Debt financing and farm input costs have hit a 40-year high for sheep and beef farmers.

Beef + Lamb New Zealand (B+LNZ) expected the high on-farm inflation would have a significant impact on the agricultural sector and rural communities.

The organisation's latest farm inflation report found farm costs jumped 16.3% between March 2022 and March 2023 - two and a half times the consumer price inflation rate of 6.7%.

It was driven by an average 86.5% jump in interest rates.

B+LNZ chief economist Andrew Burtt said this was the highest on-farm inflation for sheep and beef farmers since 1981–82, when it hit 17.1%.

“The largest increase was for interest, which contributed substantially to the overall increase in on-farm inflation because it comprises 10.9% of total farm expenditure.”

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

Feed and grazing jumped by nearly 15% and the cost of fertiliser, lime and seeds increased by 14%.

Burtt said debt servicing was not negotiable, which meant farmers were looking to cut back spending in other areas. This would have a flow-on effect for rural communities.

Rabobank chief executive Todd Charteris said there was "no question" farmers had been hit by a spike in on-farm costs from interest rates to wages, fertiliser and fuel - and hit harder than other industries.

The speed of the interest rate and other price increases had caught some people by surprise. However, fertiliser and fuel costs had started to drop and there were signs that interest rates were close to the top of a cycle.

"We've still got borrowers coming off fixed rates and that's a bit of shock for them," he said.

Charteris said farmers were being more rigorous, working through cash flows, and analysing whether it was the right time to make a purchase.

Rural Support Trust Mid Canterbury trustee Cole Groves said the trust was "very aware" of the financial pressure that farmers were under and had seen an increase in the need for welfare support.

"We are there if people feel stressed and want to chat," said Groves.

The Trust could provide a listening ear and then suggest who farmers could speak to for the best advice.

Groves said it was important not to feel alone - and to front things that were not going right.

For Groves personally, it was the first time in six years that he would not be paying off principal debt.

He expected a number of farmers would be in a similar position and would need to speak to their banks.

B+LNZ chief executive Sam McIvor said farmers' financial pressures would affect to the wider economy including businesses that service farms, such as vets, trucking companies, and shearers.

“It also impacts businesses where farmers spend their family incomes,” he said.

by Sharon Davis