Russia's invasion of Ukraine has pushed up commodity prices – but it has pushed up input costs even more, hitting the agricultural sector hard.

The latest edition of the Farm Management Handbook, edited by SAC Consulting on behalf of the Scottish Government’s Farm Advisory Service, highlights how war on European soil has led to fertiliser prices more than tripling since 2021 and, with grain exports from Ukraine disrupted, grain prices have been pushed well above the norm, knocking markets completely out of balance.

The hike in fertiliser and fuel prices has hit all farm enterprise types, increasing feed costs to affect livestock margins, and while ex-farm prices for milk, beef and lamb have also risen, the overall picture remains troubled.

Gross margins for beef enterprises have reduced across the board, because the increase to variable costs has more than outstripped the increased beef price. Gross margins for sheep and arable enterprises show mixed results depending on the system or crops being grown. It is only in the dairy industry that gross margins have improved during the past year, with increases to farmgate milk price more than covering the variable cost increases.

However, the Handbook stresses that gross margins only account for output minus variable costs, such as costs for vet and medicine bills, feeds, fertiliser, silage, seed and sprays. Fixed costs such as power and machinery, labour, rent and finance are not included in these figures and therefore improved gross margins are not necessarily an indicator of improved overall profitability.

Editor Alastair Beattie, an Agricultural Consultant at SAC Consulting, said: “Just when it appeared life was beginning to return to some form of normality in the wake of the Covid-19 pandemic, February 2022 saw Russian forces invade Ukraine, triggering turmoil in gas and energy markets around the world, and raising concerns over food security.

“The Russian invasion of Ukraine has hit the agricultural sector hard, most notably because of the high level of reliance on Russian gas for energy requirements in western European economies. It has also produced serious knock-on consequences for agricultural supply industries, such as the fertiliser trade.”

A printed version of the Handbook will be available soon from SAC Consulting for £30 plus postage and packaging. To order a copy – or to view the publication free online – visit www.fas.scot.