Market Morsel: Just pass the costs on to your customer.

Market Morsel

I was driving to Melbourne last week and got a flat tyre (see here). Last year, when I bought them, they were A$250 each; now, they are A$350. I guess that is inflation for you.

Inflation is a number one issue; the cost of living has been increasing recently, but it’s not just consumers. It’s also impacting the cost of farming. Let’s take a look at how it is impacting the ability of farmers in Australia to produce their goods.

The first chart below shows the average beef, cropping, dairy and sheep farming costs. This data is expressed in real terms. These are the costs of the labour, materials and services.

We can see from the data that the cost of cropping and dairy has increased massively, more so cropping. This could be down to the recent record pricing levels for fuel, chemicals and fertilizer. The sheep and cattle industries have not felt the same type of rise in costs.

The second chart below shows the cost increase for this year versus the average of the first five years of this dataset (1990-1994). Farming costs are increasing, and this is especially true in recent times.

Many may say, “Pass this onto the consumer.”, it’s not that easy in a supply chain with multiple intermediaries. There is a real risk of a cost price squeeze in agriculture, where the price of our outputs doesn’t keep up with the cost of our inputs – causing margins to be squeezed.