ANZ Agri report: Farm operating costs surge while top producers pull away

Farm operating costs are now 27% higher than before the Covid pandemic, according to ANZ’s latest Agri Insights report. Photo / Warren Buckland

By Gianina Schwanecke of RNZ

The cost of running a farm in New Zealand is more than 25% higher than it was before the Covid pandemic.

ANZ’s latest Agri Insights report, which analysed financial performance across more than 4000 dairy, red meat, kiwifruit, arable and pipfruit customers over five years, found farm operating costs across the board were 27% higher than before Covid.

This was driven largely by increased labour and input costs, such as fertiliser, and on-farm cost inflation becoming structural.

The gap between average farms and top performers continued to widen, pointing to significant untapped productivity potential, with leading operators consistently generating materially higher earnings per hectare through system optimisation rather than expansion.

Co-author Marcus Bousfield, ANZ’s head of strategy and execution - business and agri, said the report showed farms needed to lift productivity just to stand still.

“Really, everything is up on that pre-Covid area in terms of costs.

“We’ve seen it as a structural shift, as opposed to just being inflationary and moving with the inflation cycle.”

Despite dairy and kiwifruit having the largest cost increases, which were reflective of their labour-intensive nature and impacts of wage pressures during and after the pandemic, the report found that both sectors had some of the strongest returns.

Total kiwifruit farm income rose 59%, driven by the maturing of post-PSA plantings and higher orchard productivity, while dairy also saw higher earnings per hectare achieved through improved milk production per cow and better herd performance, rather than expansion.

Red meat farms had modest income growth, with a wide gap between the best and worst performers. Top-performing operators earned about 80% more per hectare than poorer-performing ones.

Pipfruit faced the most challenges, including labour shortages and multiple weather events.

Bousfield said the report showed the strongest performances were linked to reinvestment and commitment to improving productivity.

“You can look to the singular price in commodity prices being a key leader of performance, but that is always outside of farmers’ control.

“It’s really the sum of the parts of all the other components that drive the topline revenue piece that has a bigger bearing on what we saw as performance of the top 25%.”

This included factors such as the execution of buying and selling, crop management and animal efficiency, particularly in the dairy sector.

He said farming was a multi-generational industry in which decisions made today would pay off in later years.

Stronger markets, coupled with agritech advances, provided an opportunity to improve efficiencies on-farm.

Bousfield cautioned that conflict in the Middle East would continue to create global uncertainty in the shorter term.

- RNZ