Sheep and beef recovery threatened by on-farm inflation

New Zealand’s sheep and beef farmers are battling on-farm inflation well over twice the general rate of inflation. Something that is threatening recovery after years of poor returns and drought in parts of New Zealand.

“On-farm inflation for sheep and beef farmers has been confirmed by Meat & Wool at 7.6 percent for the year to March 2009. Given the general rate of inflation is below 3 percent, it’s a major threat to farm profitability and tallies with data our economists have collected,” says Bruce Wills, Federated Farmers Meat & Fibre chairman.

"Given last year’s rate was 9.7 percent and coincided with the worst profitability for 50 years, it’s a genuine worry to see on-farm inflation being consistently twice that of the general rate. It’s just unsustainable for farmers over the long run.

“Farmers accept a degree of price volatility for the goods and services they consume, yet the jump in ‘non-tradable’ elements is of concern. Much of this is driven by local and Central Government policies and spending decisions but also in the interest rates, wages and the insurance farmers pay.

“We’re heartened that Central Government now seems to now be cutting its cloth but local government still haven’t got that message. Council rates and charges have increased by 33.8 percent in just the last five years alone.

“Even now, many councils are seeking double digit rates rises or looking to impose new or higher charges. It highlights urgent need for the Government to address council rates and funding policy.

“One bright spot is the 6.7 percent decrease in farm debt costs and I firmly believe Federated Farmers has played a big hand in this. We’ve publicised and politicised the issue of Official Cash Rate cuts not being passed onto farm businesses.

“Much of the major lenders movement only came after Federated Farmers put acid on them to move. Every percent off a farmers’ interest rate bill puts some $450 million back into the pockets of New Zealand’s farmers. This ultimately benefits all New Zealanders.

“Tradable inflation accounted for the largest increases over the past year, driven by a bull run the wider New Zealand and global economy went through until late 2008. Fuel has thankfully come off sharply and since March, fertiliser has dropped by 11 percent.

“We still have a long ways to go so a closer look at farm input costs is needed. While there is exposure to internationally priced goods, non-tradable elements need to be put under the microscope to ensure they don’t become locked in,” Mr Wills concluded.

Highlights of Movements in Sheep and Beef Farm Input Prices 2008-2009 released by Meat & Wool New Zealand

· On- farm inflation was 7.6 percent for the year ended March 2009 (the previous year it stood at 9.7 percent).

· Fertiliser increased by 33.8 percent

· Shearing expenses increased by 14.7 percent

· Repairs and maintenance increased by 8.9 percent

· Insurance increased by 8.7 percent

· Rent increased by 8.3 percent

· Local government rates and charges increased by 5.6 percent