Inflation in agriculture has soared to 30.6%, the highest level for decades, with the livestock and dairy businesses hit hardest.
New figures on “agflation” estimates for April reveal a severe squeeze on farm business margins, set against a backdrop of general inflation at 6% and a warning by the governor of the Bank of England of “apocalyptic” food price rises.
Michael Haverty of farm business consultancy Andersons predicts this will continue “for the foreseeable future”, with high feed, fuel and fertiliser prices resulting from the Russia-Ukraine conflict.
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These are also feeding into contracting costs, crop protection products and building materials, driving inflation in the sector.
“These severe inflationary pressures are happening at a time when all farms in England will be facing cuts in Basic Payment Scheme payments, which will reach 35% during 2023,” Mr Haverty said.
Without significant price increases to cover the massive hike in production costs, many farms will struggle, he warned.
Pig and poultry pressures
Several livestock sectors are “showing signs of stress” but the pressure is greatest in the pig and poultry sectors where feed traditionally accounts for 65-80% of production costs.
“Dairying and grazing livestock are also feeling the strain, particularly for those farms that have not bought forward their fertiliser,” said Mr Haverty.
For the arable sector, producers are being cushioned from some of the impact because fertiliser had been forward bought and output prices have hit record highs.
For many farmers in this position, 2022 is shaping up to be a “stellar year”, Mr Haverty said, with the value of the unharvested wheat crop rising by more than 50% since it was planted.
Working capital ‘stretched’
But significant challenges loom for 2023, with working capital requirements stretched through high input costs and taxation on 2022 profits.
“In such times, it is especially crucial to demonstrate competent cost management, particularly for farm advisors which many farm businesses are depending on to steer them through the current crisis.”
On Monday (16 May), the Treasury Select Committee heard Bank of England governnor Andrew Bailey warn of a further surge in food costs if Ukraine, a major crop grower, is unable to ship wheat and cooking oils from its warehouses.
Mr Bailey said he felt “helpless” to control inflation.
“It is a very, very more than uncomfortable – I am trying to think of a word that is even more severe than that – it is a very, very difficult place to be,” he said.