Inflation, coupled with suppressed economic activity as a result of reduced spending power and the lack of flexibility in the labour market, is expected to affect farm business margins throughout 2023, according to a new report.

The latest AHDB Agri-market Outlook, states that farmers will continue to have to pay higher input costs while simultaneously facing a price sensitive consumer market for their produce.

The report highlights that beef production is predicted to grow by 0.6% in 2023 due to higher cattle availability, while consumption is forecast to ease by around 2% as cost of living pressures consumer budgets. Beef imports are expected to fall by around 2%, while exports could grow by around 3%.

Lamb production, the report says, is forecast to grow due to the higher carry-over and a broadly stable lamb crop, while consumption is expected to weaken, again linked to tighter consumer budgets. Imports are expected to ease, while exports could grow, supported by continued demand from the EU.

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Sadly, pig meat production is forecast to decline by up to 15% year on year in 2023, driven by a fall in clean pig kill in the first half of the year, following a significant drop in the breeding herd. However, a gradual recovery in the breeding herd is expected, with numbers predicted to increase by 7000 head between June 2022 and June 2023. Imports are expected to grow to match the gap left by reduced domestic supplies, while exports are projected to decline as available domestic supplies tighten. Domestic demand continues to ease, driven by the cost-of-living crisis.

In the dairy sector, GB milk production is forecast to record a 0.3% growth in 2023, albeit with some risk of a contraction in production if margins deteriorate. Despite recent signs of lower inflation in agricultural inputs, replacement costs through 2023 are forecast to remain high too adding further pressure to cash flows.

Global dairy demand is also likely to remain challenged by low economic growth, although there is potential for improved import demand from China later in the year. Domestic demand is also expected to be impacted by a squeeze on consumer incomes, with all products seeing lower sales

Farmgate prices are expected to decline in the first half of 2023, with some potential for this to abate in the second half if inflation subsides and demand recovers

Price volatility is expected in the cereals sector with a finely balanced global supply and demand and the ongoing war in Ukraine. Animal feed demand, and cereal usage, is expected to fall considering sector challenges from high input costs to Avian Flu.

Brewing, malting, and distilling cereal usage is forecasted strong, with increased capacity coming online. A key domestic demand watch point remains bioethanol cereal usage, considering high costs and lower ethanol prices, the report states.