Facts: The policy rate
The policy rate is now 3.75 percent after the Riksbank’s increase last week. Just over a year ago, the interest rate began to rise from zero percent, as it was then. Now the Riksbank says that there will be another increase, at least.
Now the Riksbank’s interest rate forecast also indicates that the interest rate will remain high for a longer period of time than previously thought.
Source: Riksbank
When the Riksbank raised the interest rate on Thursday, and also promises at least one more increase, it means an even tougher situation for farmers, according to LRF chairman Palle Borgström.
— That interest rate increase hits the farmers very hard. They have a lot of capital tied up in their investments. An increase of 0.25 percentage points costs farmers SEK 500 million, he says.
At the same time, almost all input goods have increased in price.
— Diesel, nitrogen and soy, everything has risen. Farmers have received much higher costs.
Cereals have dried away
In addition, the drought in early summer has meant that harvests are much smaller than normal. Palle Borgström explains that it is already clear that there will be much less grain in the fields.
— We usually export grain. But now we probably have to import. We are losing crops in Sweden. Those who grow hay to feed their animals may even need to buy feed.
He compares with the dry summer of 2018, and sees great similarities.
— April and May were cooler this year than then, and we also had better groundwater. But there are marginal differences for the farmers.
The crops that are now destroyed cannot recover, even if there were rains. It is clear that the farmers receive significantly less money than usual.
Drought, interest rate hikes and cost increases together with less income make a really toxic cocktail, notes Palle Borgström.
Dramatically
— There will be dramatic effects. Farmers are used to dealing with changes, in weather and in the market, but this is on a much more serious level.
Farmers have to raise their prices to survive, he explains, and this affects food prices, which in turn affects inflation.
— Interest rate increases mean that inflation does not go down, says Palle Borgström.
Finance Minister Elisabeth Svantesson (M) also touched on the impact of the drought on food prices and inflation in her economic forecast. “The drought risks hitting Sweden’s farmers hard, which in the long run could push up the prices of food and other goods even more,” she wrote in a press release.