Farm spending and inflation expected to impact profit margins

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Despite positive forecasts for global demand for sheep and beef, increased farm spending and inflation could significantly reduce farmers’ profit margins.

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

B+LNZ Chief Economist Andrew Burtt said with high market prices for sheep and beef globally and a weak New Zealand dollar, farm gate prices are relatively high for sheep and cattle farmers.

He says beef cattle prices in particular will generate revenue for the season.

However, increases in farm expenses and inflation are expected to reduce farm profit margins.

Farm spending is expected to increase 3.4% nationwide in 2022-23, averaging $535,000 in spending per farm.

“Farmers are facing growing inflationary pressures on the farm, and despite efforts to cut expenses, it’s a fight to cut costs,” Burtt says.

He says with revenues remaining similar to last season and costs rising, overall profits will decline, forecasting a 9.7% drop to an average of $181,000 per farm.

“From 2021-22 to 2022-23, gross farm receipts are expected to drop by $2,000 per farm, while total expenses will increase by $17,400 per farm.

Burtt says lower farm gate prices and fewer lambs sold will impact sheep revenues and the spring lamb crop is expected to fall from last year.

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

“The early October snowstorms also impacted lambing in the South Island, particularly for hill and upland farms, but livestock revenues are expected to increase for 2022-23 thanks to prices raised on the farm.”

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

“The rising costs on the horizon as well as the uncertainty around the government’s proposed agricultural emissions pricing system and its impacts are a double whammy,” he says.

While farmers are accustomed to adapting to challenges and ready to play their part in reducing greenhouse gas emissions, the emissions pricing scheme released by the government last month disproportionately endangers sheep and cattle farmers and communities, says McIvor.

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

“What’s on the table is unacceptable,” says McIvor, “As well as putting some farmers out of business, it will also increase food prices, cost jobs and ultimately reduce export earnings. from New Zealand. That is why we insist that the government must make changes to what it has proposed. »

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