Low interest rates contribute to fall in on-farm inflation

// Industry

While sheep and beef farm input prices decreased by 1.1 percent in the year to March 2021, when interest rates were excluded, input prices actually increased by 1.6 percent.

farmer herd


This is according to the latest Beef + Lamb New Zealand (B+LNZ) Economic Service Sheep and Beef On-Farm Inflation Report.

The report identifies annual changes in the prices of goods and services purchased by New Zealand sheep and beef farms. The overall on-farm inflation rate is determined by weighting the changes in prices for individual input categories by their proportion of total farm expenditure.

Of the 16 categories of inputs, prices increased for 14 and decreased for two – Interest and Fuel. The largest decrease in price was for Interest at 18.9 percent, while Fuel decreased by 4.7 percent. The largest increase was for Electricity (+5.8 percent) followed by Weed and Pest control (+5.0 percent). Rates increased by 1.3 percent in the 12-month period to March 2021.

B+LNZ Economic Service Chief Economist Andrew Burtt says the decline in farm input prices is substantially due to the decrease in interest rates.

“The price of the majority of farm inputs increased during the 12-month period, however interest decreased by 18.9 percent, which contributed substantially to the overall decrease in on-farm inflation. Interest is approximately 13 percent of total farm expenditure and a low interest rate environment has been positive for farmers.”

“Excluding interest, the prices for inputs used on sheep and beef farms increased by 1.6 percent, similar to the increase in consumer prices as measured by the CPI, which was 1.5 percent for the same 12-month period,” Mr Burtt says.

The increase in sheep and beef farm input prices over the past decade has been comparable with the CPI; underlying on-farm inflation for the past 10 years was 14.7 percent, which is similar to consumer price inflation at 14.3 percent.

The full report (PDF, 760KB) is available on the B+LNZ website. 


For more information, please contact Andrew Burtt, Chief Economist, on 027 652 9543 or Katie Jans on 027 838 6353.