Rising prices are set to put pressure on farming profits

While prices of many farm commodities look to be good at the moment, the issue of rising costs will take centre-stage as the year progresses – and many farm businesses will face increased pressure on profitability.

That was the New Year message from farm consultants, Andersons, in their recently published annual Outlook report for 2022.

Director Richard King said that the last two years had been dominated by the twin shocks of Brexit and Covid – and it had become increasingly clear that neither of these two issues could be considered ‘done’ and the effects were likely to remain active for many years.

“These two events have thrown many of the previous certainties up in the air and it is not yet certain where the pieces will land”, said King.

But while sale prices were currently riding high in many sectors –with the notable exception of pigs – he questioned if they would be sustained at this level if consumers change their buying habits post-Covid.

He also pointed out that the relatively poor exchange rate for Sterling had helped keep UK prices buoyant in recent years – adding that any major appreciation in the value of the pound against either the dollar or the Euro during 2022 could have serious consequences on this situation.

“Costs of many key inputs such as fertiliser and fuel have risen rapidly. Labour availability – and cost – remains a pressing issue for many businesses, not least those in intensive livestock and horticulture,” said King.

He added that there had also been a substantial rise in the costs of many capital items including machinery, equipment and buildings which made life more difficult for those who wished to invest in their businesses.

“Inflation will also make its mark in general overheads such as administration costs.”

And he said that while 2021 had, in many cases, seen the benefit of higher output prices before the current rates of inflation had kicked in on the input front, the prospects for 2022 looked less optimistic.

The role of changes in farm policy and support measures were not forgotten by the consultant, who said that England would see a second year of cuts to BPS levels.

But both Scotland and Wales were likely to receive further information on the course which their own devolved government were likely to take in future years, giving producers more idea of what to expect in coming years.

“These changes in the economics of farming are all set against the long-term imperative to address environmental issues – especially climate change and pollution.

“Society will expect agriculture to do its bit alongside other industries,” he said.

And with the huge levels of uncertainty which were currently prevalent in the industry he said it might be easy to become fatalistic.

“However, farmers have control over how they structure and operate their own businesses.

"Experience shows that being ‘best in class’ and having a long-term plan allows farms to be successful whatever the economic and political conditions.”