Agri costs steeper than food price inflation

While UK inflation is running at just over 3%, latest figures from the Anglia Farmers Agricultural Inflation Index show the overall rise in agricultural input costs for the past 12 months from September 2009 to August 2010 is 5.27%.

More importantly from a farmer’s point of view, comparing these figures with those produced by the Office for National Statistics, the cost of producing raw ingredients is greater than the increase in food prices under the retail price index (RPI) with farmers’ profit margins getting squeezed further.

Compiled by the UK’s largest agricultural purchasing co-operative, the AF AgInflation Index is based on actual cost change information from the group’s purchasing office covering 130 products. The method is similar to that used for the retail price index (RPI) where products are grouped and then weighted.

The overall agricultural inflation index covers nine cost centres and the impact of these is then equated to five enterprise sectors for combinable crops, potatoes, sugar beet, dairy and beef & lamb.

Former AF director and a farming member of the group, Jim Alston, who collates and analyses the information, said:

"According to the Office of National Statistics, food price inflation has risen by 3.3% in the last 12 months. This reflects the rise in cost to the consumer. However the cost increases experienced by the producer of those foods is rising at a faster rate which is currently being absorbed by the food production industry."

The figures (see attached tables) show that costs for beef and lamb production have experienced the highest increase (+9.3%) over the last twelve months. This is largely down to rises in feed prices produced by the uncertain market in grains and protein. This has also impacted on dairy production (+6.49%).

Also, as the group’s chief executive Clarke Willis explains: "Since we introduced the AF AgInflation Index in 2006, we’ve seen the base price of 100 go up to 143. On top of this, we’ve experienced incredible volatility in the marketplace. For instance, fertiliser went up by 156% in 2008 and then down from this highpoint by 50% the following year. Yet forward planning and risk management is key in agricultural business.

"AF is putting together further structures to enable its farming members to improve risk management. For example, in March we went for the low price on electricity and fixed it at this rate for two years. We’ve done the same with our feed compound contract. It is more important than ever for farmers to get together and benefit from group purchasing."