The Courier & Advertiser (Fife Edition)
Agflation rise will continue as costs soar
Agflation remains at its highest level in decades and shows no sign of easing in 2022, according to a leading farm consultancy.
Andersons’ latest estimates suggest agflation – a rise in the price of agricultural food products – currently stands at 25.3% due to soaring costs for inputs on farms.
This compares to general inflation figures of 9.1% as measured by the consumer prices index (CPI) and 8.5% as measured by the CPI food prices index.
“Given the current situation with the RussiaUkraine conflict and the upheaval caused across numerous commodity supply chains – particularly feed, fuel, and fertiliser – agflation is set to remain at elevated levels for at least the remainder of this year,” said Andersons.
“Due to surging input costs, many farm businesses are feeling a severe squeeze on margins; thus far, some sectors have been better able to withstand the inflationary storm than others.”
Andersons said the arable sector would be less affected than others in 2022 due to most farmers forward-buying their fertiliser and output prices hitting record levels, however challenges were looming for next year.
“For many (arable) 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% since it went in the ground,” added Andersons.
“That said, challenges loom for 2023. High input costs and taxation on 2022 profits will stretch working capital requirements.”
Andersons said the livestock sector was under additional pressure due to increased feed costs, which account for almost a quarter of the weighting for the company’s Agflation Index and pig price rises remain insufficient to cover pig farmers’ soaring production costs in recent months.
It said significant farmgate milk price rises in recent months – partly due to processors and retailers trying to encourage farmers to boost their production on the back of a fall in UK milk production volumes – would help the dairy sector mitigate some of the inflationary strain.
The consultancy urged farmers to pay close attention to costs and said: “In such times, it is crucial to demonstrate competent cost management, particularly in terms of working capital, which will be essential to steer farm businesses through the current crisis.”