The latest assessments from the Andersons Centre show that ‘Agflation’ now stands at 25.3%, with no weakening of this figure in the pipeline.
Since the onset of the Russia-Ukraine conflict in February, all farm input costs have soared and are at levels which have not been seen in decades.
Agflation
The Agflation index builds upon on Department of Environment, Food and Rural Affairs (Defra) price indices for agricultural inputs and weights each input cost (e.g. animal feed) by the overall spend by UK farmers.
Andersons then provides a more up-to-date estimate of the price index for each input cost category. As the ‘official’ Defra figures are updated, Andersons Agflation estimates are also adjusted to take account of the Defra updates.
In comparison with general inflation, as measured by the UK consumer price index (CPI) and food prices (CPI Food) which stand at 9.1% and 8.5% respectively, Agflation is nearly three times higher.
According to Andersons’ analysts, Agflation is set to remain at elevated levels for at least the remainder of this year.
Driving most of this is the Russia-Ukraine conflict and the upheaval caused across numerous commodity supply chains, particularly feed, fuel, and fertiliser.
Impact on agri-sectors
So how does this overall figure impact at a sectoral level?
The Andersons Centre is pointing out that tillage will be less affected for 2022. Many farmers had forward bought their fertiliser, while output prices have hit record levels.
The end result of all this may well be a very profitable year for tillage farmers – the value of the unharvested wheat crop has risen by more than 50% since it went in the ground.
That said, challenges loom for 2023. High input costs and taxation on 2022 profits will stretch working capital requirements.
Meanwhile, the livestock sectors are under additional pressure, due to the burden of increased feed costs. These account for nearly one quarter of the weighting for the Agflation Index.
Significantly, pig prices have risen. However, they remain insufficient to cover the soaring production costs that pig farmers have had to contend with in recent months.
The dairy sector has seen some significant price rises in recent months, partly because milk production volumes are down.
This will help milk producers to mitigate some of the inflationary strain.
