By Colin Clark, agricultural partner at Pagan Osborne
The latest announcement that the American drought is set to push up food prices is an unwelcome one for food producers, farmers, shops and shoppers.
The increasing price of animal feed has seen costs soar for farmers here in the UK and, with a wet summer, the availability and price of cereals as well as hay and straw for the winter months is also set to be an issue.
It may seem slightly reassuring that the British Retail Consortium is reporting food price rises have slowed to 3.1% over the past year compared with a high of 10% in 2008 but its director general Stephen Robertson has warned 'the relief may not last' because the poor US harvests are 'creating a build-up of inflationary pressure'.
And British farmers are reporting that the bad summer has decimated or delayed their harvests.
For consumers, who are having to tighten their belts as the economy is still at a low ebb, job security remains fragile and pay increases, if any, are much lower than food inflation, this is bad news.
And farmers despite better prices this year do not fully benefit from these increases either. With much of the crops being badly hit due to poor weather in the UK, increase costs in essentials such as fuel, packaging, fertiliser and feed, only a small portion of the increase in food prices makes its way into farmers’ pockets. Much of the extra profit seems to stay with the middle man or retailer.
As well as a short-term issue, these pressures may be causing a longer-term problem for food production in the UK. Unless prices increase, many of the current generation of farmers could go out of business or put their businesses on a ‘care and maintenance’ basis which will reduce output and exacerbate food shortages. Whether that leads to higher prices remains to be seen.
Demand for farmland still remains strong despite the current bad weather causing difficulty harvesting. There are still enough optimists who wish to expand and take a long term view of an industry that has been one of the most resilient throughout the centuries despite wars, recessions and the problems caused by our climate.