Better returns needed to combat ag-inflation

Farm input costs are rising much faster than food prices – piling pressure on farm incomes, according to the latest ag-inflation figures.

Published by the AF Group, which measures input costs across nine different categories, the ag-inflation figures show that input costs have risen by almost 24% in the past six months. But the food retail price index has risen only 5.6% in the same time.

Over the past 18 months, ag-inflation has now soared by 46%.

The situation is clearly unsustainable. Why? Because food prices are rising too slowly to offset massive increases in production costs. It means somebody will have to take a big hit – and at the moment it looks like it will be farmers.

How so, some might ask? After all, farm commodity prices have surged. That is true in some cases – with oilseed rape going past £800/t and wheat selling for more than £300/t. But huge cost increases are overshadowing even these headline grabbers.

Cashflow is king in any business – and it is now taking almost 50% more cash to run a farm business than it was 18 months ago. Few farmers have access to that sort of money – forcing producers to do things differently.

More farmers are joining buying groups – seeking strength in numbers and bargaining power to get the best deal possible on inputs. Still more are changing the way they farm – opting for lower-input lower-output business models to maintain margins.

Both are good options. But the inescapable fact is that neither will fully cushion any farm business from the impact of rampant inflation – prompting stark warnings that some farmers could be driven out of business.

It’s up to retailers and processors to decide how much they charge consumers for food. But one thing is clear, farmers need a bigger return at the farmgate if they are to continue feeding the nation by growing crops and rearing livestock.

Johann Tasker

Editor