CPI up 1.6% dairy farm costs up 10% a hectare

July 15, 2008

Consumers and producers are counting the costs associated with rising inflation.

The Consumer Price Index  went up 1.6% in the June quarter and pushed inflation up to 4% while dairy farm working costs  rose 10% a hectare in the past year.

Specialist dairy farm and business management company, Farmright, surveyed 50 farms which the company manages and found that between 2006-07 and 2007-08, feed rose 25%, fertiliser 24% and freight and cartage 37% per hectare.

Farmright manager Jim Lee said fertiliser costs had gone up further since the survey was done, and wage costs were also creeping up on dairy farmers.

Wage costs only rose 3% last year, but newly negotiated contracts indicated that figure would increase sharply this year because of greater demand and a shortage of workers.

The shortage of staff is critical and it’s not helped by immigration policy which requries herd managers to have a bachelor’s degree or five years relevant work experience if they are applying for residency.

“We know from contracts being negotiated for new and existing staff being rolled over that there have been some increases.”

The cost of production, which included feed, run-off costs and cost of management, but excluded depreciation on the Farmright-managed farms, rose from $2.91 per kg of milk solids (kg m/s) in 2006-07 to $3.61 per kg m/s in 2007-08.

Mr Lee said drought and cost increases had an impact. But he said some businesses were now operating at higher cost structures than they would be aware of.

He believed some farmers would be faced with costs of $6 per kg, made up of $4 per kg farm input costs and interest costs of $2 per kg.

“Cost control and financial discipline are more important now than ever before,” he said.

It is easy to let costs get away when the payout is high but not so easy to rein them in when the price falls.

However, one of the speaker’s at last year’s South Island Dairy event (SIDE) conference told how he’d gone into dairying when the milk payout was $5.30 and the next year it went down to $3.60 – but they made more that season than the previous one because they were much more disciplined about containing costs.


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