New Year Prospects

As the chimes of Big Ben usher in a New Year, as you savour the glass of fizz in front of a log fire to keep out the winter chill, it is traditional to look back at the months past and forward to the year to come.

            2022 was an unprecedented year for many reasons.  The impact of the Covid pandemic declined at least in terms of personal freedom and the threat of serious illness but left a legacy of rapidly rising inflation.  This was exacerbated massively by the Russian invasion of Ukraine in February.  The immediate effect was a huge increase in the price of oil and gas but, perhaps the most dramatic from a farmer’s point of view, was a quadrupling of the price of ammonium nitrate fertiliser.  Even as the price of oil has eased slightly, the cost of fertiliser is still at least double what it was eighteen months ago.

            Many farmers, if they have the cash flow freedom, but their fertilisers early in the season so were not paying the inflated price.  The mild autumn and winter had allowed winter crops to establish well.  January, March and April were exceptionally dry but heavy rains in February and May kept the winter crops growing well although spring crops struggled to establish.  Then came the hot dry summer and it was feared that drought would damage yield but, in the event, harvest was surprisingly good at least on chalk soils.  Meantime, the lack of wheat exports from Ukraine had driven up the value to well over £300 per tonne in early summer.  Although it fell back sharply at harvest, it was still around £250 which, coupled with at least average yields, gave a good return.

            Livestock farmers were not so fortunate.  Grass growth in early summer was reasonable but there was little regrowth in the drought and many grazing animals had to be fed extra hay or silage in August.  With little second cut silage and disappointing yields of hay and maize silage, fodder stocks will come under pressure this winter.  The demand for hay is strong and prices are increasing with conventional bales at £125 per tonne and big bales £85.  An early spring with plenty of grass would be very helpful.

The cost of compound feeds has risen significantly due to the higher price of cereals and other ingredients.  The price of milk has soared to around 50 pence per litre but is this enough to offset inflation of feed, fuel and fertiliser?  The price of pigmeat may have risen by 40% but that barely covers the increased cost of production and the sector was already in difficulties and contracting sharply, 14% in the last year to its lowest level for more than twenty years. 

The poultry sector faces the same challenges but also avian ‘flu that has decimated the national flock and is still rampant.  A potential shortage of eggs seems to have been averted, for the time being at least.  Avian ‘flu has also had a dramatic impact on game shooting with the number of pheasants and partridges released this season sharply down, largely due to outbreaks in France where most of our eggs and chicks come from. 

The countryside has not been immune to the political chaos that we have seen in recent months.  Just as we were finally getting some details of the Environmental Land Management Scheme (ELMS), the short lived Truss administration announced a review of the scheme.  We are promised the outcome in the next few weeks, perhaps even at the Oxford Farming Conference this week, but some changes have already been leaked.

Looking ahead at the prospects for 2023, the crystal ball is distinctly hazy.  A resolution to the war in Ukraine is unlikely in the short term so the assumption must be that input costs will remain high.  A mild dry autumn allowed winter crops to establish well and they have survived the cold spell which may have knocked back pests and diseases.  How much fertiliser at its high cost to apply is a big question especially as wheat prices are little higher now than they were a year ago.

Farmers are looking for ways to cut back on input costs, especially fuel, feed and fertiliser, and increasingly turning to regenerative farming to build soil fertility.  In that context, the launch of the Sustainable Farming Incentive was timely but both the options and the rates of grant must be increased to help the transition.  After a reasonably good year for arable farmers, they now face the exact opposite with input costs still very high and grain prices falling back.  It is likely that beef and sheep will be grazed more extensively with less fertiliser applied to pastures and less supplementary compound feed.

The other unknown factor is any change in consumer behaviour brought on by the cost of living crisis.  Supermarkets are trying to hold down food prices but that just squeezes farmers more.  There is likely to be some disruption to the red meat trade as consumers cut down consumption and switch to cheaper cuts.  Lamb prices are already under pressure but beef may hold up with supply barely meeting demand throughout Europe.  High input costs will squeeze arable margins unless cereal and oilseed prices pick up again.

It is a time of fundamental reform in farming caused by several factors, not least the UK leaving the Common Agricultural Policy.  It is recognised that soils have become degraded and that crops rotations have been too narrow, hence the trend towards regenerative farming.  Whilst the current instability is causing problems, it emphasises the need for change and accelerates the process.  It is essential that the Government promotes a clear and comprehensive policy framework as soon as possible.