High energy and fertiliser prices, combined with the prospect of higher borrowing costs, are leaving few farmers in England and Wales unaffected. According to experts, even the most resilient will not be able to simply ride out the current economic climate. However, the situation is triggering innovative reactions and fundamental changes to farming practices.
Soaring fertiliser costs
According to Charles Trotman, Senior Economics and Rural Business Adviser at the CLA, fertiliser costs have risen by up to 500% since November 2020. “This is putting inordinate pressure on rural businesses,” he says. “Fertiliser prices have been out of control, the markets are destabilising and farmers have not been able to mitigate fast enough. We are going to see a restructuring of farming in a faster way than before.”
The problem, he adds, is that consumer inflation, at around 10–11%, does not reflect the rural and agricultural inflation rate, which has been around 25% over the past six months: “There’s a complete disconnect between the costs of food production and what people are paying in supermarkets.”
Farmers who grew this year’s crop with fertiliser costing £280 per tonne are now paying £800 per tonne, says Jonathan Armitage, Head of Farming at Strutt & Parker. “That is massive. Some risk-averse or forward-thinking farmers bought some volumes at £630/tonne, but stocks at that price have now gone.”
He says that the flipside for arable farmers is that output prices for grain are also increasing, which means many arable farmers are enjoying much bigger margins than they did in 2021. “But with bigger margins and bigger outlays there is a bigger risk,” he says. “There is a need for farmers to manage risk more formally. Most farmers will wait until they see the crop poking out of the ground before they fix a price for any of it. But farmers need to calculate how exposed they are to falls in the wheat price and work out strategies to limit their risk. They need to do the same exercise with energy costs and interest rates.”
Adopting new techniques
Jonathan has also observed farmers discussing new techniques and practices to deal with the current climate: “They are talking about regenerative farming, asking about planting cover crops or the drills they are using, asking one another how they’ve found these approaches,” he says.
When it comes to energy reduction, Armitage says: “You see fewer passes over a field, less drilling or ploughing. But rather than a fundamental technology change, it’s about using fertiliser in a more focused way. We are seeing people seek alternative sources, such as manure or digestate from anaerobic digestion - but there is only so much of both going around.” He says farmers are also looking at planting nitrogen-fixing crops, such as legumes and clover.
A business plan
Charles’ main concern is smaller and family farms: “They tend to be generational in outlook and often don’t have business plans, and often they have simply not had time to plan. They don’t have accessible advice available to them - that needs to be addressed.” The CLA has a range of briefing notes for members on business planning, including a business plan template, which can be accessed at cla.org.uk/policy.
“Farmers need to look at their relationships with their supply chains, develop relationships and get costs down, which is why a business plan is important. They need to identify the pinch points and how to bring costs down, and also look to rekindle their relationship with their banks. Borrowing by farmers is quite low, but as there is no such thing as a local bank manager anymore, neither banks nor farmers understand one another, and there’s such a potential for misunderstanding.”
Farmers and landholders should also work collaboratively with neighbours by sharing machinery and labour, he suggests, as well as working on relationships with retailers to produce niche products: “Farmers are asset rich and cash poor,” he adds. Farmers will not want to sell off their assets so you will see more of them diversifying – into restoration, hospitality, weddings, commercial lettings.”
Jonathan notes how interest in solar power has increased, with businesses having relatively steady year-round energy use. Yet energy prices are so high that he reports some extraordinary responses: “I’ve heard people say that if prices stay as high as they are then it may be worth buying a generator and powering it with red diesel. That is clearly bonkers from an environmental point of view, but things could possibly pass a threshold where that becomes viable financially,” he says.
In Wales, Cate Barrow, Director of Agriculture and Land Management at agricultural and environmental consultancy ADAS, is seeing dairy farmers follow the generator trend, but responses depend on the farming system. “For sheep and beef farmers it’s not such a big deal. Prices are higher than they have been post-Brexit and they don’t use a lot of energy or fertiliser.”
It is different for arable farmers and those with intensive grasslands. High fertiliser costs have driven significant behaviour change, with many farmers now viewing the manure their chickens produce as a commodity. “We’re getting [Welsh] farmers shipping their manure across the Cotswolds,” she says. “This has big positive environmental impacts, as manure is not being put into rivers and fertiliser isn’t ending up in the atmosphere.”
Welsh farmers are also taking baseline soil samples to establish indices of phosphorus and potassium to better assess fertiliser requirements. A lot of farmers are making sure they know what they have got, taking the view that if they have good levels of these in their soil, they can get away with less fertiliser use for one or two years.
A lot of farmers can batten down the hatches if they don’t have much borrowing and survive on very little, but eventually this will become too much
Cate notes a willingness to plant more trees, focus on hedgerows and explore regenerative farming: “Early adaptors and innovators are looking for alternative streams.”