Farm input costs soared almost 22% in the year to 30 September – with huge spikes in fuel and fertiliser prices, confirm the latest agricultural inflation figures.
No farming enterprise escaped double digit inflation. Five out of nine inputs saw double digit inflation with unprecedented increases in the cost of fuel (+79.9%) and fertiliser (+51.2%), according to the latest AgInflation Index.
For many farmers, the increase threatens to more than offset any rise in output prices. Food prices fell by 0.7% during the same period, according to the unrelated Retail Price Index – squeezing margins for growers and livestock producers.
Further cost increases have yet to filter through, said the AF Group, which produces the AgInflation Index. Fertiliser prices have increased by 50% since the end of September – with supply chain disruption affecting farm businesses.
The index is useful tool for farmers to review their expenditure and procurement partners.But it also helps fully explain the drivers of current and future inflationary trends – and how best to withstand them.
Norfolk farmer Tony Bambridge, of B&C Farming, said: “The need to track our costs is paramount to the health of our business and it is vital our customers understand the inflationary pressures we are facing.”
Soaring gas prices have had a knock-on effect on fertiliser prices – to the point where it has made fertiliser factories economically unviable to run. But it has proved difficult to pin down the reason behind the inflationary hike.
AF nead of crop production Matt Kealey said: “There’s no single reason for the increase in natural gas prices. It’s the result of a convergence of factors, nationally and globally. Supply continues to struggle to keep pace with rising global demand.”
Mr Kealey added: “Stored gas levels are lower than normal in Europe because of last year’s cold winter and with the UK having comparatively fewer storage facilities, we are more exposed to price fluctuations.
“This has added to speculation that Russia, a major gas supplier, is withholding output for political reasons which, in turn, is fuelling price rises. We are continuing to liaise with our suppliers and update members on both spot and future prices.”
Fuel prices continue to rise steeply as tight global energy supplies meet growing demand. Consumption in 2022 is expected to be around 5% higher than in 2020 when the US oil benchmark West Texas Intermediate was trading at US$37 a barrel.
AF fuel procurement manager Helen Thurtle said: Those days are a distant memory now as our European benchmark, Brent crude, is showing no signs of stopping with tensions apparent amongst OPEC members as to how much production should be increased.”
Brent crude was trading at US$85 a barrel in late October – but there was now the real possibility of it reaching $100 a barrel in a cold winter. “This would potentially drive a surge in demand and widen the supply deficit further.”
Farm businesses face ‘extraordinary pressure’
Pressure on farm profits comes against the backdrop of international trade deals paving the way for more competitors to the UK market.
The Aginflation Index is an important barometer of farm input costs. This year the results are of particular importance – with just-in-time supply chains buckling as the global economy recovers from the coronavirus pandemic.
Many farmers will find the extraordinary financial pressures they are confronting difficult – threatening the very existence of their businesses, says AF Group chief executive David Horton Fawkes.
“We are deeply concerned about the impact of these high rates of agricultural inflation on our Members and there has never been a stronger case or a better time for UK farmers to collaborate and work together.
“We must use the strength of our cooperatives to protect margins and safeguard our members’ businesses. Inflation is not slowing down and only by working together will we overcome the biggest challenges to farming for 50 years.”
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