The latest Anglia Farmers (AF) AgInflation index shows that overall farm input costs have fallen by 2.9% in the year ended September 2015. This is primarily due to falling fuel and grain prices.
The main driver behind the deflation is the reduction in the annualized cost of fuel, which the company records as falling by 22.9%. Lower grain prices have contributed to lower cost animal feed (-4.3%) and seed (-1.8%), while fertiliser values are down by 6.2%.
But the index shows that farm fixed costs of production are still increasing, with labour costs up by 3.1% over the twelve months; contract and hire charges by 1.1% and rent/interest by 1.2%.
The lower input values have led to a reduction in the average cost of production across all types of farming enterprise, with an average reduction of 2.86% in costs. The combinable crops enterprise has seen the largest drop with a 3.65% reduction in the cost of production compared with 12 months earlier.
“With fuel prices at their lowest since 2007, it is no surprise that the figures show that this has had a significant impact on the cost of farm production – and indeed the operating costs of many more businesses within the food supply chain,” says AF chief executive Clarke Willis.
“Volatile world markets have seen the costs of the key arable inputs - fertiliser, agrochemicals and seed - fall over the past year and that has reduced production costs for all types of enterprise. Risk management is key – for example, AF can offer members forward fuel purchasing programmes for up to two years ahead.”
This is the tenth year of the Index, first launched by AF in 2006. It uses data from the group’s buying office, which sources more than £250 million inputs each year, to create the weighted average across nine cost centres and 132 cost items. Weightings within cost centres and between them are based on average farm and grower expenditure.
The company adds that the Retail Price Index has fallen by 2.3% in the same period, with the only increase in the cost of buying mince and lamb, which is up 4.4%. Therefore, as farm production costs have fallen, so has the cost to consumers of buying food.