Sheep farmer Leon Black said there were no farm costs that hadn’t gone up. But his income did not.
Farm spending is at the highest level since records began in 1993, according to Stats NZ.
Head of business price delivery James Mitchell said on average, farm expenses were 13.4% higher for all farm types in the June 2022 quarter than they would have been. were in June 2021.
Prices had risen 4.8% quarter-on-quarter. Recent increases in fuel and fertilizer prices and interest rates have been major contributors, Mitchell said.
The June 2022 quarter included the biggest quarterly increase in the capital goods and farm spending indexes dating back to the early 1990s, Mitchell said.
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Capital goods were goods used to make other goods, not items sold to consumers,
Southland sheep farmer Leon Black said he had not seen such a rise in farming costs since 1985 when the industry was deregulated and interest rates soared to around 18%.
A recent 0.5% increase in his mortgages would reduce his income by $15,000 a year, Black said.
His shearing contractors had told him this week that the average cost per sheep sheared would increase by 24%. Before the increase, it was already not breaking even in wool costs because the price of wool was low, Black said.
Due to a drought in Southland last year, Black was running out of grass to feed his sheep. He now had to apply nitrogen fertilizer to the grass to stimulate growth. He usually didn’t use fertilizer. Fertilizer prices have doubled since last year, Black said.
As consumers face higher prices for meat and dairy products, the silver lining is record export earnings for our food sector.
Black couldn’t pass any of the costs on to consumers because they were already cash-strapped, he said.
“You can only ask your market to pay that much. Consumers will push back if the price is too high, and the price of meat is already at record highs. People can’t afford to buy quality meat,” Black said.
“It used to be a cheap country to buy food. But the costs are now prohibitive. Consumers cannot afford the cheese, yoghurt and fresh meat that we produce and are the best for export. New Zealand wages have not kept pace,” Black said.
Nor could he pass the costs on to his customers who were buying breeding sheep and keeping the prices of breeding rams low, he said.
But he could save some costs because of the way he ran his farm, Black said.
He was reducing the size of his flock, so he didn’t have to spend so much on fertilizer to grow grass to feed a large number of sheep.
He planned to shear his sheep less than usual – only once a year, instead of every six to eight months.
He said he wouldn’t be able to make capital investments this year because there wouldn’t be money to, for example, replace the fences.
“You have to suck it all in, make less profit and pay off less debt per year,” he said.
Farmers who experienced poor production years in times of high prices often left the industry because they had no financial cushion to absorb rising costs or falling revenues, he said.
Bank rates were a concern for anyone with mortgages.
Black’s mortgage rates averaged 3.8% but rose to more than 6% last year, he said.
If you had a 10% cut in income but had a 15% increase in costs to run a farm, then the profit making equation didn’t work, Black said.