Farm cost squeeze returns as 'agflation' surges to 7.6%

Farmers across the country are facing a renewed cost squeeze as soaring input prices collide with falling returns.

According to Andersons, agricultural input inflation (‘agflation’) has climbed sharply since the onset of the Iran conflict, reaching 7.6% annually in March 2026. This is well above general inflation (3.0%) and food inflation (3.2%).

At the same time, farm output prices have fallen by 6.5% year-on-year. The result is a clear “cost of farming” squeeze, with producers caught between rising expenses and weakening returns.

Agflation is now increasing at its fastest rate since early 2022. Levels remain below the peaks seen after the Ukraine invasion. But disruption linked to the Iran conflict — particularly around the Strait of Hormuz, which handles around 20% of global oil and gas flows — is still pushing input costs higher.

Unlike in 2022, farmers are not benefiting from stronger commodity prices to offset these increases. Global supplies of grain and milk remain ample, keeping output prices subdued and further compressing margins.

Fertiliser costs are a key pressure point. Around 30% of global urea supply — a major source of nitrogen fertiliser — is affected by constraints linked to the Strait of Hormuz. At the same time, ammonium nitrate production remains closely tied to gas prices.

Together, these factors have pushed farm-gate nitrogen fertiliser prices to around £500 per tonne, with limited availability in some cases.

For many farm businesses, particularly in the dairy sector, these fertiliser costs are already shaping day-to-day decisions during the spring and summer.

While most UK arable fertiliser has already been purchased, exposure remains for later applications globally, especially in regions such as India and Latin America — even following the temporary ceasefire announced on 7 April.

Cost pressures extend beyond fertiliser. Higher energy prices, including red diesel, are feeding through into machinery and contracting costs.

A prolonged conflict risks wider inflationary spillovers. This could place further strain on consumer spending and deepen the cost-of-living squeeze.

Pressure is also emerging in the red meat sector. Beef and lamb prices have risen significantly in recent years and now sit well above pig and poultry prices, raising concerns that demand could soften if household budgets come under renewed pressure.

The outlook for UK farming is increasingly difficult. Margins are “under pressure from both sides” — rising costs and falling returns — at a time when support is declining in real terms.

With little sign of relief on either side of the balance sheet, the sector faces a challenging year ahead.

Andersons said its latest Spring Seminar, recorded at Harper Adams University, explores these pressures and the outlook for farm profitability in more detail.