Down Under Downfall: New Zealand Beef and Sheep Farms Brace for 30% Profit Plunge, Reveals Report

"New Zealand Sheep and Beef Farms Brace for 30% Profit Margin Decline as Global Demand Shows Fragile Recovery, says B+LNZ Report"

Profit margins on sheep and beef farms in New Zealand are expected to decline by 30% in the upcoming season, according to a new report released by Beef and Lamb New Zealand (B+LNZ). The New Season Outlook 2023-24, published on October 11, highlights that while global demand for beef and sheepmeat is projected to recover slightly, the rising costs of farming will significantly reduce the incomes of sheep and beef farmers for the second consecutive year. The report forecasts an average pre-tax profit of NZ$88,600 per farm (€50,354), which, when adjusted for inflation, is equivalent to NZ$54,800 per farm (€31,145) in 2004-05 terms. This represents a 25% decline in farm profits compared to 2004-05 levels. Andrew Burtt, B+LNZ’s chief economist, acknowledged that this will be another challenging year for New Zealand farmers. He cited increasing costs driven by inflation and high interest rates as the primary factors squeezing farm profitability. Burtt stated that farm profitability is expected to decrease by 31% in the 2023-24 year, following a decline of 32% in 2022-23, resulting in profits being more than halved in just two years. He emphasized that this is a 15-year low when accounting for inflation and cautioned that the global outlook for the red meat sector remains fragile.

B+LNZ noted that although demand is anticipated to recover slightly from last year, prices are expected to remain soft compared to the highs observed two years ago, particularly for lamb and mutton. The pace of China’s economic recovery remains uncertain, and other key markets continue to exhibit relatively weak economies. Additionally, New Zealand farmers will face stiff competition from Australian red meat exports to China. Burtt added that there are further short-term downside risks to these forecasts, such as if China’s recovery is slower than expected or if Australia experiences a severe drought, resulting in higher-than-anticipated red meat exports to New Zealand’s key markets.

The B+LNZ report also highlights that some farmers in New Zealand are likely to operate at a loss in the upcoming season. Burtt explained that profitability is expected to decline in all regions and farm classes, with sheep-dominant areas being the most affected due to flat lamb prices and relatively good beef prices. He noted that this reduced profitability comes at a time when many farmers are still recovering from last summer’s cyclones and preparing for potential drought conditions in the coming months as a result of El Nino, which will impact the timing of sales. However, the B+LNZ forecast does not factor in the potential increased costs from the government’s regulatory reform agenda. Burtt emphasized the importance of money management in the upcoming year, urging farmers to ensure that every farm input drives productivity and profitability. He also advised proactive collaboration with bankers and accountants to effectively manage debt and tax obligations.

Matt Lyons

Matt Lyons

Matt Lyons is the founder of Forestry & Carbon. Matt has over 25 years as a forestry consultant and is invoilved in numerous carbon credit offset projects.

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