Bay of Plenty Federated Farmers provincial president Brent Mountford says farmers were reluctant to spend at the moment. Photo / Supplied
Spiralling costs, regulations, rising interest rates and a severe labour shortage are hitting farmers - with some now considering whether there is a future in the industry, leaders say.
Retirees aged in their 80s, family members and neighbours have also been called upon to pitch in on farms doing jobs they can't find staff for.
Farmers reluctant to spend
Federated Farmers provincial president Colin Guyton said it was "challenging as farmers' costs were escalating at a higher rate than other sectors''.
One of the main costs was interest rates, which had doubled in the last year, and he kept his loan floating in the hopes it would plateau out soon.
''I could have fixed but I didn't, and now I am in this position where I don't know whether I have done the right thing or not. I guess there will be a lot of farmers in the same boat... if I fixed now, I'd be paying more than the floating rate.
''So we have got that gamble... and uncertainty.''
The semi-retired dairy farmer acknowledged the dairy payout was reasonably strong. However, fertiliser and fuel were other huge expenses.
''We feel like we have plenty of money, but we actually haven't. We can't fall into that false security and can't do a lot of extra stuff, because when you start budgeting you realise you're not as flush as you thought.''
The labour shortage and young farmers who were questioning if they had a future in the industry were a worry.
''There is a lot of farm movement and vacancies. Because there are jobs everywhere, you'll get staff who get a better deal somewhere else, and they'll be gone.
''We have noticed there is a lot more of a turnover of staff mid-season. Now, people are quite prepared to shift at the drop of a hat, just about.''
He was also aware of farmers calling on family to help out, and it was not uncommon for his wife to work in the milking shed.
Guyton said it saddened him to hear from some younger farmers who were concerned about the industry and proposed government regulations around emissions.
''I talked to some young people that are coming up through the industry and they are starting to say, you know, is there a future for me and my family in this industry? In my heart I know there is, but I can't understand all the sudden pressure around pollution and climate change.
''It's a kick in the guts.''
Farmers cared about the environment, he said, and there were great opportunities.
''A lot of people just think we milk cows, but it's a very scientific job. You're measuring grass, you're measuring the energy in different feeds. There is a lot of technology and huge opportunities to build up assets.
''You can still go through the old system of being a contract milker and 50/50 share milker, if you have the belief farm ownership is still possible.''
Bay of Plenty Federated Farmers provincial president Brent Mountford said farmers were reluctant to spend, and that would impact the economy.
Uncertainty around returns, costs, and rising interest rates meant farmers wanted to keep some reserves.
''That will flow through to the wider rural community as farmers are having to spend where they have to spend. There is not that discretionary spending where you might put in an extra fence, a new set of yards, or buy another tractor or motorbike.''
His fertiliser costs had doubled, and the price of getting it applied by a truck or helicopter had increased significantly.
Drench he paid $500 for last year was now $700.
''Every single thing or input to your farm has gone up. It hasn't gone up five or 10 per cent, it's gone up in a lot of cases by a third.''
His 81-year-old father and 89-year-old neighbour were spraying thistles on his sheep and beef farm because he couldn't find anyone to do the job.
''When we are shearing, there is not enough rousies and there is no-one who can press. So, we are ending up with people who are well retired who will come and help.''
Farmers for Positive Change chairman Rick Burke agreed costs had gone up alongside commodity price increases. However, he believed there were opportunities to be had if you could navigate those costs.
''On our farm, we are doing pretty well, but we have just changed things up a little bit. We've taken supplements out of our system, and we're doing deferred grazing instead, which takes out a massive cost.
''We're trying to be a bit smarter about our stocking levels so we don't get caught out with feed deficits and having to buy it in.''
Burke said palm kernel had gone from $250 a tonne to between $400 and $500, ''so that is huge''.
Being strategic around buying and selling stock and understanding the profit periods was important.
An optimist, Burke said it was about unlocking opportunities that could involve getting help from an outside consultant to help map your way through it.
Dairy worker shortage of 4000 nationwide
DairyNZ chief executive Dr Tim Mackle said the dairy sector continues to have a ''severe labour shortage''.
One-third of employers and employees surveyed by DairyNZ in 2021 and 2022 said that they were short-staffed.
''We estimate this equates to around 4000 workers nationwide. We are seeing slightly fewer jobs advertised compared to last year, which we believe is a result of employers focusing on providing improved workplace conditions and the borders reopening.
''However, we remain concerned, as these shortages have been impacting job satisfaction, wellbeing, and business performance.''
He said dairying offers good job security, the ability to work outside, a good salary and a clear progression pathway.
Stats NZ figures show the unemployment rate remained at 3.3 per cent in the September quarter. An extra 35,000 people were employed in the quarter and now 2.85 million people were in work. The average hourly wage rose 7.4 per cent to $37.86.
Meanwhile, Mackle said the largest expense increases had been in total feed costs, including grazing, which was up 60 cents per kilogram of milksolids. Fertiliser costs were up 10 cents per kg of milksolids, despite a reduced amount of fertiliser being used.
Dairy Base data reveals the average total expenses for North Island farms in 2021/22 was $8.54 per kg of milksolids, which is a 16 per cent increase from the 2020/21 season at $7.35.
That figure includes operating expenses, interest, rent, tax and depreciation. The principal was not included - however, most farms were required to pay this back depending on their individual situation, he said.
''With costs increasing rapidly, we recommend farmers take action so they are better positioned should milk prices fall. We also recommend farmers develop a plan and have flexibility to adapt to change.
''Options include the use of benchmarking against like-minded farms to identify cost savings and zero-based budgeting.''
''Costs have increased across the board.''
Beef and Lamb New Zealand chief economist Andrew Burtt said rising interest costs were impacting farmers, particularly overdraft interest rates and new borrowing.
''Costs have increased across the board, so increased debt servicing adds to the squeeze on cash surplus and profitability, while interest rates for 2023 and 2024 are forecast to increase further – so there is continued pressure to come.''
''Overdraft interest rates are high, and overdrafts are an important cash management tool for sheep and beef farmers as revenue varies from month to month, so higher debt servicing is a concern.''
Its Economic Service was forecasting a 3.4 per cent increase in farm expenditure for 2022-23, to an average of $535,000 expenditure per farm while farmers work hard to curb spending.
Fertiliser, lime and seeds accounts make up about 20 per cent of farm expenditure, and prices jumped significantly last season.
''Farmers are also facing increasing prices for contractors, tradespeople, machinery and parts for operating farm infrastructure and vehicles due to a tight labour market and increased import shipping costs.''
Reviewing budgets and monitoring that regularly was important and would help manage unexpected costs, he said.
Farmers continue to pay down debt despite headwinds
Figures from the Reserve Bank of NZ show there was $61.2 billion in agriculture loans in September, compared to $61.8b in September last year and $62.1b in September 2020.
An ANZ spokeswoman said it had been a part of New Zealand's rural community for more than 150 years and was the main bank for 34 per cent of farmers.
Farmers tend to have a mixture of maturities among their loans, with some going back to rates fixed two to three years ago at 5 per cent.
Because of this mix, the effect of rising interest rates on farmers would be variable and can be delayed, she said.
''In recent years, many farmers have taken advantage of higher-than-average farmgate returns and record-low interest rates to pay down debt. While farmers are facing higher costs ahead, we are still seeing that underlying commodities remain at higher levels.''
"We recognise the huge amount of work New Zealand's primary sector has put in to adapt; as New Zealand's largest lender to agriculture, ANZ has for many years been providing targeted lending to farmers that supports a move towards more sustainable operations."
Despite the economic headwinds ahead, the bank was continuing to have conversations with its agricultural customers and innovation on farms continued to give it confidence in the sector's future, she said.
BNZ head of agribusiness Dave Handley said agriculture plays a critical role in New Zealand's economy.
The majority of its agribusiness loans were floating, and the strong performance of the sector had seen farmers and growers focused on paying down debt.
"This is giving them more flexibility within their business and has put them in a better position to plan for future unforeseen costs or take advantage of opportunities for growth."
Handley said tits advice to customers who might be under financial strain was to speak to them early about options.
''Our advice to customers is measure it, so you can manage it. In a rising cost environment, it's more important than ever to surround yourself with a trusted team who can help you understand your numbers (both financial and environmental) so you can better plan and budget for the future.''
Westpac New Zealand head of agribusiness Tim Henshaw said over the past year many agribusiness customers, especially dairy farmers, have been repaying debt following strong on-farm cashflow.
"Although there are some headwinds in the primary sector, the low New Zealand dollar, relatively high commodity prices and decreasing freight costs are providing a buffer for many farmers. If customers are feeling under financial strain, we urge them to talk to their banker, adviser or accountant, so we can discuss their options.''
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