Fertiliser Continues To Drive Inflation In agricultural Products

Margins for livestock farmers continue to be pressured as prices for key inputs remain at high levels. While the rate of input price inflation has eased slightly since August for fuel and feed according to the latest Agricultural Price Index (API)[1] data, there have been further increases in prices paid for fertilizers. Meanwhile, the average price received for all agricultural outputs has decreased since the summer, although there is likely to be variations in output price trends across the various sectors.

Fertilizer prices have seen the steepest increases, with prices paid in September up 9% in the last quarter (Sep v Jun), and 139% higher than a year earlier. The volatility on natural gas markets, combined with rising gas prices has led to some fertilizer manufactures to halt or reduce production, resulting in the UK becoming more dependent on imports, further adding to the costs.

Energy price inflation peaked in July ahead of the Ofgem price cap announcement in August. Prices have eased slightly since then, with the price paid in September sitting 4% below the end of the last quarter (June) but 55% above those from a year ago. It is likely that some of this easing is due to lower demand during the summer months along with government announcement of Energy Price Guarantee for families and businesses at the beginning of September. However, with a higher price cap taking effect from 1 October, and demand increasing over the winter, price inflation is likely to pick up again as the year ends.

Price inflation for compound feed has been less dramatic but still significant, up 37% year on year. With the UK having recorded the tenth driest summer on record, grass growth between June and the beginning of September was limited. This will have limited forage availability for the winter for many, leading to increased use of compounds over winter, further driving up production costs.

Graph of UK agricultural price inflation

 The Agricultural Price Index (API) reflects the change in the price farmers have paid for goods and services in relation to the base year of 2015.

Source: https://ahdb.org.uk/news/fertiliser-continues-to-drive-agricultural-price-inflation