Federated Farmers Bay of Plenty provincial president Darryl Jensen says rising costs meant farmers were running to standstill. Photo / Mead Norton
''The hurt is coming.''
That's how one farming leader's prediction as the sector is hit by escalating costs that have eroded bottom lines while another says ''we are running to standstill''.
One fertiliser had skyrocketed to $1800 a tonne compared to $799 a tonne two years ago while freight, labour, feed, farm supplies, freight, regulatory requirements, equipment and machinery had all increased.
The dairy industry, alongside beef and lamb, had posted solid results in the last year with the farmgate forecast sitting at about $9 per kgMS but this was being offset by spiralling costs.
Federated Farmers Bay of Plenty provincial president Darryl Jensen said issues in the supply chain were frustrating and the price of fertiliser was ''horrendous''.
The Pukehina dairy farmer had been waiting two months for a small part for his tractor and products vital for calving were being ordered a season ahead.
The cost of fertiliser had more than doubled, Jensen said while petrol was another big expense.
''We are running to standstill and while we have got these good returns we are not a lot better off.''
Te Puke sheep and beef farmer Rick Powdrell said in the past his fertiliser bill accounted for about 20 per cent of his budget and he expected that to increase.
Labour costs had also gone up but he was a firm believer in paying good staff well. Supply chain issues had also hit farmers and there were wait times on fencing gear and posts.
Farmers were resilient Powdrell said, but some things had to give.
''You'll often find that it will be maintenance and capital expenditure. Farmers won't replace things they will press on with the old, ute, tractor or car.''
He acknowledged beef and lamb prices had stabilised although farmers were driven by prices.
''The realistic thing that consumers have got to remember is the more restrictions we put on farming [government regulations] the more productivity goes down and the less we will produce. That drives the world markets and food prices will go up.''
Federated Farmers Rotorua/Taupō provincial president Colin Guyton said the ''hurt is coming for farmers''.
He did not want to get out the ''violin'' as every Kiwi was hit by rising costs but the $9 dairy payout was really only equivalent to the $7 payout seven years ago due to rising costs.
Guyton said farmers had been around long enough to know the payouts could drop ''and will''.
''That is when further cost adjustments are needed so in that period of time farmers will be really, really hurting.''
Often farmers were at the backend of a lot of price rises as they were the end consumer.
For example his feed bill had gone up by $130 a tonne which added $30,000 to $40,000 extra to the budget alongside fertiliser that had more than doubled.
Ballance Agri Nutrients said in a statement to its shareholders that the cost of nutrients had escalated significantly and further escalations were inevitable.
''The war in Ukraine, sanctions on Russia/Belarus, export bans, lockdowns in China, and the high cost of energy are all having a significant impact on both the availability and price of nutrients globally. In addition, shipping is also significantly disrupted with port congestion due to Covid and the Russian attack, resulting in escalated freight rates and disrupted schedules.''
It said in response to the supply challenges Ballance would continue to leverage long-standing international relationships, increase order lead times and where possible, contract purchase nutrients.
Ballance confirmed a tonne of superphosphate was now about $490 a tonne compared to $315 two years ago while Di-ammonium Phosphate had jumped to $1800 a tonne compared to $799 two years ago.
Beef and Lamb New Zealand chief economist Andrew Burtt said on-farm inflation was 10.2 percent for the year ended March 2022 - the highest it's been since 1985-86 [13.2 percent].
Since that analysis, fuel has increased 23 per cent [from March to June] and fertiliser increased by 8 per cent over the same timeframe.
Farmers had also faced increased prices for contractors, tradespeople, machinery and parts for operating farm infrastructure and vehicles due to a tight labour market and increased import shipping costs, he said.
Increased costs place pressure on farmers' ability to meet rising regulation and compliance costs.
''We are concerned increasing regulatory requirements from the Government, such as fresh water and biodiversity rules, will stretch farmers even further.''
A farmer's income depends on how easily they can sell their livestock, he said.
''Meat processors have had labour shortages and backlogs all year, which impacts timing for farmers and can impact prices received.
''With farm input costs outstripping gains from good market prices, farmers will likely be impacted with lower margins and reduced profitability this season, compared to last.
Exports from New Zealand's red meat and wool industry totalled around $11.2 billion for the year ended 30 June 2022 – about 17 pe rcent of New Zealand's merchandise goods exports.
Meanwhile pastoral agriculture exports made up 48 per cent of merchandise exports – the highest level since 2013-14 .
Dairy NZ chief executive Dr Tim Mackle said farmers, like all New Zealanders were feeling the effects of increased inflation on daily costs.
''It's challenging for dairy farmers in the current environment and we are seeing them take a range of steps to manage costs.
''Our regional communities and New Zealand continue to benefit from dairy's economic contribution. Dairy is forecast to contribute around $52 billion to New Zealand in 2022/23 [this includes direct and flow-on income to the economy including local communities].''
DairyNZ budget case studies of eight farms across New Zealand showed that over three seasons [2020/21 to 2022/23 forecast] milk income was up $1.19 per kg of milk solids.
''However, farm working expense increases up $1.06 per kg of milk solids is eroding most of the milk price gain.''
The largest expense increases between 2020/21 to 2022/23 have been in feed, crops, re-grassing and grazing – up 52 cents per kg of milk solids. Fertiliser expenditure is up 20 cents per kg of milk solids, he said.
Overall, DairyNZ data indicates average operating expenses for farms, including rent, interest and loan repayment costs were forecast at $8.66 per kg of milk solids in 2021/22.
''To manage these issues, farmers are applying less fertiliser, are bulk purchasing supplements or fuel so they are less exposed to future price increases, or are planting more crops to reduce reliance on purchased feed or supplements.''
Western Bay of Plenty District could have fewer councillors to vote for next election.