Tuesday, February 27, 2024

Galloping on-farm inflation

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Input prices for producers increased by 7% in the 12 months to the end of September, Statistics New Zealand has reported.
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Input prices for producers increased by 7% in the 12 months to the end of September, Statistics New Zealand has reported.

Output prices received for the commodities they sold increased by 6.2% over the same period.

Both are reported quarterly by Stats NZ as two sides of the Producer Price Indexes (PPI), which on the inputs side is like a Consumer Price Index (CPI) for farmers.

The 7% overall rise in inputs, led by fuel, fertiliser and feed, was the highest since 2008.

Stats NZ said the September quarterly rise in prices paid by producers was 1.6% and in prices received 1.8%.

It singled out rising milk prices as a main component in both output and input indexes because dairy processors need to buy milk to make ingredients and consumer products.

The dairy product manufacturing price indexes are 1342 for output and 1314 for input, both figures at their highest levels since December 2008 and March 2014 respectively.

Against the index base of 1000 in December 2010, sheep, beef and grain farming outputs are currently 1642. This is the highest index rise of any industry.

In the detail of the Stats NZ PPI inputs, fertiliser prices rose 30% in the 12 months to end September, natural gas was up 28%, petrol 23% and diesel 32.5%.

Veterinary and legal services were up 5%, accountancy 3.5%, agricultural and forestry equipment 4.6% and agricultural services 4.3%.

AgFirst Waikato managing director James Allen said in his latest newsletter inflation generally is running high and his impression is that on-farm inflation is even higher.

“Feed costs, fertiliser costs, fuel, materials and labour are all increasing and there is a limit to what an individual can do to reduce the unit price of each input,” Allen said.

“However, you can control the level of these inputs and the efficiency of something like applied fertiliser.

“Likewise, review your feed efficiency, as feed costs often creep up in a high milk payout year.”

AgFirst Waikato colleague Phil Journeaux, an agricultural economist, publishes annual reports on farm costs and he said farm working expenses (FWE) for dairying in 2020-21 were $4.48/kg milksolids produced.

For the current dairy season he has budgeted a 6% increase in FWE to $4.65.

Journeaux said the shortage of skilled labour, and therefore its quickly rising cost, was having a big impact on farmers and their agricultural contractors.

Agricultural economist Con Williams, general manager of investments for MyFarm, said dairy farm expenses had risen 26% over the past four seasons and this season’s prediction of 5% increase now looked optimistic.

Fertiliser cost increases across the board would be 20% or more, pushed up by energy costs, particularly natural gas as an input to urea.

The costs of processing and transporting our primary products are rising steeply.

“Major shippers have flocked to high-traffic, high-volume European-United States-Asia routes, leaving New Zealand facing less frequent and significantly more expensive delivery costs as the last stop on the planet,” Williams said.

“Shipping costs between China, a major fertiliser source, and here have almost doubled in the past year.”

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