Inflation, which is the metric that outlines the difference
in prices year on year, is currently set to hit it’s highest level since the
early 1990s. In simple terms, this means prices are rising at an accelerating
rate. In agriculture, times like these, with increasing inflation rates, can be
tricky to navigate. Let’s delve into why inflation can bring challenges in
farming, and how to deal with those challenges.
The effects of inflation on farm
Switching on the news, or reading the headlines, most of the
commentary you’ll come across shouts about the rising cost of living, increased
prices on supermarket shelves and the toll that has on consumers’ purses. The
lesser mentioned toll, is on the food producers, more commonly known as
farmers. Anyone who deals with farm finances will have watched input costs rise
exponentially. The problem comes as the gap between input costs and commodity
prices reduces, squeezing the profitability on farm. Minette Batters, President
of the NFU, said that although some
commodities are enjoying strong prices, with positive future prices especially
for milling wheat and buoyant markets for beef and lamb, exponential rises in
input costs will intensify financial challenges faced by farm businesses in
So when will prices catch up?
The hikes in
fertiliser and energy costs have already shown their impact, through lower
production levels. According to AHDB, milk production in Great Britain was down
2% for Oct-Dec 21 on the year’s average. This reduction in supply has
stimulated price increases by the processors, which will hopefully continue as
labour and input costs continue to rise.
What does the future look like?
Inflation itself isn’t forecast to slow down quite yet. The
rate of inflation itself could hit 7%, which would be the highest rate since
1992, this is forecast to potentially happen in April. It is then foreseen that
Ofgem, the energy regulator, may increase the default energy tariff price cap.
Paul Dales, of Capital Economics, projects that the rate of inflation will “stay
above 4% all this year”. In summary, inflation is an issue that isn’t going
How can farms deal with this?
All of this may seem like bleak reading for farmers, and of
course the prospect of exponentially increasing input costs would concern most
business owners. As accountants, a huge part of our role is to share the burden
of your finances and alleviate as much stress caused by them as possible. Times
like these present opportunities to assess your business structure, and
potentially change things up. Keeping track of your data on farm could open up
new income streams, as shown here.
Whilst reviewing input costs with cost-benefit analyses can help you to assess
whether processes on farm are worth their costs or not.
Our advice for all farm businesses in times like these is to
get clear on your exact financial position. As they say, knowledge is power. Until
you have an accurate understanding of your accounts, costs and revenue, any
thought of finances can be overwhelming. If you don’t know where to start, the Gov website has many
resources. If you need more specific advice for your farm, you could benefit
More importantly than any of the above, talk to someone. In
an industry where the work is a way of life, the pressures of farming can
become unbearable. Finances, particularly increasing input and labour costs,
can often contribute more than their fair share towards mental health
struggles. We all know the devastating impacts poor mental health can have. In
farming in particular, this is a growing problem. If you are struggling, or
know someone who is, the FCN is dedicated to supporting the people in the farming
community, whether it be with personal or business-related issues. You can find
them and their contact information here.
Dealing with rising costs on farm is a challenge and it isn't going to go away overnight. The agricultural industry needs to support one another and group together. ”