Dairy and tillage farmers are facing the biggest headwinds on cost increases as they face into 2022.

The cost of production on these farms has increased by close to 50% for the basket of goods used to produce the crop or protein product.

Sheep and cattle farms are not far behind, with cost increases of 34% for the basket of goods used to produce meat protein on these farms.

The huge cost increases – driven mainly by increased feed, fertiliser and energy costs – will reduce farm margins despite record output prices for most farmers.

In this exercise, we have looked at the typical farm in each sector, selected the goods that represent over 70% of the production cost and then factored in the cost increases that are happening right now. The net effect is that all four sectors are seeing huge increases in the cost of producing food.

The big question is, can 2022 output prices in each of the sectors keep pace with the farm inflation costs. If not, the reality is that farmers will be worse off, despite achieving record output prices.

With prices already at record highs during 2021, for many of the sectors, expecting or banking on an even higher output price is a big ask.

Having said that, there is some head room in the dairy, tillage and beef sectors for further output price increases. The mood music for lamb prices is less optimistic for an increase.

Milk prices have increased circa 30% from this time last year. Year-on-year milk prices are up 18%, beef is up 13% and lamb is up by about 10%.

Forage, feed, grassland, other direct costs, energy and fuel amount to about 70% of the cost of production on the typical dairy farm.

The National Farm Survey puts the typical dairy farm at 84 milking cows on 41ha, producing 463,000 litres (5,647l/cow), feeding 1.1t of concentrates per cow and using 184kg of nitrogen.

If we assume the early season cost increases stay with us for 2022 and assume similar usage volumes of inputs, then our estimates are showing dairy farmers are looking at cost inflation of about 48% on these four key production costs.

Taking key costs of fertiliser, feed, electricity and fuel and annualising the cost increases, it shows the cost of these four key inputs rises from €42,580 to €63,148, a €20,568 increase or 48% shift upwards.

We are taking the typical input prices this time last year and comparing to the price being paid now.

Winter and spring barley account for 67% of the cereal area sown in this country. Unprecedented fertiliser price rises, coupled with expected price increases for plant protection products, seed, fuel and replacement parts, leave tillage farmers with extremely difficult decisions.

Average fertiliser costs on winter and spring barley crops will increase by approximately 150%, assuming full rates are applied. This is based on CAN plus sulphur at €700/t – €480/t ahead of last year – and compound fertilisers at approximately €750/t (varying with composition) but approximately €400/t higher than last year’s prices.

As farmers sprayed off green cover on fields in recent weeks, they were hit by a price increase of approximately 200% on glyphosate, with a 20-litre drum of 360g/l product moving from approximately €80 to at least €240, or up from €4/l to €12/l.

Other plant protection products are also expected to rise, possibly by 5% or more due to packaging, transport and ingredient supply issues.

The typical sheep farm in the National Farm Survey is between 30ha and 50ha. If we assume a 40ha farm stocked at 8.5 ewes/ha selling 1.6 lambs per ewe that’s equivalent to sales of 13.6 lambs at €128 each in 2021 or €1,740/ha.

The suggestion is that this output level will be maintained in 2022 but that costs will increase significantly. Feed, fertiliser, vet, machinery and electricity account for about 70% of the production cost on a sheep farm.

There have been significant cost increases in all cost categories.

Feed is looking at a €60/t increase on 2021 costs, fertiliser is up around three times the cost it was last year. Vet products and animal treatments are all up by between 5% and 7%.

Machinery running costs are up 25 to 30% and electricity charge is up over 20% on last year’s cost.

Feed and fertiliser are the two talking points on beef farms at the moment.

With fertiliser prices 2.5 times what they were just 12 months ago, there is a real concern that many small drystock farmers won’t be able to purchase what they require to grow grass in 2022.

If we look at Teagasc National Farm Survey figures, we see that the average 30ha cattle-rearing farm spent €2,981 on fertiliser in 2020.

The same fertiliser purchase in 2022 is closer to €7,500. That’s an extra €4,500 to come up with in the next two months.

The real issue is that much of this fertiliser would have been purchased on credit with bills paid at the end of the year.

Merchants are not able to provide such facilities this year and the cash isn’t there on many drystock farms to pay for it up front.