AHDB warns of higher fertiliser, fuel and feed costs amid Iran conflict

UK farmers are facing rising input costs as ongoing Middle East tensions push up energy costs, AHDB has warned.

The levy board says that while physical supplies of key inputs remain largely unaffected, the US-Iran conflict is already feeding through into higher costs across fuel, fertiliser and transport.

Oil prices have risen from around $100 to $110 a barrel following strikes on key infrastructure, while gas prices — a key driver of fertiliser production — have also increased by around 20%.

According to AHDB's analysis, restrictions on shipping through the Strait of Hormuz, a major global supply route, are adding further uncertainty to already volatile markets.

Fertiliser costs are particularly exposed to these changes, with gas accounting for around 60% of production costs.

As a result, any increase in energy prices feeds quickly into fertiliser markets.

The UK’s reliance on imported urea from the Middle East and North Africa also leaves supplies vulnerable to disruption.

Most arable farmers will have already secured fertiliser for this season, but AHDB analysis shows those who have not — or those buying for next year — are likely to face higher prices.

Livestock producers, who often rely on spot purchases due to limited storage, could be among the hardest hit.

Fuel costs are also under pressure, with rising oil prices expected to increase costs across diesel, heating oil, transport, plastics and agrochemicals.

The levy board noted that red diesel prices appear to be rising faster than standard fuel, driven by reduced supply following rule changes in 2022 and its lower duty rate, which makes price increases more pronounced.

Feed markets remain less certain in the short term, but AHDB said higher cereal and oilseed prices, combined with rising haulage costs, could push feed prices higher, particularly affecting feed-intensive sectors such as dairy and pigs.

The Bank of England has held interest rates at 3.75%, but AHDB warned the longer the conflict continues, the greater the risk that inflation remains elevated.

Prolonged high energy prices could delay interest rate cuts, keeping borrowing costs higher for longer and adding further pressure on farm cash flow, investment and capital finance.

The warning comes as farm businesses continue to face tight margins and ongoing cost pressures.

Wider market impacts are also beginning to emerge.

AHDB said demand for skimmed milk powder has increased, partly due to Iran’s position as a major exporter, with buyers seeking alternative supplies.

While this may support dairy prices in the short term, higher input costs could weigh on margins over time.

Grain markets have edged higher since the conflict began, with stronger gains seen in oilseed prices, as higher crude oil prices make biodiesel more attractive and support vegetable oil markets.

These shifts could influence planting decisions, although farmers will need to balance potential returns against rising input costs.

AHDB said there are steps farmers can take to manage the impact, including using tools based on RB209 guidance to adjust nitrogen use and improving slurry and manure utilisation to reduce reliance on purchased fertiliser.

Developing more diverse forage systems and maximising grassland performance can also help cut costs and improve resilience.

With volatility expected to continue, AHDB is urging farmers to monitor input markets closely and plan ahead to manage rising costs.