Farmgate prices impacting incomes

Prolonged drops in farmgate prices have been blamed for the falling farm income by the National Farmers’ Union (NFU). 

This comes as Department of the Environment, Farming and Rural Affairs’ (Defra’s) latest Farm Business Income forecast shows significant falls across almost all the farming sectors for the second year in a row.

According to the report, Average Farm Business Income is forecast to fall to around £26,500 on specialist pig farms as EU markets have exerted downward pressure on UK markets due to reduced demand. Finished pig prices are more than 15% lower and the resulting fall in output is expected to be only partially offset by rising productivity and higher throughput.

Poultry is predicted to fare better. The report stated that forecasts for specialist poultry farms are subject to a considerable degree of uncertainty, reflecting both the structure of this sector and the relatively small sample of these farms in the FBS. Despite a fall in egg prices, increased throughput for both eggs and broilers is expected to maintain total farm output at a similar level to 2014/15. Lower input costs, particularly for feed and heating mean that incomes are expected to increase on these farms to around £145,000.

Average incomes on lowland grazing livestock farms are expected to increase by 8% to £20,000 in 2015/16 as input costs fall slightly more than output. Prices for finished and store cattle have been firmer due to tight supplies, but throughput per farm is forecast to be lower. There are signs of more stock coming through in the younger age categories, which will have a positive impact on closing valuation numbers and, subsequently, beef enterprise output. However, sheep output is expected to fall as prices for fat and store lambs, as well as cull ewes, have been lower than the previous year. These lower prices are due to plentiful domestic supplies of sheepmeat resulting from a larger lamb crop in 2015 and a carryover of lambs from the 2014 crop.

Massive challenges

Despite the moderately positive news for the meat sector, NFU president Meurig Raymond warned of massive challenges. “Given the low prices we have witnessed across the industry it is no surprise that we have seen sharp falls in incomes. But the figures still make sobering reading. Agriculture is short on good news right now, with the last 24 months seeing British farming face massive challenges.

“The subsequent cash flow problems this creates for agriculture should be a worry for all in the agri-food sector. Farmers need to be profitable so that they can reinvest in the future. The reality is that low profitability and falling confidence should be a wake-up call for everyone and it’s the antithesis of a sustainable framework for the UK food industry.”

Raymond added the focus should on a long-term risk management plan.

“While the short-term focus is on income and cash flow, the longer-term issues are around better management of risk and volatility and everyone has a role to play in achieving that. There is no quick fix but we all have are responsibility towards achieving a better functioning supply chain. Only then will farmers have the confidence to invest in the future and build resilience,” he said. “The solutions are out there – for example forward contracts, formula pricing, supply chain integration – but these currently characterise a disappointingly small proportion of the food supply chain.

“The opportunities for UK farming are clear – in the longer term, global and domestic demand will increase. 2016 will see a new food and farming plan laid down by Defra. A plan to ensure British agriculture thrives needs to be bold, it needs to address fundamental issues of productivity and competitiveness and it needs to see a culture change about how we value food and farming. It must set a confident path for all parts of the UK food system.”

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