Inflation presents major challenge over the medium term

have not been as prevalent over the past 20 years. For agricultural producers, it means higher input costs, such as fertiliser, animal feed and fodder, and transportation. For consumers, agricultural products costs more, reducing their real income and impacting their demand. This was seen through 2022 when two separate fooding events in the eastern states caused acute supply shocks in fruit and vegetables, creating a sharp rise in their cost for consumers (see Horticulture note for more details).

Furthermore, rising interest rates makes borrowing more expensive, which impacts on investment in the sector and increases the risk of default for agricultural businesses. Internationally, differences in interest rates between countries can impact the exchange rate, which has implications for the international competitiveness of exports.

One of the results of the infationary cycle is that the real gross value of production in future years is reduced because the value expected over the medium term is discounted to account for infation. The higher the rate of infation, the lower the real value in the future will become.