The AF Group has measured a 22% rise in the cost of agricultural inputs in the year to September 2021 and warns that the rate of inflation is now rising faster.
The Norwich-based purchasing group’s annual AgInflation Index shows a 21.86% average rise in the price of essential farm inputs between September 1st 2020 to September 30th 2021.
The data comes from a weighted average of 130 cost items within the annual £250 million spend through the AF buying office. Five of the nine input classes saw double digit inflation, while fuel rose by an unprecedented 79.9% and fertiliser by 51.2%. Animal feed and medicines were up 15.9%, labour by 6.9%, chemicals by 2.25% and seed 0.41%.
At the same time, the Group notes that the total UK food Retail Price Index actually deflated by 0.7% over the same period, a fact which highlights the squeeze on margins experienced by farm businesses.
Meanwhile, agricultural inflation is continuing to race ahead, with a further 50% increase in fertiliser prices since the end of September.
AF says that no farming enterprise has been able to avoid double digit inflation, against a background of post-Brexit international trade deals opening the way for more competitors to the UK market; ‘greenflation’ from the move to a zero-carbon economy; and the effect on just-in-time supply chains from the global economy recovering from its pandemic dormancy.
Head of AF crop production Matt Kealey notes that the increasing cost of natural gas prices is having a profound effect on the price of fertiliser, to the point where it has made manufacture economically unviable. “The increase is the result of a convergence of factors, nationally and globally, with supply struggling to keep pace with rising global demand. We continue to liaise with our suppliers and update members on both spot and future prices.”
Similarly for fuel, as tight global energy supplies meet strengthening demand from consumers, advises AF fuel procurement manager Helen Thurtle. “Rising demand for fuel should not come as a surprise. The International Energy Agency has forecast that 2022 consumption will be around 5% higher than 2020 levels. In April 2020 the US oil benchmark West Texas Intermediate was trading at $37 a barrel. Brent crude is now around $85 a barrel, with the real possibility of reaching $100 a barrel if we have a particularly cold winter to drive a surge in demand and widen the supply deficit further.”
AF chief executive David Horton Fawkes adds that the extraordinary financial pressures facing farmers currently threaten the very existence of many farm businesses. “We are deeply concerned about the impact of these high rates of agricultural inflation on our members and there has never been a stronger case or a better time for UK farmers to collaborate. Inflation is not slowing down – it is only by working together that we will be able to overcome the biggest challenges to farming for 50 years.”