In early May the Reserve Bank of Australia (RBA) made what some consider a shock decision to raise the cash rate by a further 25 basis points to 3.85%. This followed the decision not to raise the rate in April.

Philip Lowe, Governor of the RBA stated:

“Inflation in Australia has passed its peak, but at 7 per cent is still too high and it will be some time yet before it is back in the target range. Given the importance of returning inflation to target within a reasonable timeframe, the Board judged that a further increase in interest rates was warranted today.

The Board held interest rates steady last month to provide additional time to assess the state of the economy and the outlook. While the recent data showed a welcome decline in inflation, the central forecast remains that it takes a couple of years before inflation returns to the top of the target range; inflation is expected to be 4½ per cent in 2023 and 3 per cent in mid-2025.

Goods price inflation is clearly slowing due to a better balance of supply and demand following the resolution of the pandemic disruptions. But services price inflation is still very high and broadly based and the experience overseas points to upside risks. Unit labour costs are also rising briskly, with productivity growth remaining subdued”.

Meanwhile, the Government at federal level is doing little to help tame runaway inflation. Whilst on one hand we have the RBA trying to dampen the economy, on the other we have the government promising cost of living relief packages and wage increases that will further stoke the economic fire.

Whilst the FairWork commission is touted as independent, last year we saw a significant increase to the minimum wage of 5.2% following governmental pressure. Employers are worried what this years wage review may result in another sizeable increase, which will further squeeze farming businesses. 

National Farmers’ Federation (NFF) Chief Executive Officer Tony Mahar said workers were entitled to the right to earn a fair and liveable wage, but a balance must be struck when considering farm businesses’ limited ability to pass on the cost of a wage increase.

“Wages are the most significant cost incurred by the agricultural sector, and labour is comparatively more expensive in Australia than our international exporting counterparts.”

Mr Mahar said while the agriculture sector had recently experienced headline highs, these must be viewed in the context of the economic realities faced at a farmer level.

“The cost of living is impacting all Australians and farmers are not exempt. The same inflationary pressures affecting workers are also making running a farm business increasingly perilous.

“Headline commodity price increases have largely been offset by eye watering rises in fertiliser, fuel and other costs, with forecasts showing prices paid to farmers are likely to exceed prices received in the years to come.

“While almost all farmers are price takers, many operate in supply chains with increasing market concentration, leaving some farmers extremely exposed to wage increases.

“A large increase in the minimum wage may see many farm businesses struggle as they continue to absorb rising input costs and will have a heightened impact on those operating in less favourable market conditions.”

Mr Mahar said it was important to address the cost of living pressures for everyday Australians and there were a number of ways the government could influence this and improve food security.

This includes creating resilient supply chains, addressing competition and workforce issues, protecting our food production system from biosecurity threats, and supporting on-farm climate change solutions. “We urge the Commission to appropriately weigh the concerns of workers and business, particularly at a time of great uncertainty in the global economy.”