6 Jan 2011

Rising food prices 'good for NZ economy'

10:17 pm on 6 January 2011

Higher global food prices will have a positive flow-on effect for the New Zealand economy, farmers say.

The United Nations' food price index shows the cost of basic foods, including meat and dairy products, oil, sugar and cereals has gone above its previous peak in 2008, when there were food riots in some developing countries.

Federated Farmers' dairy chairman Lachlan McKenzie says international dairy prices rose 7.1% in December, driven by demand from stronger economies around the world.

Mr McKenzie says almost 70% of New Zealand's income is from food exports, so higher prices mean everyone will be ultimately better off.

However, he acknowledges that prices in local supermarkets are likely to increase due to stronger export demand.

The ANZ-National Bank's head rural economist says higher food prices internationally will allow farmers to start paying off debt after a few tough years.

Con Williams says the recovery in prices is more broad-based than two years ago, so the entire rural sector will benefit this time.

If prices stay buoyant for another six months, farmers will start investing and that will stimulate the whole economy, he says.