Cost pressures have been in focus for much of the last few years, with consumer prices rising at their fastest rate in 30 years. Input costs have similarly seen a greater level of scrutiny than usual, as everyone sought to understand where pricing pressures were headed.

At the peak in mid-2022, on-farm costs rose 15%pa, more than double the peak consumer inflation rate. But inflation has now clearly turned a corner and is moderating, a trend also seen in on-farm costs, with the annual gain to March 2024 just 1.2%pa – the slowest rise since the start of 2021.

Overall on-farm costs, as measured by the Farm Expenses Price Index (all inputs including livestock) have levelled out over the past six months. On-farm input prices were, on average, the same in the March 2024 quarter as in both September and December last year (see Chart 1). However, rapid increases in recent years mean that on-farm costs at the start of 2024 were still 24% higher on average than at the start of 2021.

However, on an annual basis there have been mixed changes across cost categories.

Insurance premiums have soared 11%pa, following the adverse weather events of Cyclone Garbrielle and the Auckland Anniversary floods. These events highlighted the need for insurance companies to better price in climate risks. Interest rate costs have risen 7.2%pa, and other key costs such as fuel, electricity and maintenance work were also higher than a year ago.

On the other hand, livestock purchases (-8%pa) have fallen strongly, along with fertiliser (-7%) and seeds have edged down (-2%pa).

Cost pressures continue to hamper the economy, and it is evident that these higher costs have been hitting farmers hard. But the levelling out of on-farm cost pressures, coupled with improving commodity prices across a number of categories, looks to provide some optimism for the primary sector.