Inflation and farm policy uncertainty threaten agriculture

That was a stark warning from AHDB this week in their latest report which points out that markets, food businesses, and consumers are still battling with the ongoing challenges of inflation, fuelled by the energy crisis, the war in Ukraine, and the shortage of labour.

Recent developments in the Middle East also represent an additional risk to the global economy and UK inflation.

The report states farmers are likely to feel the effects of cumulative inflation in inputs. Add in energy and interest rates and this is continuing to pressure businesses and consumers, fuelling an ongoing price-sensitive consumer market for their produce which in turn has the potential to significantly impact trends in food consumption in 2024 and beyond.

“Farmers saw input costs rise significantly during 2023, putting pressure on farm business margins with the cost of fertiliser being a prime example,” said Sarah Baker, head of economics and analysis at AHDB.

“While some input costs are falling, they remain above pre-inflation levels and are likely to remain risky due to the link to energy markets and instability around the world. Coupled with market stresses and policy uncertainty around burgeoning environment schemes and the budgets that underpin them long-term resilience will be put under pressure.

“With the current level of uncertainty on multiple fronts, markets, businesses, and consumers are now operating in a short-term bubble which poses a risk to long-term resilience and inward investment. Without long-term certainty and the recovery of consumer confidence, challenges are likely to persist for the industry in 2024.”

According to the levy board, the factors likely to affect farm businesses include:

Beef:

Cattle numbers remain finely balanced in 2024 with concern over the long-term direction of the national suckler beef herd – driven by production economics, access to land, and agricultural policy

Some optimism for some discrete volume demand increases but will be sensitive to consumer finances and competition from other proteins

Lamb:

Slight declines in domestic production, from limited expansion in the lamb crop, and contraction in the breeding flock due to general industry uncertainty

Pressure from imports with large price disparity with the southern hemisphere and increased tariff free access with Australia. Exports will decline in line with lower domestic production, as the EU remains our key destination.

Falling domestic demand continuing to cause concern as consumers are squeezed by the cost of living. However, key seasonal events such as Easter and Eid, could see improvements

Pork:

No recovery in the herd or production is expected, with competition from chicken causing demand challenges

Small uplift in trade with potential opportunities in the US and Mexico alongside competitive EU imports

A fall in feed prices will bring some relief, depending on how much decline in grain prices is seen in finished feed costs

Escalating straw costs present a risk through 2024

Dairy:

Green shoots of recovery with commodity prices starting to build, but the approaching spring flush will drive market direction

Demand continues to be muted, with a little growth coming back into retail, but China continues to disappoint in import demand

Falling fertiliser and feed costs will help, but higher straw costs should be expected through 2024

Cereals and oilseeds:

Massively challenging autumn and winter have disrupted crop areas for harvest 2024 with markets anticipating that the UK will need to be a net importer of wheat

While crop prices have returned to pre-inflationary levels, fertiliser costs remain above ‘normal’ levels

Recent falls in commodity prices are a cause for concern for profitability and cash flow. Lower fertiliser prices have helped, but they remain above pre-inflationary levels