Farmers' incomes outstripped costs in December, according to latest government stats

The Defra statistics showed that all agricultural outputs were 11 per cent higher than in December 2015
The Defra statistics showed that all agricultural outputs were 11 per cent higher than in December 2015

Farmers' incomes outstripped costs in December, according to the latest agricultural price index released by the Department for Environment, Food and Rural Affairs (Defra).

The Defra statistics showed that all agricultural outputs, which reflect the prices that farmers receive for their products (also referred to as farm gate prices), were 11 per cent higher than in December 2015.

All inputs, which reflect the price farmers pay for goods and services, were 3.5 per cent higher year-on-year, according to the figures. Incomes are still lower than their recent peak in 2013, however.

Prices for potatoes surged particularly strongly - up by as much as 34 per cent on the same month the previous year. The authors of the agricultural price report said that the huge increase in outputs was the result of supply and demand.

"Grower confidence continues to limit supply and, with yields down on the previous year, the potato index rose 6.5 per cent between November and December 2016 compared to a 5.1 per cent increase between November and December the previous year."

'Less around'

AHDB previously told FarmingUK that potato prices were being pushed up through a combination of circumstances.

“From the supply basics, it looks as though we have got less around and clearly that already seems to be having an effect on prices,” said Arthur Marshall, an analyst with AHDB.

Yields had been hit by cold and wet weather across Europe in spring and early summer of last year followed by a long hot spell. Weather problems were worse on the Continent, he said, so foreign buyers were taking advantage of the weak Pound to source from the UK. This hit UK supply and demand further.

However, potatoes are not the only crop to attract higher returns.

The Defra agricultural price index showed that all crop products were 16 per cent higher in December 2016 compared with December 2015.

The price index for all crop products rose by 3.5 per cent between November and December 2016 compared with a fall of just under one per cent between the same two months a year earlier.

The latest index showed that cereal price levels in December 2016 were 18 per cent higher in December 2016 compared with December 2015.

The cereal price index rose by six per cent between November and December 2016. Wheat, barley and oats all saw price increases.

'Low value of sterling'

NFU said the figures suggest that farmers are still feeling the impact of an
NFU said the figures suggest that farmers are still feeling the impact of an 'unpredictable and volatile' market place

The report's authors said: "A return to a more typical harvest level and the low value of Sterling have both bolstered cereal prices. In comparison there was a two per cent fall in the cereal price index between the same two months last year."

The oilseed rape index recorded a huge year-on-year rise in December. Rape was up by 32 per cent in 2016 compared with the same month in 2015.

Defra blamed low yields and a lower than usual planted area for the increase in prices from the previous year.

Prices for fresh vegetables were also up significantly. The fresh vegetable price index was 21 per cent higher in December 2016 compared to the year before.

"This rise was mainly due to considerable increases in the price for Brussels sprouts, red capsicums and spinach, all of which were a result of very short supply," said the report's authors.

"The fresh vegetable price index rose 0.6 per cent between November and December 2016 compared to a 2.3 per cent decrease between the same two months last year."

'Reduction in domestic supply'

Increases were not confined to growers. Livestock farmers also enjoyed higher outputs this last December. The price index for animals and animal products was eight per cent higher than December 2015.

The pig price index was 22 per cent higher than in December 2015. "A reduction in domestic supply and rising export demand have helped support the UK price this year," said Defra in the report. The December price rise was 1.3 per cent compared to the month before.

The price index for animal products was 5.9 per cent higher in December 2016 compared to the same time last year and rose 2.4 per cent between November and December 2016. This compares to a 1.4 per cent fall between the same two months a year earlier.

The price index for milk rose by 2.7 per cent between November and December 2016 and milk prices are now higher than the same month of the previous year. The index for milk was up by 10 per cent compared with December 2015.

The year-on-year increase in the input figure for December was, overall, 6.5 percentage points lower than the increase in outputs. Defra said that the price index for all input items increased with the exception of the plant protection products index, which decreased slightly.

The price index for straight feedstuffs saw the largest increase, with a 16 per cent rise in December 2016 compared with December 2015. The rise was 2.7 per cent between November and December 2016. Defra said that this reflected raw material cost increases over previous months and the low value of Sterling.

Imported feed ingredients have been increasing in cost as a result of the fall in the value of the Pound since the Brexit vote.

'Unpredictable and volatile'

The National Farmers Union (NFU) said the figures suggest that farmers are still feeling the impact of an 'unpredictable and volatile' market place.

NFU President Meurig Raymond said that while many sectors had seen improved fortunes – mainly due to the falling value of the pound – the wider industry was suffering from sharp rises in farm inputs, such as for feed, fertilisers and machinery.

He said it is good news that many sectors are currently seeing improved commodity prices.

“However, for all sectors these figures can quickly change and steep reductions in the dairy and poultry sectors only go to emphasise that farmers are in an extremely volatile sector,” he added.

“Looking ahead, this uncertainty shows no sign of abating and there will be many challenges ahead as Brexit negotiations begin.

“With that in mind, I am calling on the government to ensure it can introduce a domestic agricultural policy which helps build a more profitable farming industry, by focusing on productivity, volatility mitigation and environmental measures, as highlighted at our conference last week.

“Our industry now needs certainty and firm commitments from government if the country is to feel the benefits of a thriving food and farming industry.

Mr Raymond concluded: “We have been clear on what we believe is needed to achieve this. Firstly unrestricted access to the European market, secondly continued access to a competent and reliable workforce both pre and post farm-gate and thirdly a new agricultural policy which assists in the development of an increasingly productive, progressive and above all profitable farming sector.”