While the general community grapples with 6-7% inflation, farming costs have increased significantly over the past six months with farmers seeing 10-15% increases for feed, grazing, fertiliser, repairs and maintenance.

New Zealand company Donaghys, which sells ropes and other equipment for horticulture, aquaculture and manufacturing, says supply chain issues impacting fertiliser have seen the cost of urea, the main ingredient in fertiliser, rise to record levels.

Urea is now costing NZ$1190 a tonne, meaning the average 233-hectare dairy farm is paying NZ$95,000 more for urea per season than it was 12 months ago, according to Donaghys.

Christchurch chartered accountant Cameron Rolls CA, co-director of accounting firm Brown Glassford and Co says the amount of assistance required from clients has been steadily increasing over the last two-to-three years due to taxation changes; increased independence required from the banking section around farm budgeting; and greater complexity in the farming industry.

“Higher commodity prices, combined with higher input prices has certainly led to a lot more financial planning required as one can’t assume things will be similar to last year based on a status quo farming system as they may have done in the past,” says Rolls.

“You have to make more informed choices about investment, whether you reduce debt or just hold a reserve, given there is an uncertain future.”

“You have to make more informed choices about investment, whether you reduce debt or just hold a reserve, given there is an uncertain future.”

The latest Federated Farmers survey of farmer confidence, released in January, suggests about half are feeling optimistic about the future, due to strong commodity prices forecasted for the next couple of years and growing markets, Rolls says.

In contrast, the other half surveyed are more pessimistic due to the rising cost of inputs, government regulation, COVID-19, labour shortages and uncertainty surrounding international stability.

“Overall, farmers are concerned that rising input costs will put further pressure on maintaining a profit margin along with the cost of other regulations. As ‘price takers’ there is no option of recovering higher input costs from customers that may exist in other industries.”

In the event of a recession, Rolls says the agricultural sector may not necessarily be impacted in the same way as the general economy. This is because New Zealand commodity prices are set by demand from international markets.

In a recession, he says accountants need to be ready to pivot into the appropriate services and advice to assist businesses that may be declining in revenue.

“In any case, having robust processes, financial information and governance already in place with clients will ensure that the most appropriate decisions are made at the earliest time.”