PREDICTIONS THAT NZ’s farming sector is in for a bumper year need to be put into context.
While many primary sectors – including dairy, horticulture and red meat – are experiencing record commodity prices, a number of factors are leading to some even bigger cost increases, which will mean less on-farm profitability.
As Rabobank NZ’s analyst Emma Higgins recently opined, “Rocketing input costs and crimped production in some regions will not translate into new benchmark profits”.
This is due to a number of reasons: the ongoing impact of Covid, the war in the Ukraine, growing inflation and the imposition of government-imposed regulations – to name just a few.
Covid has already led to huge logistical logjams, raising costs and reducing our ability to export products. The current wave of Omicron is impacting on workplaces, with meat processing plants, dairy factories, farms and orchards – already struggling for labour – now at serious risk of not being able to harvest or process product.
Mr Putin’s maniacal desire to recreate the old Soviet Union has not only rained disaster on the innocent people of the Ukraine, but also led to huge increases in global fertiliser and oil prices – both major farm input costs.
Meanwhile, the Ardern government’s myopic desire to handicap the country’s biggest export sector (that will pay off the huge debts it has run up during Covid) with more regulation and feel-good environmental policies is only going to add to growing on-farm costs.
All of this means that the price of farm inputs is likely to remain elevated for the foreseeable future, with any lift in commodity prices eaten away by the rapacious beast that is inflation.
Farmers face greater regulation and costs for fresh water, climate change and biodiversity policies that the Government is about to introduce. While still unclear, back of the envelope calculations put the cost for the average farmer’s GHG emissions alone at $7,000 a year – and quickly growing every year after that. This cost will come from every farmer’s bottom-line – and that is just the beginning.
So, it’s great that commodity prices are at high levels, but as Higgins has warns, don’t pop the champagne corks just yet!