The July estimates put Agflation at 23.5% annually, more than double that of agricultural outputs (10.1%). When Agflation is plotted against output prices, food inflation (denoted by CPI Food) and general economic inflation (CPI), which stand at 9.8% and 9.4% respectively, it becomes apparent that there is a cost of farming squeeze taking place.

In the months preceding June 2022, agricultural output prices generally rose in parallel with Agflation, albeit at a slightly lower rate. However, since then, these indexes have diverged considerably. Whilst recent falls in commodity grain prices have been the main driver, it also suggests that consumers are struggling to afford rising food prices and, that retailers and food service providers are reluctant to pass on further increases.

With energy prices set to rise further towards winter and the Bank of England projecting that inflation will rise to 13% by year-end, the extent of the challenges facing the UK economy are stark.

Rising energy prices will also continue to affect Agflation in terms of fuel, fertiliser and feed costs. Therefore, Agflation will remain at elevated levels for this year and beyond.

Some sectors are better positioned to withstand these increases than others. Milk prices are up by 41% since July last year. Cereal prices, although lower recently, are still around 29% higher than a year ago. However, livestock prices, generally up 10-19%, are not rising as quickly as Agflation, with egg and fresh vegetable prices falling. Several of these sectors have been struggling in terms of profitability. Additional inflationary pressure on inputs will stretch working capital resources further.

Although advance BPS payments in England during July are welcome, BPS payments are declining and will by 35% lower in 2023 than in 2020. Successor schemes including the Sustainable Farming Incentive (SFI) will not bridge the income gap. If farmers are unable to get higher prices for their outputs, many will be severely squeezed in the months ahead. Difficult decisions will need to be made on cropping and enterprise viability. This will have direct implications for food supply, coming at a time when severe droughts are being experienced elsewhere, particularly in Europe.

In such times, having access to the latest available information likely to impact farmers’ decision-making is crucial. Inflationary challenges, and other key issues affecting UK farming, will be examined in much more detail during Andersons’ forthcoming Webinar, taking place on 22nd September. Tickets are priced at £70 per place, the agenda is set-out below and places can be booked by visiting: https://register.gotowebinar.com/register/3842561566295604752 

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Sources: ONS, Defra and Andersons