Declines in interest rates push farm input prices down

10 June 2016

Declines in interest rates and fuel prices push farm input prices down

Prices for inputs used on New Zealand sheep and beef farms decreased 2.1 per cent in the year to March 2016, which should provide some small relief for farmers facing lower product prices this season.

According to the latest Beef + Lamb New Zealand (B+LNZ) Economic Service sheep and beef on-farm inflation report the 2.1 per cent decrease in the 2015-16 year follows a 1.1 per cent increase the previous year and was driven by falls in prices of interest and fuel. It was only partly offset by a rise in repairs, maintenance and vehicles prices, B+LNZ Chief Economist Andrew Burtt said.

Of the 16 input categories, prices for 10 increased and six decreased. The size and weighting of the decreases more than offset the increases.

The largest price increases were for repairs, maintenance and vehicle running costs (+1.7%); administration (+1.4%) and wages (+1.2%). Prices decreased by 14.5 per cent for interest and 12.7 per cent for fuel.

“Excluding interest, there was no underlying on-farm inflation – compared with -2.1 per cent when including interest – in the year to March 2016. It highlights the significance of interest expenditure in total farm expenditure,” Mr Burtt says.

“After fertiliser, lime and seeds, interest is the second largest area of expenditure on sheep and beef farms, accounting for 15 per cent of total farm expenditure.”

The report identifies annual changes in New Zealand farm input prices for various expenditure categories. The on-farm inflation rate is determined by weighting the individual input category price changes by their proportion of total farm expenditure.

The full report is available on the B+LNZ website http://beeflambnz.com/Documents/Information/Economic%20reports/sheep-beef-on-farm-inflation-2015-16.pdf

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