January 29, 2010

UK farm incomes to fall in 2010

High stock levels weighing down on commodity prices and the strengthening of the sterling in international currency markets could pull down UK farm incomes this year.

Grain and dairy incomes are likely to remain under pressure, though the livestock sector will continue to be characterised by strong prices, said a recent NFU briefing to the Confederation of British Industry (CBI).

The weak pound made imports more expensive during 2009, allowing UK prices to increase in tandem. But the pound is widely expected to strengthen this year, which will impact price levels achievable by farmers, said the report.

The sterling has strengthened against the euro in recent weeks, which undermined the competitiveness of UK agriculture. The pound was worth EUR1.15 (US$1.6) on Wednesday (Jan 27), up from EUR1.11 (US$1.55) two weeks ago – the strongest since August 2009.

The NFU also raised concerns of rising input costs. While fuel, feed and fertiliser are cheaper than they were a year ago, other costs such as seed, electricity, contractor's charges, materials, buildings and veterinarian charges are all on the rise.

Energy prices are also on an upward trend, which will in turn influence fertiliser costs, the report said. Also on the rise are labour costs, partly because of changes made to the National Insurance contributions. All these will have a significant impact on farm margins in 2010, the report said.

The NFU noted the problems farmers face in passing costs increases to customers, but the introduction of a supermarket ombudsman could improve the situation.