Ag inflation driven up by fuel, fertiliser and feed price hikes

Agricultural input costs rose by almost 8% in the past year, with huge hikes in fuel, fertiliser and animal feed prices the main drivers.

The figures produced in AF Group’s Ag Inflation Index show a 7.8% increase in the overall cost of farming inputs in the 12 months up to September 2018.

Behind the overall figure was a 17.4% rise in fuel costs, 15.8% in fertiliser and 16.1% in animal feed.

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All farm sectors have been hit, with dairy farms seeing 11.26% inflation, livestock farming 10.21% and arable 7.45%.

It is the second successive report to show double-digit fuel cost growth and the third in a row to record an inflation increase of more than 4.5%.

But prices for farm products have not kept pace to offset the input cost rise. Over the same period the retail price index has been just 2.4%, with food inflation lower still reflecting the significant pressure costs are exerting on the farming sector, AF Group said.

AF Group fuel manager Spencer Hill blamed Brexit uncertainty for increased volatility in sterling values, which have played a major part in the input cost rise.

“The pound:dollar exchange rate has been around the 1.30 level, 14.5% down from values seen prior to the referendum.

“The combined effect of the exchange rate and Brent crude oil prices mean we have not seen the pound-denominated oil prices at these levels since the beginning of 2014,” Mr Hill said.

Knock-on effect

The fuel price rise has had a knock-on effect on fertiliser costs.

AF Group fertiliser and seed manager Chris Haydock said: “Increases in energy costs have inevitably led to a rise in fertiliser price, with ammonium nitrate particularly affected.”

A shortage of supply in the UK due to the closure of the CF Ince plant for maintenance during the autumn and increased global demand for urea and phosphate has added to the cost increase, he said.

Thomas Baines-Sizeland, AF feed business manager, added that the extreme weather seen during 2018 had put more pressure on the livestock sector’s costs, with cereal prices rocketing.

Although the drivers for input costs were beyond the farmer’s control, AF Group’s chief executive Jon Duffy encouraged introducing good risk-management strategies to help limit the damage, “for example, forward fixing, deferred payment and planned purchasing, all of which offer options to manage risk effectively and efficiently – delivering business resilience against an unpredictable market”.