TL;DR: The tide is turning for on-farm costs, with inflation rates settling back to more manageable levels after a significant spike. Westpac economists forecast a return to near-normal inflation rates for the farming sector, offering a glimmer of hope amidst financial pressures. This shift is primarily attributed to moderated costs in key areas such as fertilisers and fuel, alongside anticipated stabilisation in debt servicing and wage expenses.
After a tumultuous couple of years marked by soaring inflation, the farming industry is finally seeing a light at the end of the tunnel.
According to Westpac economists, on-farm cost inflation, which had previously reached alarming highs, is now realigning with the broader economy’s inflation rates. This development comes as a sigh of relief for farmers, who have been grappling with the financial strain of unprecedented cost increases.
The journey through inflation’s rough seas saw on-farm costs peak at an eye-watering 15% in 2022, a stark contrast to the pre-pandemic average of 2%.
However, recent data suggests a significant easing, with on-farm inflation now hovering around 2.4%, closely mirroring Westpac’s projections. Looking ahead, the economists forecast a further cooling to 3% in 2024 and an even more comforting 1.9% in 2025.
This moderation in inflation can be attributed to several factors. Notably, the costs of fertilisers and fuel, which had been major inflation drivers, have shifted from their inflationary stance to a more stable or even negative trend. Debt servicing costs, though still high, are expected to plateau as interest rates peak and the Reserve Bank’s measures to curb inflation take effect.
Additionally, a softening labour market is anticipated to ease wage pressures, further contributing to the normalisation of on-farm expenses.
Kelly Eckhold, Westpac’s chief economist, highlights this turnaround as a welcome development for the farming community, particularly as they navigate the challenges of weaker farmgate prices. The stabilisation of farming costs, while not a cure-all, offers a buffer against the financial uncertainties that have clouded the agricultural sector.
As farmers look towards the future, the expectation of costs realigning with the economy’s overall inflation rates brings a renewed sense of optimism. With most cost categories stabilising, the agricultural sector can now focus on recovery and growth, bolstered by the knowledge that the worst of the inflation storm may have passed.
This shift towards financial stability is pivotal, not just for individual farmers, but for the agricultural industry at large, as it continues to play a crucial role in the global economy.