Calculating the costs: Managing the impacts of rising input costs

Article   15 May 2019

There are few certainties when it comes to agriculture, but rising input costs seems to be one trend UK farm businesses can count on.

While higher profits from a weaker pound might have masked the fact that input costs rose by 4% in 2017, last year many producers were left with much lighter wallets. 

According to figures published by Defra, UK farm businesses spent nearly £1bn more on agricultural inputs and services in 2018, an increase of 6% on the previous year. The impact of that extra spending meant that total incomes from farming fell by 18% to £4.7bn. 

Of course last year’s long winter and dry summer had a huge part to play, with livestock farmers having to fork out an extra £500m on feed after forage stocks were hit by drought. However the strong rise in fertiliser and fuel costs over the year show that all sectors felt the pinch.

With climate change meaning that last year’s weather events are unlikely to be a one-off – and with Brexit uncertainty posing further challenges – it’s clear that farmers can’t afford to ignore the risk of further price volatility.

Protecting profits in these situations can seem like a challenge, but there are steps that businesses can take to mitigate some of the risks.

At farm level, reviewing management practices to optimise efficiency can be a simple place to start.

  • Make sure that staff training is up-to-date so that everyone is able to work as effectively as possible, and find ways to ensure staff are happy and motivated to reduce the risk of them leaving and needing to be replaced.
  • Ensure staff are working towards a common goal, check budgets and expenditure regularly, and look carefully at every stage of operations to identify areas to drive efficiencies and cut costs.

Volatility is not going to go away, so if input prices are going to continue to rise you need to be in the best possible place to cope with it.

In terms of production, some might decide to take a more extreme approach by introducing varieties which are better able to cope with drought or command higher market prices.

“Obviously if you move to more challenging crops then you need to be sure you have a customer for it at the end. That might mean moving to forward-pricing or mixed-pricing contracts to ensure you’re not shouldering all of the risk.” says independent agronomist Gary Hartley.

As well as changes to on-farm operations, risk management tools such as commodity price protection contracts offered by Stable could help farm businesses and landowners better manage price fluctuations.

“Whatever farmers decide, the important things is to actually do something,” adds Mr Hartley. “Volatility is not going to go away, so if input prices are going to continue to rise you need to be in the best possible place to cope with it.”

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