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Rapidly rising cost pressures are proving particularly tough on sectors in which returns are low such as venison, wool and logs, ANZ Research’s latest Agri-Focus report says.
While farmgate returns for beef, lamb and dairy produce were extremely strong at present, costs were rising. Inflation was evident in many parts of the economy but a lot of costs of production were increasing even more quickly than the general rate of inflation.
Labour and fertiliser costs had risen dramatically and were affecting many producers, particularly for horticulture which relied heavily on those.
More extensive sheep and beef farms were less affected, as these had become adept at running large numbers of livestock with very few labour units and fertiliser use was low. Those cost pressures might dissipate when the effects of the pandemic receded but some other costs would be here to stay, the report said.
Regulations to protect the environment continued to be developed. Compliance costs were "skyrocketing" as the complexity of the consent process meant professional help was often required to lodge consents.
The amount of debt carried by agricultural businesses had receded a little in recent years, particularly evident in the dairy sector.
The reduction in debt meant those businesses would be better placed to manage the costs of higher interest rates but there were still a lot of businesses that remained financially vulnerable to rising costs of production, the report said.
Beef + Lamb New Zealand released its annual lamb crop report this week and key themes from farmers included widespread concerns on the pace, practicalities and cost of numerous planned government regulations. Trying to make sense of proposed legislation or new regulations and the effect on farm operations and finances was a stressor for farmers.
Many had spent thousands of dollars on environmental costs, such as native plantings, generally and in riparian zones, and pest control as they continued to improve their farms. The concern from farmers arose from the uncertainty and high demands from central and local government.
There were also concerns over competition for sheep and beef farms from forestry. While some farmers considered planting some forest on their farms, many were concerned about the possible negative effects from wholesale planting of farms in pine trees for carbon sequestration, and the impact on their communities. Pests and possible fire hazards were a concern for farmers next to forestry blocks.
B+LNZ chief economist Andrew Burtt said the outlook for lamb and sheep exports for 2021-22 was positive and testament to the resilience of farmers, despite the ongoing implications of Covid-19.
The lamb crop report estimated a slight increase in the national crop as farmers achieved a lambing percentage of 131.9%.
With a slight decline in breeding ewe numbers, down 0.5%, there were 22.7 million lambs compared with an average of 24.6 million over the previous 10 years.
The total number of lambs in the South Island was effectively unchanged at an estimated 12.1 million head. Across the South Island, the number of ewes to ram decreased, apart from Southland where ewes mated increased by 2.6%.
In Otago, the average lambing percentage increased 1.4 percentage points to 130.1%. In Southland, it decreased 1.8 percentage points to 134%.
Early season pricing for lamb was well ahead compared with 2020, which had lifted farmer confidence. Schedule prices were well ahead on 2020 at $8.85-$9.50kg CW.