UK

Inflation and cost of living put long-term resilience of farming under pressure in 2024

Long-term resilience in farming will be challenged amid cumulative inflationary pressure and the ongoing impact of the cost of living on consumer demand, according to the Agriculture and Horticulture Development Board (AHDB).

Posted on Feb 13 ,00:15

The latest agri-market outlook has highlighted cumulative inflation of more than 30% in agricultural inputs since 2019, coupled with market stresses and policy uncertainty, as the key drivers behind the threat to long-term resilience in the industry.

It also revealed markets, food businesses and consumers are still battling with the ongoing challenges of inflation, fuelled by the energy crisis, the war in Ukraine and shortage of labour. Recent developments in the Middle East represent additional risk to the global economy and UK inflation.

Farmers are likely to feel the effects of cumulative inflation in inputs. Combined with energy and interest rates, this is continuing to pressure businesses and consumers, fuelling an ongoing price-sensitive consumer market for their produce. This has the potential to significantly impact trends in food consumption in 2024 and beyond.

Sarah Baker, AHDB Head of Economics and Analysis, said:

"Farmers saw input costs rise significantly during 2023, putting pressure on farm business margins with the cost of fertiliser being a prime example. While some input costs are falling, they remain above pre-inflation levels and are likely to remain risky due to linkage to energy markets and instability around the world. Coupled with market stresses and policy uncertainty around burgeoning environment schemes and the budgets that underpin them, long term resilience will be put under pressure.

"With the current level of uncertainty on multiple fronts, markets, businesses, and consumers are now operating in a short-term bubble which poses a risk to long-term resilience and inward investment. Without long-term certainty and the recovery of consumer confidence, challenges are likely to persist for the industry in 2024".

AHDB agri-market outlook examines the factors likely to affect farm businesses, helping levy payers plan and budget for what may lie ahead. The analysis features detailed market outlooks for each levy-paying sector it covers: beef, lamb, dairy, pork, cereals and oilseeds. It examines trends in farm business inputs and consumer demand.

Beef

• Cattle numbers remain finely balanced in 2024 with concern over the long-term direction of the national suckler beef herd – driven by production economics, access to land and agricultural policy
• Some optimism for some discrete volume demand increases but will be sensitive to consumer finances and competition from other proteins

Lamb

• Slight declines in domestic production, from limited expansion in the lamb crop, and contraction in the breeding flock due to general industry uncertainty
• Pressure from imports with large price disparity with the Southern Hemisphere and increased tariff-free access with Australia. Exports will decline in line with lower domestic production, as the EU remains our key destination
• Falling domestic demand continuing to cause concern as consumers are squeezed by the cost of living. However, key seasonal events, such as Easter and Eid, could see improvements

Pork

• No recovery in the herd or production expected, with competition from chicken causing demand challenges
• Small uplift in trade with potential opportunities in USA and Mexico alongside competitive EU imports
• Fall in feed prices will bring some relief, depending on how much decline in grain prices is seen in finished feed costs
• Escalating straw costs present a risk through 2024 

Dairy

• There are green shoots of recovery with commodity prices starting to build, but the approaching spring flush will drive market direction
• Demand continues to be muted, a little growth coming back into retail, but China continues to disappoint in import demand  
• Falling fertiliser and feed costs will help, but higher straw costs should be expected through 2024

Cereals and oilseeds

• A massively challenging autumn and winter has disrupted crop areas for harvest 2024, with markets anticipating that the UK will need to be a net importer of wheat
• While crop prices have returned to pre-inflationary levels, fertiliser costs remain above the ‘normal’ levels
• Recent falls in commodity prices are a cause for concern for profitability and cash flow. Lower fertiliser prices have helped, but they remain above pre-inflationary levels

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