Wednesday, December 6, 2023

On-farm inflation at crushing 40-year high

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Costs have increased across the board, with interest leading the pack.
Andrew Burtt says with inflation eroding farm profitability, farmers continue to tighten their belts.
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Sheep and beef farmers are still facing on-farm inflation levels not seen since the early 1980s, and it’s having a significant impact on the agricultural sector and rural communities, according to a Beef + Lamb New Zealand report.

The report shows inflation at a 40-year high at 16.3%, two and a half times the consumer price inflation rate of 6.7%.

In March, Beef + Lamb New Zealand (BLNZ) forecast a 30% decrease in average farm profit based on estimated on-farm inflation of 12–13% – but the latest numbers mean farm profit is likely to fall even further.

The jump to 16.3% for sheep and beef farm inputs between March 2022 and March 2023 follows a 10.2% increase over the previous 12-month period, and is up 31.1% over the past five years.

 “We thought last year was bad, but this is the highest on-farm inflation rate for sheep and beef farmers in 40 years, since 1981–82, when on farm inflation was at 17.1%,” BLNZ chief economist Andrew Burtt said.

 “Costs increased across the board this year. The largest increase was for interest (+86.5%), which contributed substantially to the overall increase in on-farm inflation because it comprises 10.9% of total farm expenditure.

 “Floating interest rates doubled from March 2022 to March 2023 while fixed and overdraft interest rates increased by around 50%. Feed and grazing (+14.8%) and fertiliser, lime and seeds (+14.0%) were the next two largest increases for the year.”

 Burtt said with inflation eroding farm profitability, farmers continue to tighten their belts. Debt servicing is a non-negotiable, which means farmers are looking to cut back in other areas of farm expenditure.

 “This will have a flow-on effect to our rural communities as services and farm inputs are reduced. With uncertainty over regulations and the economic outlook for New Zealand there is a focus on essential ‘must have’ expenditure on farm,” he said.

 BLNZ chief executive Sam McIvor said the significant financial challenges facing farmers, with many also working to recover from cyclones Hale and Gabrielle, are another reason the government must put the brakes on its raft of environment policy changes.

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