TIFF tumbles ...
TOTAL Income from Farming (TIFF) – Defra’s measure of aggregate profit of the UK farming sector – is predicted to fall back to levels last seen in the early 2000s due to soaring inflation and huge increases in costs of production.
That was the stark warning from Richard King, head of Andersons Centre farm business consultants research team, who said that Defra’s latest figures for 2021 show good returns of around £6bn, which had been achieved when sale prices were high, and cost increases had not yet occurred.
Speaking at a recent webinar, Mr King said that although the figures for 2022 are estimates – showing TIFF at just below £5bn – they are based on a reduced profit despite good sale prices for combinable crops, beef and dairy. Rising input costs coupled with inflation hitting 12%, are nevertheless expected to reduce margins and profits.
Next year, the team at The Andersons Centre, predict TIFF to fall below £3.5bn.
“2023 will probably see high input costs and output prices may decline as demand drops. This would put TIFF back in the range it was in the early 2000’s before rising slightly the following year to more than £3.5bn.
Add in higher interest rates and the increase in costs required to operate a farm business, and he said many would have to question whether any profit will be able to service the debt.
Ultimately, he highlighted the Russia-Ukraine conflict as having a substantial impact on global agri-food trade and prices, particularly grains and fertiliser with Ukrainian wheat exports estimated to be at only 20% of pre-war levels, this summer.
The challenges look set to continue too, with controls on EU imports to the UK not being implemented until the end of 2023. In contrast, controls on UK exports to the EU have been in place since January, 2021, putting the UK at a competitive disadvantage.
On a more positive note, Mr King said support structures in Scotland will continue until at least 2024 and may go a year longer into 2025.
“The BPS will remain the main source of farm support and the Less Favoured Areas Support Scheme (LFASS) will also be an important part of the arrangements. The Scottish Government has been keen to mirror the CAP as much as possible, however, there is now an acceptance that this would be a wasted opportunity and the focus is producing a farm policy that addresses climate change and biodiversity commitments.
“Whilst direct payments will continue, they look set to be made ‘conditional’ on farmers meeting certain criteria – 50% of payments will be subject to ‘conditionality’ by 2025.”
Mr King added: “A fourtier structure of support is proposed after 2024, but as yet, no details on any phasing has been provided.”
Looking at the various farm sectors, Mr King said milk prices are forecast to decline from their current highs, partly as a result of weaker consumer demand and also as output recovers next year after the drought affected 2022.
“The early part of the 2022/23 milk year has seen further considerable increases in prices – in some cases, exceeding 50ppl.
“Whilst costs have also gone up significantly, the year looks like being another one of bumper profits. Our forecast for 2023/24 is for an easing of milk prices. Costs tend to be ‘sticky’ on the way down and this may squeeze margins. Profitability could fall back back below the levels of 20/21,” said Mr King.
There was some good news for livestock farmers with meat consumption forecast to rise in future years as disposable incomes increase in developing countries.
“In percentage terms, global pigmeat consumption is forecast to rise by nearly 17% in the next decade, surpassing the growth rate of poultry (8%). Consumption of pigmeat was affected by the African Swine Fever (ASF) outbreak, particularly in China, thus decreasing consumption during 20192021, but this is now bouncing back and contributing to the high growth projection to 2031.
“Beef consumption is also forecast to grow by around 8% this decade, but to stagnate in developed markets and sheepmeat consumption is forecast to grow by more than 15% driven by growth in developing countries, which may present some opportunities for the UK as it negotiates future trade deals,” he said.
‘2023 will probably see high input costs and output prices may decline as demand drops. This would put TIFF back in the range it was in the early 2000’s before rising slightly the following year to more than £3.5bn’
Richard King, The Andersons Centre