Farms feel heat as soaring ‘agflation’ squeezes margins

The general rate of inflation hit the headlines yesterday as it soared to a 40-year high of nine per cent – but a leading firm of farm consultants has confirmed that the situation for farming is much worse.

Revealing that their “agflation index” which measures a basket of farm input products in a similar manner to that used to calculate the Consumer Price Index, currently stood at over 30 per cent, the Anderson Centre yesterday revealed that the rate of inflation within the farming sector had been soaring since February.

“Driven primarily by the Russia-Ukraine conflict, the latest estimates for April shows that agflation now stands at 30.6 per cent – evels not seen in decades,” said Michael Haverty, a partner at the Andersons Centre.

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But he said that over the same timeframe general inflation – measured by the consumer prices index (CPI) and food prices (CPI Food) – had been rising at a much slower rate.

Grain prices have hit record levels recently

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“This means that many farm businesses are now feeling a severe squeeze on margins and this is set to continue for the foreseeable future,” he predicted.

Haverty said that the Russia-Ukraine conflict had had most effect on feed, fuel, and fertiliser prices: “However, as these underpin most agricultural inputs in some form, cost increases are also showing elsewhere in areas such as contracting costs, crop protection products and building materials”.

He also said that several livestock sectors were showing signs of stress: “The pressure is most pronounced in the pig and poultry sectors where feed traditionally accounts for 65-80 per cent of production cost. Dairying and grazing livestock are also feeling the strain, particularly for those farms that have not bought forward their fertiliser.”

But he pointed out that the arable sector was likely to be less affected in the current year as most farmers had bought their fertiliser prior to the peak price hike – and prices for grain have hit record levels recently.

“For many farmers in this position, 2022 is shaping up to be a stellar year – the value of the unharvested wheat crop has risen by more than 50 per cent since it went in the ground.

“That said, significant challenges loom for 2023. High input costs and taxation on 2022 profits will stretch working capital requirements.”

Haverty also warned that the severe inflationary pressures were coming at a time when farms were facing uncertainties over future policies and, in England, a reductions of 35 per cent in Basic Payment Scheme support levels.

“Without significant price increases to cover elevated production costs, many farms will struggle,” he said.

“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.

And he said that the newly published update of the Agricultural Budgeting and Costing Book contained the most up-to-date figures for all farm and rural businesses: “The information is updated every six months, so you are always using the most relevant data, something which is especially vital during inflationary periods.”

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