Russia and Ukraine and the impact on UK farming and rural communities
Farmers plan their crops months in advance, buying fertiliser, seed and sprays throughout the year when prices are competitive. This is the same the world over.
The lack of the huge amount of wheat normally produced in Russia and Ukraine could have a massive impact on world supply and prices for the UK, pushing up prices. And until last week also I hadn’t realised that Ukraine produces 17.5% of the world’s supply of Maize. So, we are likely to see higher world prices. Potentially then it is good news for UK farmers but it is not just about predicted sales prices- costly inputs impact on profits. And rising oil prices mean the already high 2021 fertiliser prices are likely to climb further as well as diesel and other fuel costs.
I had the privilege last week to listen to one of the greatest farm economists, Mark Beresford-Smith of HSBC speaking in Newmarket to set all this out. He suggested that we are now in possibly a position reminiscent of 1973 with the OPEC crisis and the Yom Kippur War. Plus in 1975 we saw up to 25% inflation resulting from our inability to deal with the quadrupling oil prices.
The older farmers out there will remember those times well, and may not be prepared to sit through the same again. So this may mean more older farmers decide to pass the baton of alternative farm income generation in 2022/23/24 to the younger generation as we enter uncertain farm income times after the 2024 fall in subsidies as a result of the Agriculture Act 2020.
We know we are dependent on world prices for our UK agriculture sales and inputs. On top of the already high fertiliser prices we will get in April the 54% increase in electricity and gas prices and then possibly more increases in October 2022. Both farmers and non-farmers will be impacted by those costs, but it will make non-oil and non-gas energy sources more profitable. Farmers who are prepared to invest, borrow money and take risks in energy production could pick up income streams when traditional crop subsidy income falls off after 2024.
In January 2022 we saw more details published on the new environmental non-farming schemes, and those will carry environmental benefits for communities if the schemes become financially viable enough for farmers to embrace. The large scale of those schemes will mean collaboration and contracts needing professional advice before commitment between landowners, so as to ensure that each farmer does perform under the scheme, and each contract will need to be properly documented.
This will also mean less traditional food production, and thus conflict with the present perceived need by the UK public for UK farmers to produce cereals that the UK may not be able to import.
I believe this is one of the most exciting times for agriculture, as change driven by necessity is embraced by farming families in their succession planning, coupled with the recognition by local communities of the need for farmers not just as food producers, but also as custodians of wildlife and wellbeing. The non-farming side will need to be considered carefully by farming families – some older members may not have the stomach to abandon food production in the short term whilst prices rise in the short term, but the younger generation may want to borrow on fixed low interest rates to invest in energy production and environmental projects which in the medium to long term produce greater returns than out of food production. Careful professional advice will be needed, and no “one size fits all” will work here in East Anglia: each farming family and farm is different.
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