New Zealand meat farmers hit by high oil prices

A barrel of crude oil costs around $47 today, but in March 2016 WTI crude oil cost $37

Beef and lamb farmers in New Zealand have seen fuel prices rise by nearly 20% in the last 12 months, following a recovery in the value of international oil.

Fuel prices increased by 18.8% between March 2016-17, according to Beef + Lamb New Zealand’s (B+LNZ) annual on-farm inflation report.

A double-digit increase in fuel prices comes as the international oil market continued to recover after several years of decline: a drop of 21.7% in 2014-15 was followed by a 12.7% dip in 2015-16.

And while fuel prices increased for industry, the good news for meat farmers is this: rising fuel prices have been more or less offset by a drop in the price paid on interest debt, as well as lower costs for raw materials, such as fertiliser, lime and seeds.

Inflation flat

What this means is that on-farm inflation in New Zealand was essentially stagnant over the last 12 months, declining by 0.1%.
The size and weighting of the categories that decreased offset the increases [in fuel prices],” B+LNZ economic service chief economist Andrew Burtt said in a statement.

New Zealand’s red meat farmers collectively saw a 3.8% drop in the price of fertiliser, lime and seeds over the 12 months to March 2017.

Debt prices dropped by more than 7%, continuing last year’s trend when the price paid on interest declined by 14%. This two-year dip is not due to a change in interest rates, but rather a percentage change in the price paid on interest, according to B+LNZ.

Lamb farmers in New Zealand have seen inflation rise by 20% in the last 10 years

Long-term inflation rising

Alongside fuel prices, the cost of repairs, maintenance and vehicle running costs increased by 3.5%, with agricultural insurance rising by 2.7%.

If you exclude the interest paid on debt, however, on-farm inflation actually increased by 1.1% over the period.

[This] highlights the significance of interest expenditure in total farm expenditure,” Burtt added.

After fertiliser, lime and seeds, interest is the second-largest category of expenditure on sheep and beef farms, accounting for 14% of total farm expenditure.

On-farm inflation in New Zealand has increased by 20% in the last decade.

Inflation is also rising across New Zealand as a whole, as the consumer price index (CPI), which measures price rate changes of goods and services, climbed 2.2% in the 12 months to March 2017.

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