Margules Groome’s quarterly harvest and haulage cost index for Australian plantation operations is based on actual price indexation mechanisms used by industry weighted by volume harvested. The previous index published in Novemeber 2018 indicated a continued rise in logistics costs for plantation harvest operations because of increasing fuel costs through 2018. These rises were expected to moderate, but they fell dramatically instead in the first quarter of 2019 (from 139 to 129c/L, or 7.4%). This in turn caused the harvest and haulage indexes to fall. Lower than expected inflation figures (CPI, ABS March 2019) and continued lower wage increases (wage price index, ABS March 2019) also dragged the indexes down.
Fuel prices have increased strongly again in the second quarter of 2019 and are expected to be back to where they were in December 2018 by the end of June 2019. Despite this, the index indicates that costs over the 12 months to June 2019 will only slightly increase by ~0.3%, or barely at all. They are only ~3.4% higher than the last peak in June 2014, an average increase of 0.7%/a over 5 years.
Assuming fuel prices continue to increase, inflation will pick up to the RBA target band of 2-3%/a (on the back of the recent interest rate cut to 1.25%), and wages growth also increases, Margules Groome is forecasting a steady increase in the index over the next 12 months in the order of 2.0%/a. Of course, such assumptions may prove optimistic as they have in the recent past and the forecast may simply indicate a worst case scenario for the industry.
For further information and analysis contact Margules Groome.