World events push UK ‘agflation' to nearly 30 per cent

Even before the conflict in Ukraine, inflation had been an increasingly hot topic both in the general economy and in farming circles.

But with the events since 24 February further exacerbating the existing inflationary pressures, particularly at the farm-gate level, costs have risen sharply and are likely to do so for the year ahead.

And the consequences which the spiralling costs of fertilisers and other inputs have had on food security have seen the issue move beyond the farming section to the front pages of national newspapers and to lead in TV and radio news bulletins.

But this week farm consultants, Andersons teased out some of the figures behind the headlines – and claimed that the current rate of ‘agflation’ was running at 28.8 per cent per annum - dwarfing the UK Government’s Consumer Price Index (CPI) which itself has accelerated to 6.2 per cent in February, the highest rate for 30 years.

Michael Haverty, partner and senior research consultant with Andersons, said the firm’s agflation index built on Defra price indices for agricultural inputs and then weighted each input cost – such as animal feed - by the overall spend by UK farmers. He said this provided a more up-to-date estimate of the price index for each input cost category by highlighting the percentage change versus the same month a year earlier.

“Andersons’ agflation index is much more variable than general inflation,” said Haverty. “This is due to the linkages to commodity prices for such things as fuel, fertiliser and animal feed (feed is almost a quarter of the index).”

But he said that while agflation surged to nearly 30 per cent in March 2022 (versus March 2021), it had been at 10 per cent even before the invasion of Ukraine.

“And Given recent developments, it is likely to remain high for the rest of 2022 at least.”

Citing some examples he said that the value of ammonium nitrate had exceeded £900 per tonne, up from £645 per tonne in January.

The value of tractor fuel had also risen substantially.

“In 2021, the price of red diesel averaged almost 66 pence per litre according to the AHDB. While price discovery for inputs is challenging presently, with terms changing frequently, red diesel prices have been quoted by some publications in excess of 130 pence per litre.”

Speaking after the consultancy’s round of spring seminars – which are now available on-line - he said that Russia’s importance in energy markets, especially natural gas and crude oil, would continue to pose significant challenges for the industries relying on these commodities.

“Natural gas is a key input into ammonium nitrate production and fertiliser prices will remain elevated as a result.”

He said at farm-level, the high cost of inputs would challenge many businesses over the next 12 months and beyond.

“The working capital of farms will be under serious pressure. While output prices have risen in some sectors (eg cereals), these have, of course, created additional pressure on feed costs in the livestock sectors. Across all sectors, the level of cash required to operate has also been increasing considerably.”