The 2020s are becoming known as the “decade of disruption”, especially regarding trade. Brexit, the pandemic, climate change and now the Russian invasion of Ukraine.

These challenges are crystallised in Andersons UK ‘agflation’ index for April 2022, which shows a rise of 30.6% versus the previous year.

The chart of the week (below, right) shows the general economic inflation, as depicted by the consumer price index (CPI) and CPI food. These trends encapsulate the significant squeeze in profit margins being experienced by farmers across the UK and Ireland – costs are rising rapidly, but food prices are not keeping pace.

Since mid-2020, UK agflation has been steadily rising driven by a combination of the Covid-19 pandemic, supply-chain disruption and the ending of free movement of labour.

The Russia-Ukraine conflict has dramatically accelerated these trends with the most effect on feed, fuel and fertiliser prices. Other inputs also show increases.

The pressure is most pronounced in the pig and poultry sectors where feed traditionally accounts for 65% to 80% of production cost.

Dairying and grazing livestock are also feeling the strain, particularly for those farms that have not bought forward their fertiliser or rely on high-input systems.

The tillage sector is less affected for 2022 as most farmers have bought forward their fertiliser and output prices have hit record levels recently.

All the while, trade between Britain and the EU witnessed its biggest change in decades from January 2021.

The UK has yet to fully impose its border control regime on imports from the EU

This is a result of the friction brought about by trade barriers and most pronounced on UK exports to the EU which faced an immediate imposition of border controls.

The UK has yet to fully impose its border control regime on imports from the EU.

Recently, a fourth delay was announced as part of a review of the UK’s border strategy. It will now be late 2023 before these controls are fully operational. For Ireland, this means fewer frictions on exports to the UK, but imports in the opposite direction are facing significant controls.

Free trade agreements

Of most concern to Irish farmers will be the free trade agreements (FTAs) that the UK strikes with non-EU countries in the long term. To date, FTAs have been struck with Australia and New Zealand.

As there are sensitivities within the UK regarding beef, lamb and dairy imports, transitional tariff-free quota access has been granted initially.

Tariff-free quota access will build steadily over 15 years, with unlimited access from year 16. By year 14, the combined Australian-NZ access (circa 214kt) will surpass beef imports from Ireland (into Britain) for 2019-20.

Ireland accounts for two-thirds of beef imports into the UK. The enhanced market access for Australia and NZ presents an obvious threat to Irish producers. It will also put competitive pressure on UK farmers.

At present, with high global prices, Irish and UK producers are competitive and both Antipodean countries are focusing on Asia-Pacific markets. However, geopolitical events can quickly change.

If a significant dispute arises between Australia and China, Australia will seek to diversify its exports elsewhere, with the UK being a lucrative target. Therefore, Irish producers need to be prepared for an increased competitive threat in the UK market, particularly in the food services segment.

Michael Haverty is a partner at UK agri-food and farm business consultancy The Andersons Centre

‘Agflation’: how do farmers deal with major headwinds?

  • Adopt a greater precision-farming approach to operations: determine which parts of the farm or herd are most, and least, productive. Optimise inputs to most productive.
  • Conserve working capital: in current circumstances, this is more attainable for tillage farmers as buoyant crop prices should mean good profitability in 2022 for some.
  • Look again at diversification opportunities: many UK farms have successfully developed alternative enterprises. While most Irish farmers might think that such opportunities are not applicable to them, there are always diversification options available as far as land-use is concerned.
  • Of course, there are a multitude of other areas that farmers could be looking at to mitigate the effects of the current crisis.

    These include genetic improvement, investing in renewables and getting a handle on greenhouse gas emissions from the farm.