Farm incomes are expected to drop back in 2010, as high stock levels weigh down on commodity prices and sterling strengthens in the international currency markets.

According to a recent NFU briefing to the CBI (Confederation of British Industry), cereal and dairy incomes are likely to remain under pressure, “though the livestock sector continues to be characterised by strong prices”.

The value of sterling is cited as a key factor, with the weak pound pushing up the cost of imports to food buyers during 2009, allowing UK prices to increase in tandem. “But the pound is widely expected to strengthen (in 2010) which will impact price levels achievable by farmers,” says the report.

This has been evidenced in recent weeks as sterling has strengthened against the euro, undermining the competitiveness of UK agriculture. As Farmers Weekly went to press on Wednesday (27 January), the pound was worth €1.15, compared with just €1.11 two weeks ago – the strongest it has been since last August.

The NFU also points to the rising cost of inputs. While fuel, feed and fertiliser are all cheaper than they were a year ago, other inputs are increasing.

“Farming’s spend on inputs like seed, electricity, contractor’s charges, materials, buildings and vets charges are all on an upwards trend,” it says. “Of particular interest is the upwards trend in energy prices, which will in turn influence the fertiliser price.

Labour costs are also rising, partly as a result of changes to National Insurance contributions. “A continuation of these trends will have a significant impact on margins for farm products in 2010.”

The NFU notes the problems farmers have in passing on such cost increases to customers, though it is hopeful that the introduction of a supermarket ombudsman will improve the situation.