AF Ag Inflation lands. Is it deflation?

Through careful analysis of our procurement for thousands of farmers and other rural businesses across the UK in the year to 30th September, we present our latest AF Aginflation Index. Overall, inflation for the period was -4.70%.

Having a steak sandwich on buttered white with a portion of chips and a milky, well-sugared hot drink you will feel the full force of the inflation reported in the retail price index for the year ending September 2023, even though it has dropped a few percentage points from the previous year to just over 12%.

Meanwhile, farmers and growers producing the basket of goods in a shopping trolley for this and every other meal, have been continuing to feel the impact of various input cost changes.

Here’s our summary of the aginflation index over time, which input costs are down or up, what the latest results looks like by type of farming enterprise and tentatively look to the future.


Mind the gap

In this first graph, you can see the fall in aginflation has continued and how the gap between costs of production and retail prices has narrowed but is still almost double what it was a decade ago.

At a glance, see how the breakdown by inputs of this autumn’s annual AF Aginflation figures and which categories of inputs have fallen, by most, and which are on the rise.

It’s electrifying

Leading the AF Ag-deflation index is electricity which has reduced by 58% since September 2022. The market appears to be seeing sense and ultra-high prices of last winter have rationalised. AF Head of Fuels and Energy Management Barry Crossan gives the following analysis:

“The run-up to winter can be an uncertain time for the electricity market, and as we’ve seen on several occasions over the past few years this can lead to significant volatility. Recent market movements have reminded us that you can’t take your eye off the cost of power on the wholesale market.

This is still the single biggest component of the unit rates you pay for electricity. The price of gas and carbon always directly affect wholesale power price but more so recently the geo-political climate and weather forecasts have influenced the wholesale power price. With continued uncertainty in the Middle East we must prepare for price fluctuations throughout winter.” 

Fertiliser: freefall but now set to rise again?

Another significant reduction in price has been seen in fertiliser, given the unprecedented market increases in 2022. AF Fertiliser Procurement Manager Josh Joachim commented:

“Fertiliser prices have taken a nosedive from the dizzy heights of 2022, with all major products coming back between 40-50% 12 months on. The most notable decreases seen have been in phosphates with TSP dropping around £500/t from August 2022, and DAP dropping £600/t 12 months on. Whilst it’s been a better year for our Members in terms of price per tonne, we are now witnessing some upturn and nervousness going into Q4 ’23 and Q1 ’24.

The armed conflict between Israel and Hamas has implications for P & K prices, as Israel is a major exporter of these commodities. In the same breath, natural gas prices are on the rise (currently double what they were back in June) as we move into our winter period of requiring more energy for heating. AF have offers available for Q4 and Q1 delivery on some products so, now cropping plans are becoming clearer, it might be worth locking in some product as ’24.”

We’re pleased that 72% of Members who buy from AF have already ordered fertiliser for next season, with P & K orders up 22% versus 2022.”

Fuel focus

Overall, fuel has dropped in price by 15% compared with the previous year, but if the summer low prices had held into autumn this price drop would have been greater. AF Fuel Procurement Manager Helen Thurtle gives her assessment of the market, and a look ahead to what we might expect as we head into winter:

“Fuel prices were at their lowest in June of this year having seen a 40% decrease since the beginning of 2023.

Global supply continues to be an influencing factor in fuel price volatility and recent events in Israel and Palestine have added to this uncertainty. To counter this Russian oil exports increased in September, but Europe still struggles to replace Russian diesel supplies since the price cap was introduced in September 2022. A cut in sanctions will increase Venezuelan oil production introducing much needed oil back into the supply chain. Concerns remain over Iranian production slowing due to current conflict in Gaza, which means OPEC are considering an increase in production for early 2024.”

Animal feed

The price of livestock feed is obviously closely aligned to the wheat price. So, no surprise that there has been 13.1% deflation in the last year. Livestock Feed and Equipment Specialist, Alastair Nottage, offers the following analysis:

“We’ve seen wheat price settle after the initial Ukraine/Russia disruption, which has led to a general decrease in feed prices. Combined with reducing demand from poultry and pig growers, due to bird flu and reduced demand respectively, and some farmers still hanging on to 2022 crop, you can understand why the price has been falling.

The million-dollar question is ‘what happens now?’, and there is nobody who can give an answer! We can see the price of feed creeping up now. Talk is that wheat may get back to £230 – 240/tonne, and soya has jumped £50 – 60 in the last few weeks.

Some respected traders are counselling against contracts at the moment, advising the spot market is offering less risk.

You can understand why when you see the projected reduction in US corn plantings issued by the USDA, predicting a 25 million bushel reduction in exports.”

Higher costs of crop protection

There has been 9.6% cost inflation across the portfolio, still reflecting the increase in oil and energy prices and the knock-on to production costs, but its important to say this is not the case for all products. AF Crop Protection Procurement Manager Aleksija Curcic advises:

“It’s worth noting that the largest price increases contributing to this percentage were the spring fungicides, potato products, and sugar beet products. We have analysed the key autumn products and we have only seen a 2% price increase on these, with prices remaining fairly stable.”

Cumulative effect

Many AF Members are in contracts to supply food processors, manufacturers and retailers and use the two year AF Aginflation Index, annual and cumulative, in their negotiations.

For that we can share that the figure for the two-year Aginflation Index is an average 29.45%. But AF analysis shows the reality of rising costs by enterprise is cereals 38.02%, sugar beet 36.77%, potatoes 33.56%, beef and lamb 29.56% and dairy 27.54%.

By farming enterprise

Cereals and OSR – Our latest AF Aginflation figures show a reduction in cost of growing cereals and OSR of 2.09%, and RPI for bread and Margarine has increased by 1.89%. These figures are encouraging given the movements in fertiliser and fuel costs over the last couple of years, but mask the anticipated effects of the very difficult 2023 harvest and the devastating autumn we are living through. Drilling and emergence have been significantly hampered by the biblical rainfall we have experienced, and so predicting yields for harvest 2024 is a very dangerous activity.

Potatoes – The cost of producing potatoes in the year to September 2023 reduced by 6.08% compared to 2021/22, but the increase in farm gate prices did not match the previous year’s aginflation. The cost to the consumer in the last year has increased by just 4.41% RPI, so farmers have taken most of the hit from last year’s inflation, and still have some ground to make up to achieve parity.

Sugar beet – production costs have increased 7.15% in the year to September 2023, but the cost of granulated sugar sold to UK consumers has increased by 51.32%.

Dairy – The cost of dairy farming has followed the feed wheat and energy prices downwards, with a deflation in costs of 9.40%. Unfortunately, this has been more than eroded by reductions in the milk price paid to producers. AHDB published the GB all milk price as being 52p/litre this time last year, it is now 37p/litre or lower.

Beef and lamb – costs have also reduced, in the year to September 2023 by 5.24%. The retail price of minced beef and lamb has increased by nearly 11% indicating again that farmers are being cut out of the profit chain, with retailers keeping a disproportionate share of the price increase for themselves.

Cooperate to combat inflation

One of the simplest ways for Members to reduce their costs is to maximise your spend through AF, because clearly the greater the volume of inputs we buy on your behalf, the better the economies of scale and market share we can achieve. Not only will you achieve cost savings, but we have a team of experts on the end of the phone waiting to share the benefit of their experience for your advantage.