With Australia's annual inflation rate at a 30-year high, there is no denying consumers are feeling the economic squeeze.
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But inflation and interest rates - the same factors that drive up the cost of living for consumers - are also hurting Australian dairy farmers.
When an Australian dairy farmer looks at their bank statement, on average, they will see seven red figures. That is because the average Australian dairy farm debt is now $1.2 million - a record high.
The International Monetary Fund (IMF) has predicted that global inflation will fall to 6.6 percent in 2023 and 4.3pc in 2024, which is still above pre-pandemic levels.
This means the Reserve Bank of Australia will continue to increase interest rates. After a decade of no interest rate increases, the RBA has made nine interest rate increases since May 4, 2022. This has amounted to a total increase of 3pc to increase the cash rate target, which is the market interest rate on overnight funds, from a record low of 0.10pc to 3.35pc currently.
It is the rapid rise that is hurting farmers and households. Most never budgeted for such dramatic change.
How much they increase further will depend on what other measures governments take to address the drivers of high inflation - production and supply chain inefficiencies and disruptions and excess money supply.
Why the inflation?
Dairy farmers are lucky there's strong competition from processors. The relatively strong prices go some way to offset high input costs and the rising cost of servicing a debt.
The war in Ukraine is often cited as the reason costs are rising. But the reality is much broader than that.
Wages have risen, leading to increased consumer spending and an ability for businesses to charge more for a product.
Labour and material supply shortages, mainly from COVID-19 lockdowns, has limited production capacity and not been able to keep up with demand.
Consumers understand that the RBA increases interest rates to keep inflation in its target range of 2-3pc.
However, they do not understand that these decisions have significant ramifications for the people who produce the food they eat.
We also do not talk enough about how government spending can influence inflation.
State and federal governments have not invested in productivity-enhancing initiatives and have spent too much borrowed money, which in turn adds to inflation.
Australian Dairy Farmers' (ADF) analysis of last year's federal Budget found a need for structural reform to offset the rising costs of administering social programs like the National Disability Insurance Scheme, and further reform to mitigate the risk of a potential global recession and provide better value of the Australian taxpayer dollar.
Importantly for dairy, ADF also would have liked to see food included in a $7.5 billion plan to mitigate inflation for parents and socially disadvantaged people in last year's budget.
Future fiscal policy
The Business Council of Australia and the National Farmers Federation submissions to the May 2023 Budget provide direction and initiatives on how cost of living, productivity and fiscal responsibility can be improved.
The key priorities are economic and Budget reform, sustainably resourcing our biosecurity system, sustaining our natural environment, responding to our urgent road and infrastructure needs, securing Australia's farm workforce and supporting smarter growth for regional and rural Australia.
To maximise the impact of these initiatives, ADF believes the government needs to bring the Budget back in surplus.
Reducing the deficit will cool demand and inflation, so central banks do not need to raise interest rates as much.
This helps everyone repay their debts while maintaining an appropriate standard of living.
Article supplied by Australian Dairy Farmers
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