Production

MLA releases new input cost index for producers

Beef Central, 01/05/2014

The input prices faced by Australian beef producers have doubled in the last 25 years, according to the new Beef Producer Input Price Index (BPIPI) developed by ABARES, on behalf of MLA.

The BPIPI was constructed using the prices of 15 major input costs faced by beef producers, with the prices weighted accordingly and aggregated to form a northern and southern index.

Between September 1988 and December 2013, northern Australia input prices have increased 93 percent, at an annual average rate of 2.61pc, which was slightly less than southern Australia, where input prices increased 105pc, at an annual average rate of 2.86pc. In both instances, the increase was less than the Consumer Price Index (CPI) over the same period, which increased 109pc over the period, at an annual rate of 2.93pc. However, if interest is excluded from the calculation of the BPIPI, which is the case for the CPI, the northern rise was 112pc, while southern increased 118pc over the 25 year period – regardless; however, the rises have been very close to that of CPI.

While the northern and southern BPIPIs have been trending in line with CPI, there has been huge variation between each input cost, with northern land rent (393pc), insurance (360pc), electricity (250pc), and rates (216pc) all increasing significantly from the 1988-89 base. However, while there have been significant increases among the mentioned inputs, their collective weighting towards the northern index are 6.7pc.

The input costs accounting for the greatest weighting in northern Australia are the capital cost of the beef herd (17pc weighting) , interest paid (13.9pc weighting), and repairs and maintenance (8.9pc weighting). Interestingly, these inputs have increased much less than those above, with the opportunity cost of beef cattle rising 38pc since 1999-89, repairs and maintenance increasing 137pc, while interest paid declined 49pc over the period.

For the southern index, depreciation accounted for the greatest weighting (11.9pc), followed by the capital cost of the beef herd (10.2pc), interest paid (8.9pc), repairs and maintenance (8.8pc) and fertiliser (6.6pc).

Other inputs to have increased substantially since the 1988-89 base are fuel, oil and lubricants (197pc), wages and hired labour (149pc), contracts paid (149pc), fertilizer (145pc) and freight (101pc), while crops and pasture chemicals have risen just 7pc

Ultimately, the main finding from the Index is that while beef producer input costs have increased significantly over the past two decades, they have been in line with CPI. The greatest squeeze for producers has been the significantly lower increase in output prices over the same period.

Going forward, the BPIPI will be updated on a quarterly basis, with the results and analysis available on the MLA website.

Source: Meat & Livestock Australia

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