The Sheep and beef on-farm inflation report shows a 40-year high of 16.3%, more than double the consumer price inflation rate of 6.7%.
In March this year, B+LNZ forecast a 30% decrease in average farm profit based on estimated on-farm inflation of 12-13%, but the latest figures imply that farm profit is likely to fall even further.
The jump between the 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.
B+LNZ chief economist Andrew Burtt says last year seemed bad, but the latest figures mark the highest on-farm inflation rate since 1981-82, when on-farm inflation was at 17.1%.
“Costs increased across the board this year,” he says. “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.”
Burtt says floating interest rates doubled from March 2022 to March 2023 while fixed and overdraft interest rates increased by approximately 50%.
Meanwhile, feed and grazing (up 14.8%) and fertiliser, lime, and seeds (up 14%) were the next two largest increases for the year.
With inflation eroding farm profitability, farmers may have to continue tightening their belts.
Burtt says debt servicing is a non-negotiable, meaning farmers are looking to cut back in other areas of farm expenditure.
He says that will have a flow-on effect for rural communities as services and farm inputs reduce.
“With uncertainty over regulations and the economic outlook for New Zealand, there is a focus on essential ‘must have’ expenditure on farm.”
The report is the latest in a series from B+LNZ that highlights the financial and regulatory pressures currently facing sheep and beef farmers.
B+LNZ chief executive Sam McIvor says the significant financial challenges facing farmers, with many also working to recover from Cyclones Hale and Gabrielle, are yet another reason the Government needs to put the brakes on its raft of environmental policy changes.
“The financial pressure is challenging,” McIvor says. “A generation of farmers have not operated under this level of inflation and the situation is further exacerbated by unworkable environmental rules.”
McIvor says that when farmers are impacted in this way, it also impacts the wider economy, especially businesses that service farmers like vets, trucking companies, and shearers.
“It also impacts businesses where farmers spend their family incomes,” he says.
“New Zealand sheep and beef farmers are playing their part to address climate change, improving our waterways, and protecting New Zealand’s biodiversity. We are asking for urgent changes to flawed Government policies and poorly crafted rules,” McIvor says.
“The Government must get behind the sector, which provides nearly one of every five dollars New Zealand earns from exporting, so farmers can navigate this financially challenging time, plan ahead and ensure their businesses remain sustainable, in every sense of the world.”
