Inflation hits rural sector with dairy farmers taking the biggest blow from fuel, fertiliser prices

Cost inflation in the rural sector hit boiling point over the past year, but is expected to reduce to a simmer, an agricultural economist says.

Westpac senior agri-economist Nathan Penny said input prices across all farm and orchard types, skyrocketed 13.7 percent in the 12 months to June.

That rise came on top of a record high annual charge of 9.9 percent in June.

Penny said those increases were driven by several factors, but they were all essentials that farmers could not really do without.

"The four key areas that we've seen cost inflation charge ahead for farmers have been through fuel, fertiliser, debt servicing costs and also feed costs," he said.

"But generally, we're seeing cost inflation for farmers and growers in all areas of their businesses."

Fuel prices alone have shot up 70.5 percent over the year and fertiliser prices have also surged, spiking by more than 40 percent over the same period.

Dairy farmers were hit with the biggest jump in input costs, with prices climbing nearly 16 percent over the year.

But sheep and beef farmers weren't far behind, experiencing price lifts of 13 percent each.

Penny said costs might be coming off the boil now, but they were still expected to simmer for a while yet.

"We do expect farmers to see prices continue to increase at a fairly rapid rate over the over the next year or two, and we're expecting that to be driven particularly by things like wage pressures and also feed costs; that's things like grazing and cultivation costs for farmers."

Westpac expected annual cost inflation to slow to between 4 percent and 6 percent by June 2023 and June 2024.

Penny said local factors would likely drive cost inflation, rather than the global influences that have caused it this year.

"Over the last year or so, we've seen offshore costs for things like fuel and fertiliser really, really surge and therefore drive overall cost inflation for farmers and growers," he said.

"But from here, we think that's sort of switching around to more local factors, with agricultural incomes pretty high, so that's things like wages as well as feed costs for farmers and growers."

Penny said it would pay for farmers and growers to remain vigilant around the management of cost pressures, which were likely to remain high for some time yet.