I was listening to Jamie McKay on The Country radio show last week [early November]. He was talking about the retail price of a rack of lamb.
Farmers in this country are selling their lambs for about $6 per kilogram. In case you’re wondering, that’s not a lot of money. The average healthy lamb will weigh between 16 and 18 kilos and so in round figures we’re talking about a farmer doing a whole lot of work for $100 per animal.
But here’s where it gets interesting. While the sale price at the farm gate is at an unhealthy low, the retail price for the finished product, ready to cook, is at a ridiculous high.
As McKay pointed out on his show, a rack of lamb was selling in a Wellington supermarket for $74 per kilo. So the raw material is $6. The finished product is $74. That’s a heck of a lot of margin crammed into the distribution process.
Of course we’re quick to blame the supermarkets for price gouging and that’s exactly what happened after the story broke.
But just last weekend I was away with a group of mates. On Saturday night, we went out to dinner at a Palmerston North restaurant. On looking at the menu I saw something that I hadn’t noticed before. All the main courses were $50 or more. That’s without the sides or veges that were going to be an additional $12 a piece. All the deserts $25.
It’s not that long ago that restaurant mains were in the high thirties and deserts maxed out at $15. A great eye filet may have gone over $40 mark but that was it. As we came out of the Covid lockdowns that was where prices sat. But this is another level.
As McKay pointed out on his show, a rack of lamb was selling in a Wellington supermarket for $74 per kilo. So the raw material is $6. The finished product is $74. That’s a heck of a lot of margin crammed into the distribution process.
Of course we’re quick to blame the supermarkets for price gouging and that’s exactly what happened after the story broke.
But just last weekend I was away with a group of mates. On Saturday night, we went out to dinner at a Palmerston North restaurant. On looking at the menu I saw something that I hadn’t noticed before. All the main courses were $50 or more. That’s without the sides or veges that were going to be an additional $12 a piece. All the deserts $25.
It’s not that long ago that restaurant mains were in the high thirties and deserts maxed out at $15. A great eye filet may have gone over $40 mark but that was it. As we came out of the Covid lockdowns that was where prices sat. But this is another level.
“SO LET’S GET THIS STRAIGHT. THE FARMER IS SELLING HIS LAMBS FOR $6 A KILO. SUPERMARKETS ARE SELLING LAMB RACKS FOR $74 A KILO. AND RESTAURANTS ARE CHARGING $50 FOR A SINGLE LAMB CHOP. SOMETHING IS DRASTICALLY WRONG WITH OUR SUPPLY CHAIN.”
When our restaurant served chicken fillet or pork belly is $50, we need to take notice. As a food producing country, someone needs to ask “what the hell is going on”.
But it gets worse. As our main courses arrived, my mate across the table, having ordered the lamb, was appalled to see one, yes one normal sized lamb chop on his plate. He looked further up the table where another newly arrived dinner sat in front of the other guy who ordered the lamb. Same thing. One lamb chop. There was also some mushrooms and some sauce, but that was it. One lamb chop. Fifty dollars.
While we’re quick to get stuck into the supermarkets, there has to be something else going on. Restaurants don’t buy their meat from supermarkets. There will be a process of ‘middle men’ from the original buyer of the hogget to the wholesaler who supplies supermarkets and restaurants. Somewhere in that chain, one of three things must be happening.
Firstly, the supply chain could be totally flawed and inefficient. Secondly there could be too many sets of hands in the process. I’m not sure why you’d need more than one middle man between the farmer and the retailer. Or thirdly, someone is running a food distribution business with bigger margins than the IT industry.
The problem is this. The farmer is slogging his guts out and paying higher mortgage rates and higher wages to his workers, just like the rest of us. But no one is allowing him to put his prices up to help him cope.
In the meantime, at the retail end, the prices are going up like crazy.
As I’ve written before in this column, our government of the last six years grossly underestimated the impact of the annual increases to the minimum wage while they were in power. The minimum wage worker who is working 40 hours per week, is earning an additional $278 per week as a result.
And it’s not over yet. Wage increases continue across the economy. The outgoing government just approved another round of increases, of up to thirty percent, for yet another group of government workers. All of these increased costs will continue to drip feed into our economy and make it even more difficult to pay the bills.
That’s great for those workers on the receiving end. But let’s not forget that the cost of wages is sprinkled across every product and every service we buy. Restaurants and supermarkets are full of those people and they all need to be paid. The supply chain that delivers product to those restaurants and supermarkets is littered with wage earners as well. Each and every one of them is earning more than they were. And we, the consumers, must pay.
And remember the farmer? He is paying his workers more too. He’s just not getting anything back in return.
So we have a new Grocery Commissioner and, believe it or not, he has 23 staff! Let’s hope that they get to work and start looking in the right places.
Bruce Cotterill, a five time CEO and current Company Chairman and Director with extensive experience across a range of industries including real estate, media, financial services, technology and retail. Bruce regularly blogs on brucecotterill.com - where this article was sourced
6 comments:
Welcome to NZ - post "progressive" Labour!
Where inefficiency, racial preference, bureaucracy, regulation, low productivity and over-staffing has contributed to an economy which adds huge costs for no increase in real value. In other words you pay a shitload more for the same thing or sometimes less.
Or maybe we really have descended to Third World levels and corruption has become endemic too.
There is an obvious flaw in this argument that makes the whole thing doubtful. The price of $6 per kilo includes the pelt, guts, the last meal, bones, hooves etc. A sheep is not all chops and leg roasts. Then again, perhaps the author thinks meat comes wrapped in plastic from the farm gate.
There is also no mention of the sky high rents that our property free-for-all have created. It is almost as if Bruce has cherry picked the data to show the only problem in NZ is the minimum wage.
Bruce , thank you for the opportunity to add, The recent plight of a farmer on the Chatham Islands , no grass in the paddocks for animal food , no transport to the NZ mainland because shipping was under repair , shot and left to decompose hundreds of cattle to stop the animals suffering . That farmer and his community need an immediate small abatoir to process these animals for delivery direct to the consumer in NZ , the same as their fish is direct marketed by air transport. The Chatham Islands need a council to assist with immediate practical solutions for power , waste services and a processing facility so the NZ public can also enjoy the farmers product direct while assisting a far flung community
On the related topic of prices at the supermarket I was in Australia a couple of weeks back - kiwifruit $3/kilo in the supermarket, back to NZ and guess what - $9. Every single fruit was of the highest quality. Here, you get back from the supermarket after buying packaged fruit and veg and have to throw half away. Supermarkets here are a disgrace.
Bruce - you mostly write well-thought-out articles - but this is not one of those. Lamb Racks make up less than 5% of a whole lamb purchased from a farmer, so there is almost no connection between the raw material cost (farm gate lamb price) and the finished goods price of one minor part of the lamb (Rack). There never has been and never will be. The main driver of the farm gate price is the cuts (shoulder, lamb flap) that go to the main market - China. The Rack price is driven by the USA & Europe (they buy about 90% of NZ Lamb Racks). So nothing to do with supermarkets, supply chain efficiencies, and nothing a Supermarket Commissioner and his tribe of central planners do do about it.
I'm in total agreement with Mr Cotterill here. The farmer at the moment is paid about $6.00 per kg for the finished carcass weighing 16-$18 kg , about $100. The lamb live weight in the pasture is about twice that, about 28 kg.
CXH misunderstands the process.
Last season I got rid of all my sheep and went all beef. Others I know did the same.
A lot of labour in sheep. Things like days off to stare at the stars and 5 days extra leave, called sick pay by the previous government. The final straw as far as I saw things.
DeeM ,and Mr Cotterrill hit the nail right on the head.
And I'm an East Coast farmer.
Post a Comment