The sector where inflation has hit 16.3%

Sheep and beef farmers are being squeezed by on-farm inflation at a level not seen since the early 1980s.

Beef and Lamb New Zealand's Sheep and Beef on-farm inflation report showed inflation of 16.3%, the highest level in 40 years and more than double New Zealand's annual inflation rate of 6.7%.

Costs had risen across the board, but an 86.5% increase in interest on debt – which makes up 10.9% of total farm expenditure – was the largest contributor to higher inflation, the report found.

Floating interest rates doubled from March 2022 to March 2023, while fixed and overdraft interest rates increased by around 50%.

Feed and grazing costs were up almost 15% and fertiliser, lime and seed costs increased by 14%.

Beef and Lamb chief economist Andrew Burtt said​ 16.3% was the highest on-farm inflation rate since 1981-82, when it hit 17.1%.

With inflation eroding farm profitability, and debt servicing a non-negotiable, farmers were looking for other ways to cut costs.

"This will have a flow-on effect to our rural communities as services and farm inputs are reduced," Burtt said.

"With uncertainty over regulations and the economic outlook for New Zealand there is a focus on essential ‘must have’ expenditure on farm."

Southland sheep farmer Ben Dooley​ said the price paid for his lambs had fallen from $8 per kilogram of carcass weight last year to less than $7 this year.

Meanwhile, the cost of running the farm had increased.

"Last year, we paid around $300 per tonne for fertiliser, this year, we're going to be paying $440 per tonne," Dooley said.

"Everything's gone up, fence posts, water pipes, tools, servicing, but our price per kilo has gone down."

To cut costs, Dooley had put the brakes on some projects around the farm.

"There's no more development so to speak, we are not progressing with water schemes or fencing, unless we have the materials on the farm, we are not buying, we won't upgrade any machinery this year."

In March, Beef and Lamb forecast a 30% decrease in average farm profit based on estimated on-farm inflation of 12-13%, but the latest numbers meant farm profit was likely to fall even further.

Beef and Lamb chief executive Sam McIvor​ said the financial pressure was challenging.

"A generation of farmers have not operated under this level of inflation and the situation is further exacerbated by unworkable environmental rules.

"When farmers are impacted in this way, it has a knock-on effect to the wider economy including businesses that service farms like vets, trucking companies, shearers and many more. It also impacts businesses where farmers spend their family incomes."