Farm input cost rises have slowed significantly over the past few months. The Anglia Farmers agricultural inflation index shows input prices have increased by 1.53% over the six months between August and February 2012. This is a huge difference to the rise for the 12 months to August 2011 of 13%.

Costs such as seed and fertiliser have actually fallen over the period. However increases in land rents, labour costs, fuel and feed have kept the inflation figure positive. The cost of producing combinable crops has increased by 1.88%, whereas livestock production costs are a bit higher: 2.15% for dairy production and 2.37% for beef and lamb production.

Farmer’s costs have increased twice as much as the Retail Price Index since 2006 when it was 100. RPI is now 133 and the Ag-inflation index is 163. There have been huge cost increases over the last few years especially in fertiliser, feed and fuel.

The dairy sector has been hit very hard with costs rising but no increase in the RPI for milk over the last six months. The cost of production for dairy farmers has gone up 65% in the last five years and these costs have not been reflected by the wholesale price.

A report on the ‘Farm input supply chain’, produced back in January by Jose Bove showed the serious problem that is the rising costs to farmers. The report showed the following increases between 2000 and 2010:

  • 60% for energy
  • 80% for fertilisers
  • 30% for animal feed
  • 36% for machinery
  • 30% for seeds

The EU parliament led by Alyn Smith demanded action on the issue of farm inputs which continue to rise ahead of farm gate prices, which have increased only 25% between 2000 and 2010.

Even though we are now seeing the rise in input costs slowing down, they are still rising. Unless the sale prices rise too it means lower profit margins are ahead. Thought needs to be had about how low you can afford your profit margins to go. At what point do you break even?