A primary driver behind the high domestic butter prices is the principle of export parity pricing. Because New Zealand is a dominant dairy exporter, local prices for dairy commodities like butter are heavily influenced by strong international demand and global market prices. Companies like Fonterra, a major cooperative, prioritize maximizing returns for their dairy farmer suppliers by selling products at the highest achievable global rates, meaning local consumers effectively compete with international buyers.

Another significant factor contributing to the elevated cost is the underlying milk price. The raw milk collected from dairy farms is a global commodity, and its value is determined by international supply and demand for various dairy products, including whole milk powder, skim milk powder, and butter. When global demand for dairy fats is high, as it has been in recent times, the cost of the raw material for butter production increases, pushing up retail prices.

Beyond the farm gate and global market, the final price consumers pay in supermarkets is also influenced by retailer margins and other operational costs. Local processing, packaging, transportation, and supermarket overheads all add to the base cost. While global prices set a high foundation, the various stages within the domestic dairy supply chain further contribute to the high retail price point for butter.