NFU warn on input costs
Latest figures released by Defra show that farming contributed more than ’7 billion to the United Kingdom economy in 2010, but farm incomes were down and the National Farmers Union has warned about the continuing effect of input costs.
The ’7.2 billion reported by Defra represented a 6.2 per cent increase over the previous year in the figure for gross value added at market prices. The total value of UK agricultural production was also up. The estimated gross output for 2010 was ’20.7 billion. This was an increase of 5.3 per cent on 2009 levels.
Increases in the value of production from oilseeds, milk and the poultry sector were among the factors contributing to overall output growth ’ and the egg industry made its contribution to the growth in the value of the poultry sector’s contribution.
For output at market prices, the Defra report shows a provisional figure of ’561 million for eggs in 2010. This compares with ’531 million in 2009, ’520 million in 2008 and ’410 million in 2007. Total livestock output is valued at ’11.2 billion for 2010, total crop output ’7.5 billion, with the rest of total agricultural production made up from other activities and inseparable non-agricultural activities.
Despite their contribution to helping the country recover from recession, farmers are finding their incomes squeezed. Free range egg producers are currently suffering from the combined effect of soaring feed prices and depressed prices for their eggs. According to the Defra figures, other farmers are also feeling the pinch caused by increased costs.
Aggregate figures for 2010 show a 4.3 per cent real terms fall in Total Income from Farming (TIFF). Rising input costs, along with lower levels of direct support due to exchange rates, are both being blamed for hitting agriculture generally and for more than offsetting the increases in the value from agriculture production.
NFU chief economist Phil Bicknell says the figures are worrying for the farming industry. He said, ’The TIFF is a widely-recognised indicator of industry performance, but for the second year in a row we’ve seen the TIFF fall. We are some 12 per cent down on the recent high of 2008 in real terms.
’Agriculture has been inevitably linked with the headlines, focusing on booming global commodity prices and rapid food inflation.
However, with the total value of UK farm output rising just 5.3 per cent year-on-year, these latest statistics show that the world market peaks aren’t being seen at a UK farm level,’ he said ’There are a number of reasons; a significant proportion of the 2010 harvest was sold forward at prices far from the current market highs and the farm gate price paid to dairy farmers for their milk has been very slow at reflecting commodity market returns. Even now there have only been marginal improvements, and from unacceptably low levels.
’Prices for livestock also remained under pressure through much of the last year.
’More importantly the Defra figures highlight rising costs in 2010 for farm inputs. Feed, fuel and fertiliser have seen price rises continue into 2011, meaning that many farmers will remain extremely cautious about the year ahead.
In particular, the scale and speed of higher feed costs will have hit pig, poultry and dairy producers last year. It is worth remembering that although the TIFF data looks at the performance of the farming industry as a whole it is not representative of trends across all agricultural sectors.’
Egg producers are suffering particularly badly at the moment. The huge increase in feed costs, along with increases in other costs, have coincided with an oversupply in the egg market. Producer prices have been falling, costings produced by the British Free Range Egg Producers Association show that free range producers are losing more than ’5 per bird and packers are warning that the problems in the market could continue into next year. BFREPA chairman John Retson has been appealing directly to supermarkets to help egg producers through this difficult period.
In its TIFF report Defra conceded that the increase in the value of output had been offset by higher costs, particularly for animal feed (11%), which rose to ’4.02 billion, and for energy costs (14%), which rose to ’1.25 billion.
It said the total value of intermediate consumption (the goods and services consumed or used as inputs in production) was estimated to have increased to ’13.4 billion (4.8%). It said changes in other costs, such as consumption of fixed capital (0.3%), compensation of employees (0.3%), rent (-0.1%) and interest payments (-13%), were minor and had only little impact on Total Income from Farming. Defra said that although Total Income from Farming had declined in real terms in 2010, the three years from 2008 to 2010 represented the best performance for the agricultural industry since 1996.
The report said that the increase in value of livestock production in 2010 was mainly due to increases in the value of production of poultry (13%), where it said volume increased and prices remained strong, and of milk (6.4%), which it said reflected increases in both volume and prices.
In crop production, it said the increase in value was almost entirely due to increases in oilseeds and other industrial crops (22%), vegetables and horticulture products (14%) and potatoes (17%). The value of production of cereals fell by 1.8%, it said, as an increase in the value of production of wheat (8.6%) was offset by a fall in the value of production of barley (-24%). It said that increased plantings of wheat and reduced plantings of barley reflected market conditions.
The NFU says that falling farm incomes show the necessity for continued financial support for some sections of the agricultural industry.
Phil Bicknell said, ’Against the context of a falling TIFF and rising costs, the Common Agricultural Policy becomes even more critical to UK agriculture. The reality is that if the single payment was removed completely a large proportion of farming businesses would not be financially viable, despite the strong commodity prices we have seen in global markets. ’All this demonstrates the real challenge farmers and growers face in generating profitable returns from food production.
For policy makers, it provides a clear indication of the on-going need for a strong CAP - one that underpins the economics of farm production, while incorporating measures to correct the distortions of the supply chain, and helps farmers realise profitable returns from their marketplace.’
For free range egg producers, the main concern will be to see an increase in producer prices as soon as possible in order to restore the industry to profit.
