This was before synthetic fermentation, when New Zealand still exported a lot of butter and global markets set the price. Whenever butter prices dropped, consumers barely noticed. Whenever they rose, people screamed.
The orthodox economics still practiced elsewhere, and back then, sometimes even in New Zealand, offered an obvious solution. When global dairy prices rise, farmers make more money and pay more tax. Government collects taxes and gives money to poorer people, with payments adjusted for inflation. People then decide what to buy.
Unfortunately, some prices draw a lot of attention. The spike in fuel prices during the 2020-2022 pandemic saw the government subsidise road users. People started to think that the government should step in whenever prices increase.
That populist turn solidified under the 2023-2026 National government.
A July 2025 meeting between the Finance Minister and the head of a large milk company caused a media frenzy about butter prices, followed by condemnation of supermarkets. Both drew popular applause.
Things slid from there. People came to expect public excoriation of businesses whenever prices increased unexpectedly.
In short order, the Minister was having to devote two or three days every week to these circuses. It was seriously impeding other government business.
So, the Minister delegated the job to a new Board established to supervise prices and to bring a more formal bureaucratic process to the inquisitions.
The new Labour-led government in 2026 kept the Board but broadened its role. It was more convenient for everyone involved.
Previously, anyone reducing prices risked prosecution for predatory pricing. Anyone increasing prices had to be gouging. And keeping prices the same was obviously collusion. It was a risky time.
In the new order, the Board and the businesses it supervised agreed on prices for the next year. Officials viewed government-enforced price coordination as obviously beneficial.
The real cost of everything rose considerably. Shortages of some things and surpluses of others abounded.
Government had first call on short supplies of butter and often used it for industrial purposes. It is a fine lubricant, useful for making slopes more slippery. Most of the rest was exported.
But at least the prices listed on the empty supermarket dairy shelves were low.
Dr Eric Crampton is Chief Economist at the New Zealand Initiative. This article was first published HERE
Unfortunately, some prices draw a lot of attention. The spike in fuel prices during the 2020-2022 pandemic saw the government subsidise road users. People started to think that the government should step in whenever prices increase.
That populist turn solidified under the 2023-2026 National government.
A July 2025 meeting between the Finance Minister and the head of a large milk company caused a media frenzy about butter prices, followed by condemnation of supermarkets. Both drew popular applause.
Things slid from there. People came to expect public excoriation of businesses whenever prices increased unexpectedly.
In short order, the Minister was having to devote two or three days every week to these circuses. It was seriously impeding other government business.
So, the Minister delegated the job to a new Board established to supervise prices and to bring a more formal bureaucratic process to the inquisitions.
The new Labour-led government in 2026 kept the Board but broadened its role. It was more convenient for everyone involved.
Previously, anyone reducing prices risked prosecution for predatory pricing. Anyone increasing prices had to be gouging. And keeping prices the same was obviously collusion. It was a risky time.
In the new order, the Board and the businesses it supervised agreed on prices for the next year. Officials viewed government-enforced price coordination as obviously beneficial.
The real cost of everything rose considerably. Shortages of some things and surpluses of others abounded.
Government had first call on short supplies of butter and often used it for industrial purposes. It is a fine lubricant, useful for making slopes more slippery. Most of the rest was exported.
But at least the prices listed on the empty supermarket dairy shelves were low.
Dr Eric Crampton is Chief Economist at the New Zealand Initiative. This article was first published HERE
3 comments:
The real scandal in all of this butter price nonsense is that we have a Minister of Finance who is, apparently, so stupid that she has to run to the boss of Fonterra for independent(?) advice.
Fonterra is a member of the NZ Initiative where Eric works. That is, they pay his salary (along with many other rip-off oligopolies in NZ). Which makes his opinion on Fonterra's butter pricing worthless in my mind. Its a shame Muriel's NZCPR has become flooded with Initiative crack pot "opinion".
The money collects taxes and gives money to poorer people says the economist of this high powered organisation. Money for other things - health, education, police, infrastructure, defence, foreign relations, Cool Strait ferries etc. falls out of the sky when it rains says this star performer.
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