Record low fuel prices cut cost of farm production
Fuel price lows and the falling cost of key arable inputs have lowered the average cost of agricultural production in the last 12 months, the latest AF AgInflation Index figures have shown.
The figures for the 12 months from September 2014 – September 2015 show an overall reduction in input costs of -2.86%.
The main driver for the reduction is the annualized cost of fuel, which has fallen by -22.9%. Other costs have fallen at a much lower rate, including fertiliser (-6.2%) and seed (-1/8%). Lower grain prices have driven down the cost of animal feed (-4.3%).
Three areas where costs have risen are labour (up 3.1%), contract and hire (up 1.1%) and rent/interest (up 1.2%), showing that the fixed costs of production are still increasing.
These low commodity prices mean that the average cost of production for all types of farming enterprise has dropped by -2.86%, with the price of producing combinable crops seeing the largest drop (-3.65%).
The Retail Price Index has fallen by -2.3% in the same period. This means that as production costs have fallen, the cost to consumers of buying food has also dropped. The only area where the RPI has increased is the cost of buying mince and lamb (up 4.4%).
AF chief executive Clarke Willis said: “With fuel prices at their lowest since 2007, it is no surprise that the figures show what a significant impact that has had on the cost of farm production – and indeed the operating costs of many more businesses within the food supply chain.
“Volatile world markets have seen the costs of key arable inputs (fertiliser, agrochemicals and seed) fall over the past year and that has reduced production costs for all types of enterprise.
“Risk management is key and at AF, we’ve been able to help our members by offering forward purchasing programmes for up to two years on fuel, allowing farmers to fix up to two years ahead.”
Costs in the index are noted when they are experienced rather than when the inputs are used and the prices reflect prudent purchasing practice so may include, for example, fertiliser purchased but not applied until the following year.
Launched in 2006 by Anglia Farmers, the index has become a definitive tool for assessing the cost of farming productions and guiding negotiations within the wider food industry. Using information from the group’s buying office, which has a sourcing power of more than £250 million, it is intended to reflect the changing expenditure of farming and is a weighted average of nine cost centres and 132 cost items. Weightings within cost centres and between them are based on average farm and grower expenditure.
