'Returns are continuing to decline faster than any fall in input costs, with an inevitable impact on profitability'

In economic forecasts there are few more scary terms than 'an uncertain outlook'.

However that is exactly what the European Commission is saying in its latest summary of agricultural markets. This uncertainty has less to do with the weather, or indeed anything farmers can control, than to what is describes as 'geopolitical crises' in Ukraine and the Middle East. The report says these affect trade, prices and the overall economy. It warns that the inevitable result is continuing economic pressure on farmers.

Take these global events out of the equation and things would be looking brighter for agriculture. We and much of northern Europe have had a difficult spring, but elsewhere, particularly in the south, conditions have been favourable, with a good combination of heat and moisture. However there is no getting away from uncertainty.

According to the EU report input costs and farm gate prices remain an issue. It says there has been some welcome easing of input costs, but these remain above pre-covid levels. This makes pressure on margins a continuing fact of life for most enterprises. The report concludes that returns are continuing to decline faster than any fall in input costs, with an inevitable impact on profitability.

To add to the gloom the report says the hangover from the months of rampant food price inflation is still causing pain. It says this and limited prospects for economic growth are acting against farm gate prices settling at levels that reflect input costs. This goes back to a problem well flagged up during the time of maximum inflation the art of trading down from premium to basic products to stretch shopping budgets. As analysts warned then, people have got used to these lower prices and it is proving difficult to rebuild premium markets.

Without these it is a big challenge to get prices back up for farmers. This is a problem that will not be easily solved and what we are seeing in the short term market outlook report is a coming together of negative factors that will impact profitability. It is not quite a perfect storm of negatives, but it is not far off it, thanks to wet weather for some areas, still high input costs and still low farm gate prices. These are economic conditions that have few positives for farmers in the UK or any EU member state.

One positive for the EU has been high levels of food and agriculture exports, both in volume and value. This has helped the case for agriculture and food, because they are major contributors to the eurozone economy. This is reflected in a large balance of trade surplus between exports and imports.

Despite an increase in imports this remained at around 4.5 billion in January. This helps make the case for industry support, from the CAP to the EU's massive food promotion budget. The top three countries for exports remain the UK, United States and China although sales to China have fallen in response to a more difficult political relationships between Brussels and Beijing. The figures confirm that despite Brexit traders have found ways to maintain business although the impact of the UK imposing customs checks remains to be seen.

The UK is the biggest export market for EU food, accounting for almost a quarter of all sales. The big products for EU exports globally are cereals and dairy products, which translate directly back to farm incomes.

Brazil remains the biggest single supply source, because of reliance on protein imports. This is followed, controversially for some, by Ukraine. It has special access to EU markets for agricultural products and this has led to protests in countries bordering Ukraine that these products are damaging their markets.

There have also been claims that a surge of grain from Ukraine left unsold stocks on farms as far away as the French grain producing regions. The UK is the third biggest source of imports, again proving that traders have found ways to get around the regulations ushered in by Brexit. On the theme of trade the EU's new deal with New Zealand is now in operation, promising tariff free exports for a range of products, including pigmeat.

Brussels claims safeguards will protect beef, lamb and dairy producers, but while these seem to offer better protection that the UK secured in its trade deal with Wellington the principle of southern hemisphere imports remains a controversial issue in Europe.