Farming input increase of 7.8% driven by fuel costs

The AgInflation Index has identified fuel as a leading contributor to a 7.8% rise in input costs
The AgInflation Index has identified fuel as a leading contributor to a 7.8% rise in input costs

The cost of farming inputs has increased by 7.8% in the twelve months between September 2017 and September 2018, a new report shows.

This was driven by a 17.4% rise in fuel costs, 15.8% in fertiliser, and 16.1% in animal feed, the annual AgInflation report says.

It is the third report in a row by agricultural buyers AF Group to record an inflation increase of more than 4.5% reflecting the significant pressure costs are exerting on the farming sector.

It shows that price increases have affected all sectors, with dairying experiencing 11.26% inflation, livestock farming, 10.21%, and broad acre arable, 7.45%.

The retail price index has held relatively steady at 2.4% in the same timeframe, with food inflation lower still, demonstrating the focus farmers need to be taking on controlling costs within their businesses.

Jon Duffy, AF Group CEO said: “With under five months to go until the exit date, this lack of certainty alongside broader global trade tensions between the US and China is likely to continue to create price volatility.

“We as an industry have little influence on the eventual outcome, however we would encourage farmers to look at controlling as many of these costs as possible through good risk management strategies.”

He added: “For example, forward fixing, deferred payment and planned purchasing, all of which offers our members options to manage risk effectively and efficiently – delivering business resilience against an unpredictable market.”

Fuel costs

This is the second successive AgInflation Index that has seen the cost of fuel grow by double-digit percentage.

And the issue of Brexit has increased volatility in sterling values which has become just as important, if not more so than USD denominated oil prices, according to Spencer Hill, AF Fuel Manager.

“The GBP/USD exchange rate has been around the 1.30 level, 14.5% down from values seen prior to the referendum,” he said.

“The combined effect of the exchange rate and Brent crude oil prices mean we have not seen GBP denominated oil prices at these levels since the beginning of 2014.”

AF Fertiliser and Seed General Manager, Chris Haydock agrees with these sentiments: “Increases in energy costs have inevitably led to a rise in fertiliser price with Ammonium Nitrate particularly affected.

“These rises have been impacted further by a shortage of supply in the UK due to the closure of the CF Ince plant for maintenance during the autumn. Also increased worldwide demand for Urea and Phosphate has impacted prices further,” Mr Haydock said.

Reduced yields

Seed has similarly been impacted as the extreme weather we experienced in 2018 resulted in reduced yields, pushing grain prices to over £190/t, their highest since 2012.

“2018 has been a year of volatility and unavailability due to extreme weather and geopolitical tensions”, concludes Thomas Baines-Sizeland AF Feed Business Manager.

“Further pressure has come from the loss of wheat distillers after the closure of Vivergo’s Hull plant along with the rise in mineral prices following a fire at BASF’s Citral plant in Germany.

“Whilst many raw materials have eased from recent highs, ultimately, all ingredients are currently significantly higher than at this point last year.”

Mr Baines-Sizeland added: “We would recommend all farmers look carefully at risk- management strategies during their planning for 2019 and beyond, even in more predictable times pinning down the costs you can control provides a strong foundation for taking the business forward.”

The AgInflation Index is a weighted average of 130 cost items using data from the AF buying office, which spends more than £270m a year in order to source 10% of the UK’s farm inputs on behalf of its members.