Farming looks set for another uncertain year

WHILE the fact that consumers doing their weekly shop at the supermarket face record levels of inflation makes plenty of headlines, less is said about the stark rise in input costs faced by farmers.

Figures published last week by Which? showed that the prices of basic groceries such as butter, milk and cheese went up 30% year-on-year at some supermarkets in December.

While overall food and drink inflation reached 15% in December across the eight major supermarkets, butters and spreads rose by an “astonishing” 29.4%, according to tracking by consumer group Which?

Milk was 26.3% more expensive than a year before, while cheese (22.3%), bakery items (19.5%), water (18.6%) and savoury pies, pastries and quiches (18.5%) also saw higher-than-average price increases.

Shoppers are within their rights to ask where those price rises are going, but it definitely is not into farmers’ pockets as profit.

For the war in Ukraine and sky-high energy bills impact farming businesses even more than domestic households.

And supermarkets conscious of the needs of customers facing a cost-of-living crisis are unlikely to pass on bigger margins to producers.

Andrew Opie, director of food and sustainability at the British Retail Consortium, said: “Retailers understand the pressure households are under and are doing everything they can to limit price rises on their products.

“Unfortunately, the war in Ukraine has pushed up the cost of many items including wheat, fertiliser and animal feed, as well as global energy prices, leading to higher prices for many staples.”

None of that will come as a surprise to producers in the West’s agricultural heartlands.

Cost increases look set to remain a “key concern” for farmers during 2023, according to a report published earlier this month, with businesses also being warned to brace for “difficult times”.

Spiralling prices for vital inputs such as animal feed, electricity, fertiliser and fuel have been the big issue in terms of farming economics in 2022, says the Andersons Outlook 2023

The annual publication, widely regarded as a comprehensive review of Britain’s agricultural industry, states that profits were “generally good” in 2021 as output recovered after the weatheraffected 2020 year and prices were firmaside from “notable exceptions” such as pigs and horticulture.

With Covid receding, many farm diversifications, especially in the tourism sector, had a “successful year”, it adds. However, consultant Richard King from the Andersons Centre, which compiles the Outlook report, said that costs started to rise during 2021, but mostly only from the autumn - meaning their effect over the whole year was limited.

Providing an estimate for Total Income From Farming (TIFF) - which shows the aggregate profit from all UK farming and horticultural businesses for the calendar year - in 2022, and further estimates for 2023 and 2024, Mr King explained: “For 2022, the impact of the accelerated cost increases start to be seen. We predict profit will fall from its 2021 high, but ‘only’ by 15-20%. This is because of two main factors. Firstly, rising costs will be partly offset by rising income – driven by high prices in two of the biggest sectors – dairy and combinable crops.

“Secondly, the full effect of cost increases will not have been felt, even in 2022. Much fertiliser was purchased at low(er) prices in 2021; electricity prices only started to peak in the autumn; and many costs linked to general inflation levels in the economy (such as labour) take a while to catch up with the unexpected surge in price levels.”

Profits will also be affected by changes in subsidy support, he said. “In England, the Agricultural Transition sees the Basic Payment Scheme (BPS) cut by a minimum of 20% in 2022 compared to 2020. Although the money is to be ‘recycled’ through other schemes, it is not clear it is all going to be spent this year with the gradual rollout of the Environmental Land Management Scheme (ELMS). Furthermore, whilst the farm support budget is guaranteed until 2024, it is fixed at current prices – with a high rate of inflation, the real term’s value drops quite quickly.”

Looking to 2023, Mr King believes the forecast is “sobering” as higher costs in some areas seem “baked in”, for the short term at least, with no signs that energy prices are going to fall quickly back to past levels whilst the conflict between Russia and Ukraine continues.

“In other areas, such as the wage rates for seasonal workers, the 15% increase in 2022 is irreversible,” he added. “There will be inflationary pressure on many other inputs as individuals and businesses put up prices to try and keep up with inflation. Output prices in some sectors may also weaken. In the arable sector, global markets will have had more time to adjust to the restrictions on Ukrainian exports (or, indeed, shipments may increase in volume). Demand, both globally and in the UK could decrease for some commodities if there is an economic downturn and consumer spending falters.”

The TIFF series began in 1973 - the same year as the founding of Andersons, then known as David Anderson and Co.

According to the Out look 2023 report, when looking back over the past 50 years, the best five years for profit were right at the beginning of the period –1973 to 1977 saw TIFF average at £9.4