Higher prices to affect farm business planning

INPUT cost increases and the ongoing impact of inflation will play a key role in farm business planning for the rest of this year, according to the latest Agriculture and Horticulture Development Board (AHDB) Agri-market Outlook.

With food price inflation rising higher and persisting for longer in the UK than in Europe, farm business margins will be further challenged as they continue to feel the effects of rising energy and input costs.

The impact of these events is examined in detail in the latest Agri-market Outlooks for livestock sectors covered by the AHDB – beef and lamb, pork and dairy.

UK pig meat production is expected to fall by 6% in the second half of 2022, which may impact on export growth volume, while UK demand is also expected to weaken.

The impact of price volatility and uncertainties regarding milk prices and labour shortages are also expected to contribute to milk production finishing the 2022-23 season between 1% and 3.8% lower year on year.

Patty Clayton, AHDB lead analyst, said: “All livestock sectors will face challenges in the coming months as cashflows are put under pressure in preparation for overwintering.

“It’s no surprise that we see a contraction in the pig herd given the profitability challenges this sector has faced in recent months.

“Dairy may be the next livestock sector seeing financial challenges as we head out of summer and higher feed costs bite at a time when demand, and hence milk prices, could start to wane.

“For beef and lamb, production looks set to increase following a period of favourable prices. However, these sectors will also face headwinds as demand will suffer on the back of food inflation and the shift in changing consumer preferences as we move towards lower economic growth.”

Sarah Baker, AHDB economic strategist, said: “The impact of the Russian invasion of Ukraine is continuing to challenge global growth and is driving inflation across the board.

“Combined with the impact of leaving the EU and the Covid pandemic, inflation is undoubtedly the biggest issue in the UK, with serious ramifications for our agricultural economy.

“Inevitably, price inflation for essential goods such as food and fuel will force a reduction in consumption for many people, particularly those on low or fixed incomes. Retailers are working hard to keep the costs of food down for consumers, but this has consequences for agricultural producers who are already being affected by the fuel and input cost rises, squeezing business margins.”

AHDB’S Agri-market Outlook is produced every six months and examines the factors likely to affect farm businesses, helping levy-payers plan and budget for what may lie ahead.

It features detailed market outlooks for each levy-paying sector covered by AHDB’S remit.