Ag-inflation rate doubles since start of Iran conflict

Farm input costs have doubled in the six months since the Iran conflict – piling further pressure on producers already struggling with a challenging season.

Annual ag-inflation has climbed to 8.6%, according to the latest estimates from Andersons farm business consultants. This is its highest since the post-Ukraine peak and more than double the rate immediately before the Iran conflict began in late February.

Heat and drought

With agricultural output prices still running 2.1% lower year-on-year, UK farm businesses are now navigating a damaging combination of geopolitical disruption, extreme heat and prolonged drought, all eroding margins simultaneously.

“With geopolitical risk, extreme weather and structural policy change all bearing down on UK farm businesses at once, the outlook for the rest of 2026 is genuinely challenging across most sectors,” says Andersons consultant Michael Haverty.

The Iran conflict continues to drive input costs higher. UK spot prices for ammonium nitrate in July stood at £520 per tonne, a £20 increase on June, and up from £390 at the same point last year. This is a 33% rise in twelve months.

Tractor diesel at 97.3 pence per litre is nearly 40% above year-earlier levels, feeding directly into machinery running costs and contracting rates. For arable farmers, the cost outlook is considerably more challenging than a year ago.

The UK Carbon Border Adjustment Mechanism (CBAM) is due to take full effect from 2027 adding a further structural layer of cost pressure on the horizon for fertiliser – tightening budgets for the 2027 harvest. The drought is also reshaping the arable outlook. UK winter wheat yields are expected to be below the five-year average, though London wheat futures for November 2026 have firmed to around £200 per tonne, as a poor harvest tightens global supplies.

The summer heatwave has compounded these difficulties across livestock sectors. The dairy industry is facing pressure from two directions at once.

Winter forage

Farmgate milk prices at 34.4 pence per litre in June are over 20% below year-earlier levels, while the prolonged dry spell has severely curtailed grass growth across much of Britain. Winter forage stocks are now a major concern.

GB milk deliveries ran 4-5% below year-earlier levels at the peak of the hot weather, as heat-stressed cows and scorched pastures forced many producers into supplementary feeding weeks ahead of schedule.

Beef and sheep producers are in a comparatively stronger position, with tight domestic supplies underpinning farmgate prices. The GB deadweight steer price has recovered to around 610p per kg, though still 34p below year-earlier levels.

Finished lamb was at 806p per kg in late July well above 2025 levels, supported by a smaller lamb crop and heatwave-related finishing delays.