It is always an interesting parallel for me that energy utilities can increase their prices in line with raw material rise and to meet the need for re-investment; water utilities this week have done the same but agriculture is seen in a different light. Whilst UK food prices are rising at the fastest rate for 28 years how much of this value is actually cascading back to agricultural businesses?
Are farmgate food prices actually high? Well if you look at the graph on the BBC article The cost of food: facts and figures you will see that farmgate food prices are low compared to the 1970s. Farmers have been driving their businesses by selling off all assets that don't drive the business (old barns, pony paddocks) constantly reducing costs, getting bigger to drive cash flow, only investing when they can afford to (not when the business needs it) and seeking always to maintain a margin. When wheat was £80 a tonne and our costs were £65 a tonne we made a margin of £15 a tonne ( a fish and chip meal for four). As we harvest now wheat prices are £120 a tonne and with the increased cost of inputs the costs have risen to £115 a tonne leaving a margin of a fish and chip meal for one.
There is much debate that many arable farmers will not be replanting this autumn because they do not believe that such maths are viable. Agriculture is increasingly being driven into the free rather than a managed market. Agricultural policy has been designed and has succeeded in reducing European food mountains over recent years and I have argued before that food production subsidies are a very blunt instrument. However we need to begin the mature discussion on how we maintain viable agriculture in the UK as the crock of gold that was glimpsed at the end of the rainbow last year for UK agriculture has proved an illusion.
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