High inflation and reduced livestock prices could result in profits on beef and sheep farms in New Zealand falling by almost a third, according to a new report.
The Beef and Lamb New Zealand Mid-Season Update 2022-23 says that farm profit before tax is estimated at NZ$146,300 (€84,641).
This is a 31% decrease from 2021-22 and below the average for the past five years.
Beef and Lamb New Zealand chief economist, Andrew Burtt said that inflationary pressure is causing on-farm costs to increase sharply, “eroding the benefit of what are still historically pretty good farmgate returns”.
He said that a recovery is expected in global demand for sheepmeat and beef, while supply levels remain tight.
This follows a stark drop in demand for sheepmeat at the start of the season before China relaxed its zero Covid-19 policy.
“As 85% of New Zealand’s mutton exports are to China, this impacted export receipts, which were one third lower compared to the same period last season,” Burtt said.
He added that a recent case of bovine spongiform encephalopathy (BSE) in Brazil has added fuel to a tightening global beef market.
The report outlines that falling farmgate prices have caused farmers in New Zealand to reduce costs by deferring repairs and cutting back on fertiliser use.
However, inflation and the increasing price of farm inputs are outweighing cost-cutting initiatives.
“Overall expenditure has increased to an average NZ$531,500 (€307,764) per farm in 2022-23.
“Fertiliser, lime, and seeds expenditure is forecast to increase by 6% to average $102,100 (€59,139) per farm, following a 15% increase last season.
“This is the largest area of expenditure for sheep and beef farms at around 19% of farm expenditure in 2022-23,” Burtt said.
The report warned that managing cashflow will be a challenge on beef and sheep farms this season due to refinancing and extended overdraft borrowing.
New Zealand
Beef and Lamb New Zealand said that the full impact of Cyclones Hale and Gabrielle “is not yet known”.
“Slips and silt destroyed farm infrastructure and stock losses are not fully accounted for after Cyclone Gabrielle. The economic impact on the supply chain for agriculture will be felt for years to come,” Burtt said.
Extremely dry conditions are also impacting farms in Otago and Southland.
The chief executive of Beef and Lamb New Zealand, Sam McIvor said the significant financial pressures facing farmers are another reason the government should stall environmental policy changes.
“Almost one third of New Zealand’s sheep and half of New Zealand’s beef cattle are in the North Island regions that were subject to a state of emergency following the cyclones.
“Another third of New Zealand’s sheep and one-in-seven (14%) of New Zealand’s beef cattle are in Otago and Southland.
“This means two thirds of New Zealand’s sheep flock and two thirds of New Zealand’s beef cattle are in areas either suffering from the effects of the cyclones or suffering very dry conditions,” he said.
“Simply put, the prime minister needs put a stop to the tsunami of legislation and regulations that is constraining the food-producing export-earning sector,” McIvor added.