Prices of fresh produce may soar, but if you think farmers are rolling dough, think again
Lettuce has crossed the $10 mark, milk prices are soaring by major supermarkets and strawberries are $6 a punnet.
Almost everywhere you look, the prices of food and other agricultural goods are on the rise.
You’d be forgiven for thinking this must be a great time for Australian farmers, preferably gazing out the window at the gentle rain.
Not too.
Rising price
Understanding what drives the price of any commodity can be a confusing exercise at the best of times.
The current situation is generally caused by a number of problems, the first of which relates to the nature of Australia’s growing season.
Australian vegetables come from different parts of the country depending on the season. Currently the main supplier is Queensland.
Earlier this year, several developing areas were hit by two floods in 11 weeks.
Belinda Frentz is a herb grower on the state’s Gold Coast and co-chair of Australia’s top vegetable growing body, AUVEG.
He said crop damage caused already high prices to rise even further.
“When you have a loss of that magnitude, it’s not the significant price, but the production loss associated with that,” Frentz said.
“Anything that raises prices is usually associated with a loss somewhere in the supply chain.
“When we process less than half the volume we normally do, it’s clear the demand for that product is increasing exponentially and there’s no product availability.”
Farmers with hidden fees
Like every industry, agriculture has costs. There are initial costs, such as the price of seed for a year, the cost of land, or the purchase price of livestock.
Then there are input costs, such as fertilizer, fuel, chemicals, water and labour.
In short, they are a necessary product for doing business — similar to fixed costs for a personal budget, such as rent and electricity.
These costs fluctuate naturally, but recent world events have made the job difficult.
Fertilizer costs began to soar in mid-2021 when China announced export curbs, but the war in Ukraine has pushed those prices higher.
Fuel prices are also very high, especially for diesel, which is used not only in tractors, but also to fuel trucks that transport produce from farms to processors, wholesalers and supermarkets.
The ongoing global hangover from the pandemic has also slowed imports of this commodity from Australia to a crawl.
Creating the perfect storm
While each of these costs may be manageable on their own, together they have created the perfect storm.
Ms Frentz said costs eat into the profits that many manufacturers make.
“We all know how much our production costs and we know that they have increased,” he said.
“I think the new price is fresh [food] will be around the cost of the input pressure we have, and we can’t do anything about it.
“As everyone is currently under household pressure about the cost of living, farmers are experiencing it in its entirety.
“For us to be sustainable, we have to be profitable.”
The story of two farmers
But at such a high price, how much of that money actually makes it back into farmers’ pockets?
Melbourne-based wholesaler Michael Piccolo believes the situation has divided farmers into two distinct groups.
“You’re going to get certain farmers who don’t have yields, so basically whatever they produce is just covering the cost of production,” Piccolo said.
“Then you have farmers who have a full crop and they just base their sales on what’s going on around the Australian market.
“Certain markets like Melbourne, Brisbane and Sydney will compete with each other, so when someone sets a price everyone has to follow suit.”
Piccolo also believes that, although input costs make up a large part of current costs, it is competitive bidding from buyers that drives prices up.
“I think that’s a contributing factor. My opinion, however, is that it’s a bit over-inflated and we’re about 20-30 per cent above where we really need to be.”
When will the price go down?
The good news is that help is on the horizon.
Piccolo believes prices will drop as the season shifts away from Queensland farmers and back to southern Australia.
“The season changes around September to October, so a lot of the product we have to buy from Queensland starts to drop during the Victoria season,” he said.
“My prediction is that we will start to see prices drop more towards mid to late September, and then the Victorian growing season will start.
“However, I can’t see it going back to the price we’re used to,
“I think it’s probably going to settle around 10 to 20 percent above what we’re used to paying.”
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