Falling farmgate values fail to ease latest food inflation hike

Food price pressures have intensified despite falling returns at farm level, highlighting growing instability across the food supply chain.

While some farmgate values have fallen in recent months amid climate pressures, global market shocks and oversupply, consumers are facing rising food prices as food inflation increased to 4.5% year on year in December.

See also: Dairy farmers losing thousands as price collapse bites

The latest inflation data underlines how exposed food affordability has become to external shocks, according to the Energy and Climate Intelligence Unit (ECIU).

Commenting on the figures, Chris Jaccarini, senior analyst at the ECIU, said: “The past few days have been a reminder that an uncritical reliance on volatile and unreliable forces leaves the UK with little room to manoeuvre.

“Food inflation ticking back up shows this vulnerability extends even to something as basic as food affordability.”

He added that climate impacts are playing a significant role in driving prices higher.

“The foods most exposed to climate impacts are seeing the sharpest price rises.

“Inflation for bread has doubled, while beef, milk, chocolate and coffee are all still rising at double-digit rates,” Mr Jaccarini said.

British farmers are increasingly affected by this volatility.

Instability 

Mr Jaccarini noted that producers are “on the front line of this instability, facing weather that swings from too wet to too hot and dry, with four-fifths now worried about whether they can make a living under climate change.”

He said pressures are being amplified by climate shocks across the global food system, where costs are passed through supply chains to consumers.

At the same time, dairy farmers are facing sharply lower milk prices.

Many dairy businesses are now receiving milk prices that fail to cover production costs.

And some larger farms reporting losses in excess of £1,000 a day.

Industry consultants estimate the average UK milk price is around 38p/litre and forecast it will drop below 35p/litre by April.

Feed wheat continues to bumble along at just £163/t ex-farm, with milling wheat barely commanding a double-digit premium. 

Damaging

NFU Combinable Crops Board chairman Jamie Burrows said: “Any rise in inflation is as damaging to business confidence as it is to the value of consumer spending.

“The price of bread in shops does not reflect the price many farmers actually receive.

“Around 11% of the shelf price of a loaf of bread is down to wheat production.

“And much of the rest is made up of energy, transport, labour, packaging and processing.”

He added that after the worst harvest in a generation and years’ of cereal prices being way below the cost of production, confidence is at an all-time low.

“But government has the capability to improve certainty about the future of the UK arable sector. Clearer support for the quality British wheat will help to strengthen our sector and enable farmers to continue producing high-quality food for the nation,” said Mr Burrows.