One Question Quiz
Toby Morris
Toby Morris

BusinessFebruary 10, 2023

How much does the cost of fuel impact the price of bread and butter?

Toby Morris
Toby Morris

Please gather around the back of this envelope.

Illustrations by Toby Morris.

In his first major policy pronouncement as prime minister, Chris Hipkins last week announced an extension in the 25 cent cut to petrol excise duty, as well as to the discount in road user charges levied on diesel drivers. The decision, which will now run at least until June 30 – and, you can safely bet, thereafter further, beyond the election – is expensive. It comes with a price tag of $700-odd million and counting, on top of the billion-dollar-plus cost incurred to date.

The rationale has been made very clear: the cost of living. Thus a simple, blanket reduction in the price of a core product, with half-price public transport bolted on. Asked by a reporter what the government was doing to address the daunting cost of an even more critical product, food, Hipkins said: “Fuel prices do have an impact on the price of food.”

They do indeed. But to what extent? Let’s take, for example, the prime minister’s most beloved consumables. Bread and butter. How much does the cost of fuel contribute to the price we pay in the supermarket? We can’t say for sure, but we can certainly jot some numbers on the back of envelope and see where we get.

For the purposes of this exercise, let’s chuck in the trolley a loaf of Molenberg Sandwich Bread Original. Weighing in at 700g, it holds around two dozen slices, and retails at Countdown for $3.80. To Pak’nSave for the butter, just because. A 500g block of Anchor, please, at $7.99.

Bread. By Toby Morris.

The cartage

The most obvious line item involves fuel to get the goods from A to B, the stuff that powers the trucks (diesel, almost invariably). Dom Kalasih, from Ia Ara Aotearoa Transporting New Zealand, knows his onions, or in this case his bread. There are many variables, including of course the distance a truck travels and whether it is carrying goods both ways. But let’s aim for something typical.

Take, say, a journey from a Taranaki factory to a distribution centre in Palmerston North. A large and full-loaded truck and trailer combination can carry just over 7,500 loaves. Based on that truck using 80 litres of diesel on the trip, at a price of $2.10 a litre, says Dom, “the fuel cost is about 2 cents of the $3.80 consumer price per loaf.”

Using that formula, if we assume a similar trip could take four times as many blocks of butter, I make it something like half a cent of carriage fuel per $7.99 block. 

In this hypothetical, ballpark scenario, the goods still need to get from the distribution centre to the shelf itself, and that will obviously take a splash of fuel. Maybe half a cent for the bread and an eighth of a cent for butter. If that seems a bit arbitrary, just wait till the next bit. 

The production and packaging

In bread as in butter, the role of fuel begins well before the product begins its journey to shops. Energy is required to source, gather and transport ingredients. Butter milk must be pasteurised. Grains milled. Dough kneaded. Then it all gets packaged up in plants. A large part of all that is likely to be powered by a renewable energy source, but fossil fuels will figure, too. Dairy manufacturing draws on a substantial amount of natural gas and coal, though that is, to state the bleeding obvious, not affected by fuel excise or road user charges. 

Tractors groom fields for wheat or cattle. More trucks bringing component elements to the party. Another major, and rising, cost in farming is fertiliser, which requires fuel for both production and shipping – though, again, most of this is a world away from road user charges in Aotearoa. Same goes for seed and for weed control, for pest control. And do we count as part of the butter block and loaf of bread the fuel burned in the cars of the people who travel to work to package the products? Has my head begun to hurt? Yes, it has.

Goodman Fielder, which manufactures Molenberg, didn’t get back to me by time of publication (neither did Fonterra), but it has set a goal of net zero emissions by 2040, as well as “a target to switch to 100% renewable electricity by 2025”.

Butter. By Toby Morris.

Fuel in the mix

Beef+Lamb NZ’s last annual On-Farm Inflation study (which appears to broadly mirror the dairy sector) showed a doubling in fuel costs, but the overall fuel expenditure was nevertheless relatively small, at 2.8% of the total. Other line items, however, including fertiliser (17.5%), repairs, maintenance and vehicles (2.1%) and road freight (1.6%) all include a fair old whack of fuel in their own supply chains. 

The place of fuel in the mix was summed up by Hawke’s Bay Federated Farmers president Jim Galloway, who told 1News in October that along with rising fertiliser costs, a spike in fuel prices had knock-on effects across the board. “Fuel has been a big one,” he said. “I think it’s up 50% over the last 12 months because we don’t only use diesel, we use petrol, contractors like shearers and tractors have gone up and staffing, wages have gone up.” 

Fuel prices have since eased, and farming vehicles that use diesel are mostly exempt from road user charges, but the way fuel seeps through the industrial bloodstream, right through the supply chain, helps explain why the new prime minister was keen to continue the discounting despite the expense. That doesn’t much help us putting a number on the fuel component of bread and butter, however. 

And we’ve barely touched any contributions that the retailers themselves might add. Supermarket chain Foodstuffs says it is responsible for 19 cents of every dollar on the shelf, while the Producers price index tells us that transport and storage costs are just under 10% of the total costs incurred by supermarkets and grocery stores. 

There are studies that assess the climate footprint of foods, including bread and of butter, but these extend well beyond fuel questions, including for example, methane emissions, a very real factor in every block of dairy butter on New Zealand shelves. About a quarter of global greenhouse gas emissions come from food and agriculture, though the impact of transport is less than often imagined, accounting for about 6% of food’s total emissions globally.

Back in 2008, the US Department of Agriculture assessed the “components of retail food costs”. It was some years ago, in another country, and a generic assessment, but it was the best I could find. The analysis accorded 3.5% of food costs to energy and 4% to transportation, with packaging at 8%. (Labour was way out in front, on 38.5%.) More recently, an IMF analysis late last year found that a 1% increase in oil prices increases food commodity prices by 0.2%.  

With that in mind, folding in the sums from Dom, bearing in mind the agricultural roots of both bread and butter, and desperate to throw a dart at the board and get out of here, my guess would be that fuel amounts to something like 5% of each: about 20 cents of that Molenberg loaf and 40 cents in the Anchor butter. 

I set off on this exercise hoping to conclude with a confident fraction, even with caveats. This is not that. It may be very wrong. Can you steer me in a better direction? Let me know, please, before I start on the next task: How much does fuel cost impact the price of a can of Coke Zero and a sausage roll?

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