13 March 2003

Sheep and Beef Farm Input Prices Up 3.7 Per Cent

Prices paid for inputs on sheep and beef farms increased 3.7 per cent between January 2002 and January 2003 according to MWI Economic Service. This was the second largest increase in sheep and beef input prices for the decade and was more than double the increase of 1.7 per cent recorded the previous year.

Rob Davison, Executive Director of the MWI Economic Service, noted that of the 21 expenditure categories in the survey 18 recorded increases while 3 recorded decreases. The only significant item to record a decrease was applied fertiliser (-2.3%). Fertiliser price reductions occurred in mid 2002, but were partially offset by increased cartage and application costs.

The largest price movement was for seeds, which increased 27.1 per cent in the 12 months to January 2003. A poor harvest in autumn 2002 reduced supply and pushed prices up. However, the grass seed harvest this year has been excellent in Canterbury and prices are expected to drop back to more normal levels in 2003.

The cost of debt (interest) increased 5.3 per cent in the 12 months to January 2003. With interest being one of the largest expenditure items on sheep and beef farms, interest provided the largest contribution (0.65 percentage points) to the on-farm inflation rate. Floating interest rates increased which were partially offset by lower fixed interest rates. Despite the New Zealand dollar appreciating throughout 2002 and making imports cheaper, fuel prices increased 14.8 per cent in 2002-03 due to increased crude oil prices. Fuel prices have been volatile in recent years and fuel recorded the largest cumulative price increase (+34.2%) for the 5 year period from 1998-99 to 2002-03.

Accident insurance (ACC) recorded the second largest percentage increase of 16.9 per cent in 2002-03, while general insurance premiums increased 9.2 per cent. Other items that recorded sizeable price increases were electricity (+11.2%), cartage (+8.1%), administration (+5.1%), cultivation and sowing (+4.5%), rates (+4.5%) and wages (+4.5%).

The underlying rate of on-farm inflation was 3.4 per cent. This measure excludes the interest charge component and shows the underlying trend for all other sheep and beef farm input prices.

The first graph on the following page shows the percentage change for each category within the 3.7 per cent overall increase in the sheep and beef farm input price movement for 2002-03. The second graph shows the relative input price movements through time from 1982-83 to
2002-03.

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For more information, contact Meat and Wool Innovation - Economic Service:

Rob Davison Executive Director 04 471 6034
Brian Speirs Chief Economist 04 471 6035
E-mail: rob.davison@economicservice.co.nz
brian.speirs@economicservice.co.nz