Inflation to hit UK farm business margins in 2022

Rising costs will be crucial to farm business planning over the next six months as high rates of inflation impact the UK agricultural economy, according to the latest AHDB Agri-Market Outlook. AHDB is a UK statutory levy board, funded by farmers.

The aftershocks of EU exit, the economic ramifications of Covid and the ongoing energy crisis, with its knock-on effects on input prices, are all likely to put pressure on bottom lines over the next six months. The impact of these seismic events on the UK economy as a whole is examined in detail in this latest edition of the Outlook, with a particular focus on what the changes could mean for our agricultural industry.

“The pandemic has been unusual in economic shock terms both in its speed of onset and its magnitude, as well as its uneven impact across the economy as a whole,” said Sarah Baker, AHDB Economic Strategist. “The agricultural industry has been particularly hard hit in a number of areas, such as the reduction of the food service market or staff absences exacerbating labour shortages in abattoirs and across food processing caused by Brexit.”

“Both Covid and EU Exit have led to the so-called scarring of the economy – those permanent changes that will slow down its ability to return to ‘normal’,” she added. “These factors can be seen clearly in agriculture, both in supply chain management and in consumer behaviour.”

“Overall, it will be a year of recalibration as individuals and businesses adapt to a new operating environment,” said Baker.

AHDB’s Agri-Market Outlook, produced every six months, is intended to highlight the various elements that will shape farming’s fortunes to help levy payers plan, prepare and budget for the challenges and opportunities ahead.

It features detailed market outlooks for each levy-paying sector – beef & lamb, cereals & oilseeds, dairy and pork – alongside sector-by-sector insight into retail and consumer demand for agricultural products.

Key findings for the pork sector include:

– A contraction in the breeding herd is expected, leading to a 2% fall in UK pig meat production, weighted towards the second half of 2022
– Export markets remain challenging, with Chinese demand slowing and a weak EU market. However, trade may increase again year-on-year as new trading conditions with the EU become the norm for UK exporters
– UK demand is expected to weaken slightly, although falling production, recovering foodservice demand and increased exports could all support import levels, particularly in the second half of 2022
– Headline figures for 2022: Production down 2%, exports up 9%, imports up 1%, demand down 2%

“We are currently seeing a period of inflation that is coming off the back of a shift in trade relationships with our largest trading partner, a supply chain that is struggling with the impact of a global pandemic and we entering a period of direct subsidy reductions,” said AHDB Economics and Analysis Director David Eudall.

“So, whilst inflation may be transitory, we’re facing it at possibly the worst time,” he continued. “What it all means is a period of higher costs for farming businesses and while commodity prices are sitting at high levels, we know that the markets are cyclical and this can change quickly.”

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Tags: prices, oilseeds, Beef, economy, Dairy, Cereals, lamb, agricultural industry, pork, EU, UK