Meat & Livestock News

Challenging Year Ahead for Farmers as Profitability Hits 15-Year Low, Warns B+LNZ Report

Farmers are bracing for another difficult year, with farm profitability expected to plummet to a 15-year low, according to Beef + Lamb New Zealand’s (B+LNZ) New Season Outlook 2023-24 forecasts.

The report anticipates a 31% decline in farm profitability for the 2023-24 year, following a 32% drop in the previous year. This means that farmers’ profits have more than halved within two years.

B+LNZ’s chief economist, Andrew Burtt, stated that while farm-gate prices are likely to remain consistent with last season, rising costs due to inflation and high-interest rates will continue to put pressure on farm profitability. “When you take inflation into account, this is a 15-year low,” Burtt added.

Economic Factors and Global Demand

The report also highlighted that weak economies and uncertainty surrounding China’s economic recovery could soften demand in key markets.

Additionally, competition from Australia could further depress prices for New Zealand producers. “Should China not recover as quickly as forecast, and if Australia experiences a severe drought, its red meat exports would surpass expectations in New Zealand’s key markets,” Burtt warned.

Long-Term Outlook and Regional Impact

Despite the short-term challenges, Burtt sees strong longer-term fundamentals for the red meat sector. “The global population and demand for protein are expected to continue to grow, so the fundamentals for the sector remain sound,” he said.

However, the report also cautioned that some farmers are unlikely to turn a profit this coming season. “Farmers have weathered turbulent times before, but these are particularly challenging times,” Burtt noted.

Financial Management and Regional Disparities

The report revealed that the average farm profit before tax for 2023-24 is forecast to be $88,600 per farm. 

However, after adjusting for inflation, this equates to $54,800 per farm in 2004-05 terms, marking a 25% decline compared to 2004-05. B+LNZ emphasised the importance of effective money management for farmers this year, advising them to scrutinise every farm input for its contribution to productivity and profitability.

Burtt also pointed out that profitability is expected to decline across all regions and farm classes, with sheep-dominant areas likely to be the most affected. “Lamb prices are likely to remain flat for the coming season, while beef prices are relatively good,” he said.

In conclusion, B+LNZ advises farmers to work proactively with bankers and accountants to manage debt and tax obligations effectively, as financial management will be crucial in the challenging year ahead.