Just as wheat prices soar, the rise in the price of fertiliser and fuel is hitting farmers where it hurts.
Nitrogen prices have almost doubled from £165 per tonne in 2007 to £320 per tonne this year, phosphates are over £700 per tonne and potash costs are now climbing to excess of £425 per tonne. Applying a comprehensive fertiliser programme can now cost over a staggering £120 per acre!
To give a worldwide example on the effects of the fertiliser price increase, farmers in Kenya's Rift Valley, even with the price of wheat where it is today, are now planting a third less of the land than last year due to the two fold increase in fertiliser costs.
Wheat prices began to rise in 2007 due to bad weather in key growing areas such as Canada, China and parts of Europe. Global supplies have slipped to their lowest levels in 26 years and wheat has seen its biggest price rise in history going from a modest £85 per tonne in April 2007 tipping the £200 per ton mark around Christmas. This hike in prices is being passed on to consumers with the average price of a loaf of bread costing 20% more than a year ago.
Despite of the increase in wheat prices, the margins are going down. With sprays having an oil base these are on the increase as well, coupled with the increase in fertiliser prices, farmers who run their business on overdrafts will see a large increase in finance charges as well. In simple terms a 1000 acre farmer who is used to variable costs around the £120-£140 per acre will have (in theory) to borrow £140,000 to fund the cost of inputs. With variable costs at £200-£250 per acre this now means a further 100k of borrowing that will cost the business £7,000 a year in interest.
To add further costs to the farm business, the rise in fuel prices is creating a double whammy, with agricultural diesel increasing from 35p per litre from last year to over 60p per litre and analysts are speculating it tipping 70 pence soon! Running a new 200 horsepower tractor used to cost around £40 an hour. This has now risen to over £50 an hour with the recent fuel increase.
James Goodson of Fisher German comments: “Farmers can’t afford to keep their eye off the ball in terms of costs. While it is exciting at last to see high prices for commodities, the rising price of fuel and fertiliser is really going to hit their cash flow hard. A day spent in the office with a calculator looking at the costs of running machines, variable costs of growing crops and whether that block of land that has come up for rent next door is ever going to make you any money is a day well spent!
Globally, the lack of food stocks has put farming firmly on the political agenda again. With so much land being given over to the development of biofuels – indeed America has given much of South Dakota and South Carolina to biofuel production – huge food supply problems have been the result. Analysts are warning that higher prices will drive an extra 100 million people worldwide into poverty.
Gordon Brown recently stated that “rising food prices posed as great a threat to world prosperity as the global credit crisis and warned that they threatened to reverse progress made to alleviate poverty”.
James Goodson of Fisher German sums up by saying: “What ever our Government decides, soaring food prices and soaring costs should be a wake-up call for the world to make long term investment in the global food supply chain and UK Farmers have a pivotal role in all of that”
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