Australians will soon be paying more for their groceries, as a “perfect storm” hits the weekly shop – and there’s one reason that make take consumers by surprise.
In a grim warning, the Australian Food and Grocery Council says the US-Iran war continues to destabilise global markets and fuel prices remain stubbornly high.
AFGC chief executive Colm Maguire says the impact from the Middle East crisis has extended to all parts of the supply chain.
“This is a fundamental shift in the cost of doing business,” he told NewsWire.
“From the fertilisers used on our farms to the fuel in the trucks that transport and the energy powering our factories, every single link in the chain is more expensive.”
Mr Maguire said members of the AFGC – which represents food, beverage, and grocery manufacturers – were working through item by item how the oil crisis would impact grocery prices.
“There is no simple answer to how much prices will rise, it is a very complex scenario,” he said.
“The inputs we are dealing with is everything from fertiliser, oil, through to transport, energy production and then there’s the plastic cost.
“We will be facing this for a degree of time.”
He said the cost of packaging – from milk bottle caps to cheese wrappers – was emerging as an issue.
“Early days the focus is on the fuel and petrol piece, but the flow on of the oil element and how that plays through packaging – which is incredibly important in the grocery industry – it’s an inevitable cost piece,” he said.
Bega cheese confirms price hikes
Bega Cheese says prices across the board have risen eight to 10 per cent, adding pressures to the margins of the business.
The dairy farming giant warned it was so far absorbing most of the cost increases but would eventually have to pass them onto households.
“Costs vary but we are seeing 20 to 40 per cent increase on those direct products, which add eight to 10 per cent on our products,” Bega Group chief executive Peter Findlay said on ABC Business.
“That is all of our plastics and materials coming from overseas but then you have what is coming through our suppliers in Australia such as our freight … and then our farmers.”
According to Bega, they directly get products through the Strait of Hormuz including factory cleaning, rubber and plastics needed for packaging.
Bega Group is also paying farmers more for dairy, as producers battle supply shocks, including soaring diesel and fertiliser prices.
“We’re trying to fully match that,” Mr Findlay said.
“It’s quite difficult. Different farmers in different regions have very different cost structures.”
Mr Findley said his business would not do “shrinkflation” and would keep package sizes the same despite the rising costs.
“Value is one of our key drivers in our business. How do we offer great product for a good price?” he said.
“So we have pretty intense productivity targets that we try to meet every year, that is just part of our business. So we never change pack sizes.”
Why are prices rising?
In January before the conflict in the Middle East, oil prices were about $US56 ($A78) a barrel before fluctuating between $US100 to $US110 a barrel ($A138 to $A152) a barrel.
For every $10 increase in the price of oil, Australians pay an extra 10 cents at the fuel pump.
While the impact on transportation costs is widely understood, Mr Maguire said his members were experiencing price pressures that extended beyond moving food across the country.
“It is complex even for us. From a consumer perspective or even a leadership perspective, it is hard to understand the amount of items that oil and petrochemicals touch,” he said.
“Everything from the wrapping that goes around the bread to the bottles that the milk is in through to tissue boxes and nappies, it is a broad impact.”
Mr Maguire said for months, Australian manufacturers, suppliers and retailers had absorbed these increases as much as possible to protect consumers during a cost-of-living crisis.
However, he warned costs would have to rise as the crisis played out.
Farmers’ margins stretched
A separate Rabobank report found Australian dairy producers were entering the 2026/27 season with a “limited margin for error”, as rising input costs stretched margins.
RaboResearch senior dairy analyst Michael Harvey said while seasonal conditions had improved in many dairy regions, these positives were not enough to offset compounding cost pressures.
“Pressure is building across the broader value chain,” he said.
“Processors are facing higher packaging costs, driven by a spike in global resin prices due to the oil supply crisis.”
“At the same time, energy and processing costs have increased as have distribution costs, reflecting higher energy and freight prices, further adding to the cost of getting products to market.”
Norco chief executive Michael Hampson confirmed in late April that the farmer-owned dairy co-operative would hike prices by five cents per litre to tackle rising freight costs.
“This increase is expected to add about 30c per week to hit the average household grocery bill,” he said.
This is expected to deliver around $1m per month back to farmers.
The price hike announcement comes as farmers warn the price of milk is about to skyrocket.
Due to these higher input costs, Woolworths announced it would pay farmers directly linked to its Farmers Own Brand 10c more a litre, which would help around 20 farmers.
The nation’s largest dairy company Lactalis – which includes brands such as Ice, Oak and Pauls – will pay an additional 5c a litre to more than 800 farmers starting from May 1.
The Australian Dairy Farmers called for a 20 per cent rise across the board, noting by the time suppliers, retailers and government get their cut, this would allow some money to flow through to the farmers.
Mr Harvey said Australians had already started paying more for milk due to these rising input price costs.
“A renewed cycle of food price inflation, including for dairy, would further test consumer resilience.
“Households (are) already adjusting behaviour, increasingly trading down to private-label products and prioritising value over brand.”
According to Mr Harvey, prices have risen beyond the farmgate, constraining the ability of processors to absorb additional cost shocks and increasing the likelihood of further interest rate hikes in the future.
