But the saga should never have been a saga. A 500g block of butter now sells for $8 to $11. The reason is straightforward: high global prices for dairy fat. International demand has surged. New Zealand’s farmgate milk price is at record levels. Fonterra estimates 80% of the cost of butter reflects export markets. The rest? Processing, packaging, refrigeration, freight – plus factory and retail margins.
None of this is news to the Finance Minister. A former Fonterra executive, Willis understands the industry. She knows that butter pricing reflects global markets and that two-tier pricing – one for exports, another for domestic consumers – would damage Fonterra’s commercial performance.
Which makes the episode all the more puzzling.
To her credit, Willis quickly clarified matters. She told Parliament the meeting had been “constructive.” She acknowledged that global prices were the main driver of butter costs. And she praised Fonterra for its contribution to New Zealand’s export-led recovery. All of that was welcome. But the damage had already been done.
The real issue here is not dairy. It is discipline. When a government turns a world-priced export product into a domestic political football, it sends a clear signal. And that signal is felt far beyond the dairy aisle.
This is not the first time business has been caught in the government’s rhetorical crosshairs. In recent months, similar pressure has been applied to banks, electricity gentailers, airports, and supermarkets. Firms have been accused of profiteering, gouging, or failing the country – even while operating entirely within the regulatory frameworks Parliament itself has set.
Political scrutiny of market outcomes is not wrong. But when that scrutiny begins to resemble theatre – and when targets appear to be selected for their prominence, not their conduct – the consequences are not benign.
Businesses notice. Investors notice. And they draw conclusions about whether success in New Zealand is safe, or a liability waiting to be called in.
That is a dangerous signal in a country already struggling with underinvestment. New Zealand is one of the most undercapitalised economies in the developed world. Our workers are supported by far less plant, technology, and infrastructure than their Australian or European peers. The result is lower productivity, lower wages, and in many cases, higher prices.
Reversing that trend requires a simple proposition: that New Zealand is a safe, predictable, and rules-based place to do business. In other words, that governments value success and welcome capital.
Episodes like the butter meeting cast doubt on that proposition. And they prime the public for populist responses. As the furore peaked, veteran business columnist Fran O’Sullivan suggested the government could cut GST on food staples like butter. That would be a mistake.
GST is one of New Zealand’s best-designed taxes. It is broad-based, efficient, and neutral, and it is the envy of the developed world. Exempting specific goods, no matter how well-intentioned, would erode its integrity, introduce complexity, and invite never-ending pressure to expand the list. As the Finance Minister herself has observed, exemptions also risk functioning as a subsidy, with no guarantee that the benefits would reach the checkout.
The better response is to keep the system clean and the politics cleaner. If prices are high because of global demand, acknowledge it. If competition is weak, remove barriers to entry. And if households are struggling, provide targeted support that respects their autonomy, rather than re-engineering the tax system around weekly specials.
That is not to say retail competition doesn't matter. It does. In the supermarket sector, The New Zealand Initiative has long argued for planning reform to enable more entrants. But price spikes are not the same as price distortion. Butter may feel like a bellwether for competition, but it’s really a textbook example of world pricing in a small open economy.
The real risk now is reputational. When ministers summon CEOs to front-page meetings about globally traded commodities, the cost is measured not in cents per block, but in investor confidence.
That cost is rising. And unlike the price of butter, it is not being driven by global demand.
Nicola Willis holds one of the toughest portfolios in government. But establishing the government’s economic credibility is not just about fiscal discipline. It also requires message discipline. Her handling of the butter episode should serve as a warning. Finance Ministers do not need to resolve every price increase. And they certainly do not need to front-run a media cycle that frames business as the problem when it is not.
The cost-of-living crisis is real. But so is the need to restore investor confidence. If we undermine the investment environment to appease public frustration, we risk worsening both problems.
Good policy is rarely theatrical. But over time, it gets results. In a country that relies on business confidence, consistency may be the most affordable ingredient of all.
Roger Partridge is chairman and a co-founder of The New Zealand Initiative and is a senior member of its research team. He led law firm Bell Gully as executive chairman from 2007 to 2014. This article was first published HERE
None of this is news to the Finance Minister. A former Fonterra executive, Willis understands the industry. She knows that butter pricing reflects global markets and that two-tier pricing – one for exports, another for domestic consumers – would damage Fonterra’s commercial performance.
Which makes the episode all the more puzzling.
To her credit, Willis quickly clarified matters. She told Parliament the meeting had been “constructive.” She acknowledged that global prices were the main driver of butter costs. And she praised Fonterra for its contribution to New Zealand’s export-led recovery. All of that was welcome. But the damage had already been done.
The real issue here is not dairy. It is discipline. When a government turns a world-priced export product into a domestic political football, it sends a clear signal. And that signal is felt far beyond the dairy aisle.
This is not the first time business has been caught in the government’s rhetorical crosshairs. In recent months, similar pressure has been applied to banks, electricity gentailers, airports, and supermarkets. Firms have been accused of profiteering, gouging, or failing the country – even while operating entirely within the regulatory frameworks Parliament itself has set.
Political scrutiny of market outcomes is not wrong. But when that scrutiny begins to resemble theatre – and when targets appear to be selected for their prominence, not their conduct – the consequences are not benign.
Businesses notice. Investors notice. And they draw conclusions about whether success in New Zealand is safe, or a liability waiting to be called in.
That is a dangerous signal in a country already struggling with underinvestment. New Zealand is one of the most undercapitalised economies in the developed world. Our workers are supported by far less plant, technology, and infrastructure than their Australian or European peers. The result is lower productivity, lower wages, and in many cases, higher prices.
Reversing that trend requires a simple proposition: that New Zealand is a safe, predictable, and rules-based place to do business. In other words, that governments value success and welcome capital.
Episodes like the butter meeting cast doubt on that proposition. And they prime the public for populist responses. As the furore peaked, veteran business columnist Fran O’Sullivan suggested the government could cut GST on food staples like butter. That would be a mistake.
GST is one of New Zealand’s best-designed taxes. It is broad-based, efficient, and neutral, and it is the envy of the developed world. Exempting specific goods, no matter how well-intentioned, would erode its integrity, introduce complexity, and invite never-ending pressure to expand the list. As the Finance Minister herself has observed, exemptions also risk functioning as a subsidy, with no guarantee that the benefits would reach the checkout.
The better response is to keep the system clean and the politics cleaner. If prices are high because of global demand, acknowledge it. If competition is weak, remove barriers to entry. And if households are struggling, provide targeted support that respects their autonomy, rather than re-engineering the tax system around weekly specials.
That is not to say retail competition doesn't matter. It does. In the supermarket sector, The New Zealand Initiative has long argued for planning reform to enable more entrants. But price spikes are not the same as price distortion. Butter may feel like a bellwether for competition, but it’s really a textbook example of world pricing in a small open economy.
The real risk now is reputational. When ministers summon CEOs to front-page meetings about globally traded commodities, the cost is measured not in cents per block, but in investor confidence.
That cost is rising. And unlike the price of butter, it is not being driven by global demand.
Nicola Willis holds one of the toughest portfolios in government. But establishing the government’s economic credibility is not just about fiscal discipline. It also requires message discipline. Her handling of the butter episode should serve as a warning. Finance Ministers do not need to resolve every price increase. And they certainly do not need to front-run a media cycle that frames business as the problem when it is not.
The cost-of-living crisis is real. But so is the need to restore investor confidence. If we undermine the investment environment to appease public frustration, we risk worsening both problems.
Good policy is rarely theatrical. But over time, it gets results. In a country that relies on business confidence, consistency may be the most affordable ingredient of all.
Roger Partridge is chairman and a co-founder of The New Zealand Initiative and is a senior member of its research team. He led law firm Bell Gully as executive chairman from 2007 to 2014. This article was first published HERE
2 comments:
NZ GST the envy of the developed world, really? Who says so? The business/government class, or the long suffering taxpayer? Having lived for many years in the UK where most staple food purchased in supermarkets is VAT free, it was an awful shock to come back and find GST added to all food here. Perhaps the writer could tell us which other 'developed' countries add gst or vat to basic food?
How hilarious. The NZ Initiative Board Chair Partridge pretending to be holding Willis and the Nats to account when Willis was a Board Director of the Initiative and the Initiative's former fellow Matt Burgess is the PM's economic adviser. Its all one big cosy inbred club, with each of the "members" pretending they're critiquing their other member mates in the name of the public interest. Go.Jump.In. The.Lake. You guys have destroyed New Zealand.
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