FW Survey: Food production jeopardised by sky-high energy costs

Dwindling supplies of some food types on UK supermarket shelves look set to continue, as farmers rein in production in the face of rampant energy inflation.

Research by Farmers Weekly reveals that one-third of producers have already reduced their output in the past 12 months in response to high energy costs, while nearer a half (44%) said they would do so in the next 12 months.

The fact that more are now planning to cut back (with 14% saying they would do so “significantly”) is partly linked to the closure at the end of March of the Energy Bill Relief Scheme, which had provided some respite from higher fuel bills since last October.

Its replacement – the Energy Bills Discount Scheme – is far less generous, providing just a token discount above certain thresholds and with no cap on prices, as was the case under the previous scheme.

Furthermore, primary food production is being excluded from the more rewarding Energy and Trade Intensive Industries scheme, which is available to food processors.

‘Eye-watering’ cost increases

Even with government support, farmers have faced eye-watering increases in their energy costs over the past 12 months, the survey reveals.

While 12% of respondents put this rise at more than 200%, the average increase for the whole sample of 358 farmers was 81%.

Three-quarters of producers reported an energy cost increase of more than 40%.

The most popular response, across all farm types, has been to reduce consumption of red diesel, with just over one-third of producers saying they have done this.

This is hardly surprising, given that red diesel is a key input for all farm businesses, and the impact of Russia’s invasion of Ukraine in 2022 was to force prices up from 75p/litre to well over £1.20/litre in a matter of days.

It then settled back in the £1-£1.10/litre range for the rest of the year.

Reduced red diesel consumption was achieved for many by cutting back on field operations – which may well have affected food output.

Renewables

The survey has also revealed a growing interest in renewable energy as a way of cutting costs and even generating some extra income.

While almost half said they already had some form of renewable energy generation on their holdings, another 23% said they planned to invest in this area in the next couple of years.

For them, solar panels were by far the most popular option (77%), followed by battery storage (34%) and wind power (19%) .

There is little doubt, however, that solar energy continues to divide opinion.

While 89% of farmers said they supported the development of large-scale solar farms in general, only 15% were happy for these to be put in any location.

The most common view (36%) was that they should only ever be located on brownfield sites or rooftops, while 27% were opposed to them being located on the best farmland.

What steps have farmers taken?

While reducing red diesel consumption and field work are the two most common responses to the hike in energy costs, farmers have implemented a range of other measures to trim their bills.

Cutting energy consumption during peak times, investing in energy-saving equipment and improving building insulation have been other popular options.

Others have changed the way they farm.

“We have used it as an opportunity to try and establish crops with fewer operations,” said one East Midlands cereal grower, while another in the same area said they had gone out of potato production as a way of cutting costs.

Another large mixed farm in the West Midlands said they had replaced diesel vehicles with electrical.

“Although this is a major capital cost and risk, this will hopefully aid us in the future,” they said.

Installing heat exchangers was the best course of action for one Scottish vegetable grower.

“I could see how bad it was going to get, and tried to erect a wind turbine with my neighbours, but it was too expensive, sadly,” they said.

Buying diesel forward has been another action taken by some, although not always a successful one.

“It made sense at the time to protect the business, but now the oil price has dropped, it was not the wisest move,” said one Yorkshire arable grower.

Farmers Weekly says…

That food production is taking a hit in response to rocketing energy prices is hardly a surprise.

Rampant ag-inflation has been with us for well over a year – and not just for energy prices, with fertiliser, seed, vet meds, ag chems and interest rates all costing more.

It is true that, over the past 12 months, the blow has been softened for some by more buoyant commodity prices – indeed, those who had bought key inputs before Russia’s invasion of Ukraine enjoyed a relatively profitable 2022.

But the picture is very different now, with many inputs still sky-high and market returns for things such as cereals and milk heading south.

Supermarket pressure has also ensured the squeeze on the food chain has tightened.

It is therefore hugely disappointing that what limited support there was available from government appears to be dissipating.

Yes, Defra secretary Therese Coffey confirmed recently that the government will be holding a food security summit at 10 Downing Street in the coming months – expect more hot air from that one.

There is also the promise of government issuing its response to ongoing enquiries into the dairy supply chain “soon” – don’t hold your breath.

But what the sector desperately needs is targeted action now – and there is no better place to start than by including agriculture in the Energy and Trade Intensive Industry scheme, especially for the most energy-dependent sectors.

Failure to do so risks empty shelves for some time to come.