Agricultural cost inflation at 16%, new report reveals

The real extent of cost inflation facing farmers has been revealed in a new report by eastern counties buying group Anglia Farmers.

The latest figures in the Anglia Farmers Agricultural Inflation Index reveal the growing pressure on arable margins despite higher commodities prices, while other sectors have struggled to absorb rampant cost increases without extra income.

In the six months from October 2007 to March this year, the report shows farm businesses faced cost inflation running at 16%. Since Anglia Farmers began collecting this data in October 2006, this represents a net cost increase of almost 25%. The increase affects both fixed and variable enterprise costs.

Jim Alston, farmer and director of Anglian Farmers, said the index measured real-time cost inflation that businesses were having to deal with, not figures from tax accounts, which could be more than six months old.

“Everyone has been talking about cost increases but no one has set about quantifying it to this extent. The scale of the cost inflation experienced by agriculture needs to be taken into account by anyone negotiating a rent or a future price for potatoes, sugar beet or cereals.

“Farming is the same as any manufacturing industry it experiences cost increases as they happen, not deferred until a purchased product is used.”

The Anglia Farmers inflation index is based on values of 76 items, ranging from a tonne of Cocktail barley seed to haulage rates and the price of 100 fencing stakes. Each item is weighted so its influence on the overall inflation figure is representative of its part within the industry.

“Since fertiliser is weighted to provide only 11% of the overall index it is clear that it is far from being the only contributor.”

Mr Alston said the report had been careful not to artificially inflate the figures. “Prices are based on the actions of a prudent farmer who intends to continue farming. For example, the fertiliser price is based on values in November, December and early January, when although prices had risen they were fairly flat. It seems reasonable that a prudent farmer would have bought fertiliser then, particularly as further price rises were forecast.”

Overall, hikes in fertiliser prices and the cost of keeping livestock had contributed 7% and 5% to the overall figure, respectively. Fuel costs were also significantly higher, with farmers paying about 50p/litre for red diesel this spring compared with about 35p/litre 12 months ago.

Dairy farms had been worst affected due to the sharp rise in feed costs. But rises in the cost of energy and fertiliser had exacerbated the situation. Arable farmers have seen costs rise in the main from fertiliser and fuel, but agrochemical prices had also risen. Higher steel and oil prices worldwide had contributed to punitive machinery running costs.

Cost inflation

The cost of doing business

Source: Anglia Farmers