Jeremy's Blog 8th April 2022: Repricing the Economy

This article by Jeremy Moody first appeared in the CAAV e-Briefing of 7th April 2022

We are re-pricing the economy. This is not simply the larger impersonal movements of global commodity markets but the actions of suppliers and buyers, as each adjusts to changed circumstances. How far does each hold their ground or press their cause? What business adjustments does each make? What new things become practical? What old things have to change? This is perhaps still more an adjustment to a “new different” rather than the embedded continuing inflation we saw in the 1970s. If farming wishes to see a reward for its commitment and risk, now is the time for producers to press for improved returns. If not now, when?

The current retreat from globalisation with its dependence on China for much production and Russia’s role in energy naturally brings increased costs. The global markets in oil may be expected to ease back but the more regional markets for gas are thought more likely to remain high – perhaps especially in Europe as Germany and other countries wean themselves from direct Russian supplies. That continues the pressure on fertiliser.

Users are making major changes to the sourcing and formulation of feed and food products, looking for relaxation of regulations on composition and labelling to ensure supply. With the UK reported to have four weeks supply of sunflower oil (largely sourced from the Black Sea), food processors now look to rapeseed as the easy alternative.

Farming’s immediate concerns are over the inputs of fertiliser, feed, fuel and power. A 250 acre livestock farm might think output prices could warrant an extra £41,000 cost fertiliser but still be very conscious that that is real money to be found now. Yet with first cut silage within weeks, that decision is part of answering the question about the fodder needed for the winter.

Farming’s larger questions, though, are about risk and the reward from produce. Feed costs put very direct pressure on poultry. Establishing high value crops now makes a much larger call on working capital, leading some in glasshouses and roots, to scale back – exactly the reverse of what Government food policy would want. That is, of course, compounded by the pressure on labour affecting higher value sectors and downstream processing.

While higher food prices add to the Government’s woes on the cost of living, the concern has to be that UK farming retreats from higher value, high investment enterprises, scaling back and reducing activity. Improved output prices is the best answer, then allowing each business to make its own adjustments to thrive in the “new different”.