The falling costs 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 year from January 2015 – January 2016 show an overall reduction in input costs of -4.35%.
The main drivers for the reduction are the significant drops in fuel prices (-20.7%) and fertiliser (-13.6%).
Commenting on the figures, AF Group chief executive Clarke Willis said: “The main driver behind this deflation is fuel and we have seen that in terms of a ‘pence per litre’ drop in prices, in particular for gas oil.
“Some of that reduction in the gas price has fed through to fertiliser prices, although it could be argued that given the significant fall in gas prices, not enough of a drop in fertiliser prices has been seen. Clearly the reduction in energy prices can be seen across a number of other sectors.
“Seed costs have not seen much change because while we have seen a reduction in cereal seed prices, the cost of potato seed has risen significantly.”
While grain prices have driven down the price of animal feed, the overall deflation in that sector of -7.7% masks increases in medicine and vet costs.
The figures show continued inflation for direct costs, with labour and rent increasing by 1.9% and 1.5% respectively. Direct costs which have increased include insurance (3.5%), tractor hire (2%) and building supplies like concrete blocks (8.5%) and cement (2.1%).
The average cost of production has fallen for all types of farm enterprise. Although the gap between production costs and RPI is narrowing, when viewed in terms of price in the market place farm incomes continue to struggle. For example, the cost of producing combinable crops has fallen by -5.01% but grain prices have dropped by an average of -14.9% over the past 12 months.
The AF AgInflation Index figure of -4.35% is the largest drop in production costs seen since 2009, when deflation of -6.3% was recorded.
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 £250million, 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.
