Everywhere you look costs are increasing at an alarming rate and it is taking its toll on businesses and individuals alike. There are whispers of a recession which seems quite likely looking at the latest inflation numbers pegged at a staggering 7.2% for the 12 months to December 2022, which is the highest it has been since 1988.
As a result of the high inflation in recent times, no business or individual has managed to escape the clutches of a price increase whether the increase is from a supplier or your weekly supermarket shop.
Economists are saying that they believe inflation may have peaked, but that remains to be seen.
For the purposes of this article, we will focus on cost pressures experienced by dairy farms at present which include not only price increases but also a drop in payout and a decrease in demand for dairy products which exacerbates the cost pressures.
On-farm costs increasing
As mentioned above there are cost increases across the board which are putting a squeeze on farmers’ profitability, the main ones of concern are:
- Interest rates on bank loans especially where farmers have high debt levels – interest rates are on the rise and are now more than double what it was 18 months ago which brings with it higher debt servicing costs on top of most banks requirements to repay the debt over 20 years.
- Limited access to staffing and the associated remuneration expectations
- Increase in major farm expenses such as fuel and fertiliser
- Costs related to compliance requirements, regulatory changes, and environmental requirements
After a long hiatus we revived our Waikato Dairy Farming Benchmarking reports, the reports have been collated by our team from actual cash trading date of our Dairy Farming. The data we have collected for the 2021/2022 season reflect the items mentioned above.
We have stats for:
- Farm Owner/Operators
- Farm Owner with 50/50 Sharemilkers
- 50/50 Sharemilkers
- Farm Owner with Contact Milker
We have the ability to benchmark your farming operation against these stats which will allow you to see the areas of your business which are out performing others and those where you can make changes to increase your profitability, we believe that this is a very useful tool.
Link to our website to look at the stats can be found here.
Things dairy farmers can do to mitigate costs
Farmers are paying close attention to their farming operations and where they can potentially gain some efficiency or cut costs items they are looking at includes:
- Changing twice a day milking to once a day milking therefore reducing labour input in as a response to potential staff shortages and or labour costs.
- Frequent actual variance reporting on the farm budget to ensure that areas of concern can be identified so it can be addressed.
- Potential energy costs savings by converting to solar power – some banks are providing “Green Loans” at favorable interest rates to enable such conversions.
- Consider ordering bulk amounts of supplies or stock to keep you going for a longer period of time and avoid price increased, of course there is a risk here of a potential price decrease after a bulk order, but is likely that once the cost goes up, it stays up.
- Speak to us and speak to your bank manager about the financial needs of your farm, for example interest rates/fixed terms or interest only options if available.
In summary it is not all doom and gloom, the New Zealand dairy industry makes a significant contribution to New Zealand’s GDP and farmers are undoubtedly the backbone of New Zealand.
We are here to help you create freedom in your business and please do not hesitate to contact us if we can help you with your farming budgets and variance reporting for the 2023/2024 season and beyond.