Farm expenditure and inflation set to impact profit margins

That’s according to Beef + Lamb New Zealand’s (B+LNZ) New Season Outlook 2022-23 report.

B+LNZ chief economist Andrew Burtt says that with high market prices for sheepmeat and beef globally, and a low NZ dollar, farmgate prices are relatively strong for sheep and beef farmers.

He says beef cattle pricing in particular will drive revenue for the season.

However, it’s expected that increases in farm expenditure and inflation will reduce farm profit margins.

Farm expenditure is expected to increase by 3.4% across the country in 2022-23, averaging at $535,000 expenditure per farm.

“Farmers are facing increasing inflationary pressure on-farm and, despite efforts to curb spending, it’s a fight to keep costs down,” Burtt says.

He says that with revenue remaining similar to last season and costs rising, overall profits will decrease, forecasting a decrease of 9.7% to average $181,000 per farm.

“From 2021-22 to 2022-23, gross farm revenue is forecast to fall by $2,000 per farm, whereas total expenditure increases by $17,400 per farm.”

Burtt says a fall in farmgate prices and fewer lambs sold will have an impact on sheep revenue and the lamb crop for spring is expected to fall compared with last year.

“This is due to a lower number of breeding ewes and drought conditions this past autumn for farmers in Waikato, South Auckland, Southland, and parts of Otago.

“Snowstorms in early October also impacted lambing in the South Island, particularly for hill and high-country farms, but cattle revenue is expected to increase for 2022-23 thanks to strong farmgate prices.”

Meanwhile, B+LNZ chief executive Sam McIvor says farmers are right to be concerned by new cost pressures, which include regulatory costs created by new government policies.

“The increasing costs on the horizon together with the uncertainty around the Government’s proposed agricultural emissions pricing system and its impacts are a double whammy,” he says.

While farmers are used to adapting to challenges and are willing to play their part in reducing greenhouse gas emissions, the emissions pricing system released by the Government last month disproportionately puts sheep and beef farmers and communities at risk, says McIvor.

The pricing plan, which is currently in the consultation phase, could see beef and sheep production drop by up to 20%.

“What is on the table is unacceptable,” says McIvor, “In addition to pricing some farmers out of business, it will also increase food prices, cost jobs and ultimately reduce New Zealand’s export income. That is why we are adamant that the Government must make changes to what it proposed.”