Farm input costs have increased by 4.5% in the past six months, driven up by rising fuel, feed and fertiliser prices, according to the AF Group.
The group’s AgInflation Index for September 2017 to February 2018 shows fertiliser prices jumped by 16.9%, fuel costs increased by 6.5% and animal feed rose by 4.8%.
How is the AgInflation Index calculated
The index is a weighted average of 130 cost items using data from the AF Group buying office, which spends more than £250m/year sourcing 10% of the UK’s farm inputs on behalf of its 3,500 members.
All product areas in the index saw price increases, with cereal and oilseed rape operations hit by 5.75% inflation.
It is the second report in a row to record an overall inflation increase of more than 4.5%, and shows farm costs rising far faster than the retail price index at 2%, AF Group chief executive Jon Duffy pointed out.
“Our figures once again highlight volatility within the marketplace, underpinned by the weak performance of sterling against other major currencies and global supply chain issues,” Mr Duffy said.
The 16.9% rise in fertiliser cost follows an 8.9% increase in prices in the previous 12 months up to September 2017.
Phosphate and potash prices were the main influences behind the rise this time.
AF fertiliser and seed general manager Chris Haydock said: “The real change year-on-year has been the phosphate and potash market where we have seen a £15/t rise, with the outlook being for these prices to remain firm.”
“Year-on-year prices remain unchanged for ammonium nitrate, with the early buyer seeing the benefit,” Mr Haydock said.
The weakness of sterling against the dollar has seen a 6.5% rise in the cost of fuel and market forecasts suggest further volatility throughout 2018.
Oil-producing nations continue to haggle over production levels and pricing. AF fuel trading manager Spencer Hill said: “The International Energy Agency has forecast that global demand for oil is likely to be greater than production in 2018.
“It does not expect [Organization of the Petroleum Exporting Countries] to change its supply policy, despite there being internal disagreements on where prices should be – with Saudi Arabia wanting to see prices at $70/barrel or higher and Iran wanting to see prices around $60/barrel.”
The 4.8% rise in animal feed costs was driven by bad weather in South America, the closure of a major animal feed production facility in the UK, and a fire at a Citral plant in Germany that took out 40% of the EU’s capacity to manufacture vitamins A and E.
According to AF livestock business development manager Thomas Baines-Sizeland the closure of Vivergo’s Hull plant at the end of 2017 made wheat distillers unavailable.
“Although alternatives were offered at inflated prices, the required volume wasn’t there,” Mr Baines-Sizeland said.
“As well as increasing raw material costs, mineral prices rocketed following the BASF factory fire at the end of October. As a result, £2/t– £9/t has been added on to ruminant and monogastric compounds,” he added.
Ag Inflation by input class September 2017 to February 2018
|Inflation within item group||Weighted contribution to overall inflation||Index Oct 06 = 100|
|Feed and medicine||4.8%||0.48%||219|
|Contract and hire||2.6%||0.28%||130|
|Machinery (including depreciation)||2.8%||0.39%||170|
|Rent, interest, property||2.3%||0.42%||139|
|Ag Inflation Index||4.54%|
|Source: AF Group|