Sheep and beef farmers are bracing for another challenging year, with rising farm costs expected to significantly reduce their incomes for the second consecutive year, according to Beef + Lamb New Zealand.
Andrew Burtt, Chief Economist at Beef + Lamb, indicated that while farm-gate prices are projected to remain consistent with the previous season, escalating costs due to inflation and high interest rates are set to impact farm profitability. “We anticipate a 31% drop in farm profitability for the 2023-24 year.
This comes after a 32% decrease in 2022-23, effectively halving farmers’ profits in two years. Adjusted for inflation, this represents a 15-year low,” Burtt explained.
The global perspective for the red meat sector is also uncertain. Although a slight recovery in demand is expected compared to last year, prices, especially for lamb and mutton, are likely to remain subdued compared to the highs seen two years ago.
The economic revival in China, a key market, remains unpredictable, and the economic conditions in other crucial markets are still relatively weak.
Australia, another significant red meat exporter, is poised to be a formidable competitor in New Zealand’s primary markets, including China. Burtt added, “If China’s recovery is slower than anticipated or if Australia faces a severe drought, leading to increased red meat exports, it could further impact New Zealand’s key markets.”
Given that New Zealand exports over 90% of its meat production, global economic conditions play a pivotal role in determining farm-gate prices. However, Burtt remains optimistic about the long-term prospects. “Despite the challenges this year, the sector’s fundamentals are robust. With the global population rising and a growing demand for protein, we anticipate an upswing as our main markets recover,” he said.
However, the immediate future presents hurdles. The average farm profit before tax for 2023-24 is projected to be $88,600 per farm. Adjusted for inflation, this equates to $54,800 per farm in 2004-05 terms, marking a 15-year low and a 25% reduction compared to 2004-05. Some farmers might even face a loss this upcoming season.
Regions dominated by sheep farming are expected to be the hardest hit, with lamb prices likely to remain stagnant, while beef prices fare relatively better.
Farmers are also grappling with the aftermath of last summer’s cyclones and preparing for potential drought conditions due to El Nino, which could affect sales timings. Moreover, the Beef + Lamb forecast hasn’t factored in the potential increased costs that farmers might incur due to the government’s regulatory reform agenda.
Burtt emphasised the importance of prudent financial management in these trying times. Collaborating with bankers and accountants to manage debt and tax obligations efficiently will be crucial. He concluded, “While the sector has weathered storms in the past, the current challenges are indeed formidable.”
