DairyNZ principal economist Dr Graeme Doole says shipping prices are on average around 600% higher than two years ago due to port delays and closures related to covid-19, and the prices of ocean freight out of Asia have grown substantially, increasing by 15 times between March and August this year.
The high cost pressures that are hitting the primary sector are expected to continue for the immediate future, DairyNZ says.
Statistics New Zealand released its latest farm expense price index last month, which showed large inflation costs for farmers over the past two years.
Four key farming costs have experienced inflation of more than 10% between 2019 and 2021, including fertiliser with a 15.9% increase; cultivation, harvesting and animal feed with an 18.9% increase; electricity with a 21% increase; and stock grazing costs, which are 36.9% higher this year than they were in 2019.
ANZ’s December Agri Focus publication also noted the effect of high costs, saying it was increasing faster than the general rate of inflation and was being felt across the wider agricultural sector.
“The current economic climate is unique and reflects a combination of forces that seldom come together,” DairyNZ chief executive Tim Mackle said.
“International demand for food, especially dairy products, remains strong, but poor production and high input prices worldwide have limited supply. This means world food prices are currently around a third higher than the same time last year.”
He says strong financial management, grazing management and people management skills will help dairy farmers buffer rising input costs and produce milk more efficiently.
DairyNZ principal economist Dr Graeme Doole says shipping prices are on average around 600% higher than two years ago due to port delays and closures related to covid-19, and the prices of ocean freight out of Asia have grown substantially, increasing by 15 times between March and August this year.
Urea prices alone have jumped by 67% since August 2020 due to greater global demand for nitrogen. FAO figures suggest nitrogen use has only increased by 1.33% since 2020, but higher seasonal demand, coupled with international supply issues, have pushed up urea prices globally.
“In New Zealand, China is our largest supplier of urea for fertiliser and there is huge competition with other industries for shipping containers. China has also tightened exports of urea to assure supplies in its domestic market, so this is having a real impact on international markets, and of course our dairy farmers are also grappling with those extra costs,” Doole said.
Domestic PKE prices are currently at their highest since the start of 2020 at $391 per tonne.
NZ is also seeing higher fuel prices due to less crude oil production and exports.
Doole says demand and the high prices for farming inputs were expected to stay for some time.
Farmers will start facing more scrutiny from banks over the next few years as environmental policies start to affect profitability and banks introduce tighter lending criteria to meet new legislative requirements.
“While we do have challenges ahead, efficiency is the low hanging fruit, and we know that at least 50% of farmers can produce the same amount of milk with less inputs like feed, nitrogen and fertiliser,” he said.
Waikato Federated Farmers arable chair Keith Holmes says farmers needed to do their feed budgets now and forward order or destock to match feed on hand as they head into summer.
In Waikato, maize silage was selling for $300-$340 tonnes of dry matter, while prices for palm kernel varied from $340-$390/t, excluding freight. Dry stock farmers tended to purchase round bale grass silage, which was selling for $450-$600/t DM, depending on the quality and protein or carbohydrate ratio and time of the year.
“Fertiliser costs have gone up astronomically. But so too have feed costs. There is no cheap feeding option out there other than grass in the paddock. Even that is not cheap because of increases across the board on all farmer inputs, including harvesting,” Holmes said.
“Any increase in product prices [meat, dairy], is already eroded by massive input cost increases, including interest on money and working capital.”
Despite the massive lift in price, he says urea was still the cheapest option to bulk up pasture feed.
However, that was dependent on timing with the window rapidly closing in Waikato unless there was rain.
