The average cost of agricultural inputs increased by 4.92% over the year to September 2017, through a combination of higher fuel prices and the devaluation of sterling after the June 2016 referendum in the UK. The company measures price inflation across the £230 million of annual purchases it makes on behalf of farmer members.
The AF Group’s AgInflation Index records an 11.5% increase in fuel costs during the period with the rising cost of Brent Crude Oil plus the weakening of sterling against the US dollar in the first half of the year.
But all product categories measured by the index were affected by price inflation. There was an 8.7% rise in fertiliser costs; 7.3% for seed; 8.5% in contract and hire charges and 1% for animal feed and health products. Crop protection products increased by 0.9% over the whole year, despite a -0.28% fall in the first six months of the period.
“Fuel is the primary driver in this latest AF AgInflation Index,” comments AF Group chief executive Jon Duffy. “In the 12 months to September 2017, Brent Crude Oil increased from $46/barrel to $55.9/barrel. Couple this with an initial devaluation in the $/£ exchange rate from 1.31 to 1.25 between September 2016 and February 2017 – although the past six months has seen the exchange rate strengthen to 1.33 in September 2017. All in, the global fuel market remains volatile, with the ever-changing cost of Brent Crude Oil and the fluctuating exchange rate.”
AF fertiliser & seed business manager Chris Haydock adds: “The seed rises are down to the increase in grain prices, while the strength of the euro and the dollar means I can’t see fertilizer prices reducing in the short term. Importers of ammonium nitrate have struggled and further increases are expected. Granular urea values have risen, with potash and phosphate prices around £15/tonne higher over the season so far.”
Fuel price inflation means arable enterprises have seen a higher rate of cost growth than the livestock ones. The index shows cereal and oilseed rape production costs rose by 5.75%, sugar beet by 4.63% and potatoes by 2.72%. Dairy farmers saw their costs rice by 3.77% (2.78% in the six months to February 2017) with beef and lamb producers 3.42%.
The AF AgInflation Index also shows a Retail Price Index increase of 2.2%, less than half the rate of increase for farm inputs. But while bread and margarine prices fell 5%, that of granulated sugar rose by 11.5%.