and lure their locals back in.”
Most hospitality businesses would buy their products through a wholesaler, rather than direct from a producer, he said.
Last month dairy prices hit a new record at the Global Dairy Trade auction, surpassing a previous record set in April 2013.
However, this week global dairy prices fell, with the Global Dairy Trade index slipping 3.6%.
ANZ said the result was actually stronger than expected, because larger offer volumes had been expected to weigh more heavily on prices.
Fonterra cited demand issues including: the war in Ukraine, lockdowns in China, and Sri Lanka’s economic crisis as reasons why it had more stock to sell than previously forecast.
ANZ agricultural economist Susan Kilsby said it was hard to know how much Fonterra was increasing prices for wholesalers because that pricing was not made public.
“It’s not overly transparent.”
Fonterra tended to set local prices based on where prices were at in the global market, she said.
“We’ve certainly had some big increases in international prices which are reasonably transparent through the Global Dairy Trade auction.”
She said prices had been strong across milk powder, butter and cheese, and it was not surprising Fonterra had lifted its wholesale rates.
Wholesale prices tended to be longer term contracts that were reviewed periodically, she said.
She said Global Dairy Trade prices had a direct impact on wholesale and retail prices.
“That’s typically how New Zealand has operated. It is influenced by the bigger global market.”
Other inflationary pressure such as labour and material costs for packaging would have also added to input costs, she said.
“Labour would certainly be a big component.”
She said it could take two or three months for increases in dairy prices to flow through to retail prices.
