16 Mar 2023

Farm profit expected to drop by third - Beef + Lamb NZ

7:06 am on 16 March 2023
Cattle stand in a farm paddock.

Beef+Lamb said farmers have sought to reduce costs by deferring repairs and maintenance and reducing fertiliser use. Photo: Supplied / Beef+Lamb NZ

Farmers' incomes could drop by as much as a third this season as deflated demand reduces farmgate returns amid ever-increasing input costs.

Industry group Beef+Lamb NZ estimates farm profit before tax will drop 31 percent this season to $146,300, which is below the average for the past five years, as prices ease from record highs after demand from the country's biggest buyer, China, dropped during Covid-19 lockdowns, reducing export profits by a third.

Beef+Lamb NZ's chief economist Andrew Burtt said lower farmgate returns alongside rising farm inflation was squeezing margins.

"Inflationary pressure is causing on-farm costs to increase sharply, eroding the benefit of what are still historically pretty good farm-gate returns," Burtt said.

"As a country, we've got lamb exports down about 10-12 percent, that's at least 10 percent less being generated for the country, and lamb exports are down about about 8-10 percent for beef, so at least an 8 percent decrease for beef.

"It's like any activity or any business, or individual working to get paid and that then leads on to the things that they can afford."

Added to the cost pressures, overall farm expenditure had increased as essential inputs became more expensive.

"Fertiliser, lime, and seeds expenditure is forecast to increase by 6 percent to average $102,100 per farm, following a 15 percent increase last season," Burtt said.

"This is the largest area of expenditure for sheep and beef farms at around 19 per cent of farm expenditure in 2022-23."

Burtt said interest rate rises and increased overdraft borrowing was forecast to increase interest expenditure 12.5 percent above last season.

"As farmers refinance and extend overdrafts while receiving lower farmgate prices, managing cashflow will be a challenge this season," he said.

Farmers had sought to reduce costs by deferring repairs and maintenance and reducing fertiliser use, but those measures would only go so far in such an inflationary environment, Burtt said.

An uptick in global sheepmeat and beef trade was expected, with generally solid fundamentals in key markets and tight global supply levels, he said.