Falling prices damage profits

The National Farmers’ Union has said that declines in prices for key commodities such as milk and pork are largely to blame for the falling overall profitability of farming.

Total Income from Farming (TIFF) figures released by the Department for Environment, Food and Rural Affairs (DEFRA) show that in real terms the headline figure for 2014 fell by 4.4% to £5.4billion.

After a wet start to the year and floods in southwest England, good weather conditions in the spring and summer encouraged crop growth, record yields, ample forage and led to higher production levels. In comparison, prices declined which led to a 2.2% fall in the value of outputs. The lower prices also reduced the value of intermediate consumption by 5.4%. This led to a 3.2% (£306 million) rise in gross value added at basic price to £9,922 million. However, the movement in the Euro/Sterling exchange rate led to reduced Single Farm Payments which reduced payments by £459 million in 2014.

Despite this, the agricultural industry continued to show great resilience. The NFU points out that farming’s contribution to the UK economy, by Gross Value Added (GVA), had risen to almost £10 billion.

NFU President Meurig Raymond said: “These figures underline the impact of falling commodity prices. We have seen a roller-coaster ride in terms price falls across the various farming sectors over the past year and this trend has continued into 2015.”

Indeed, milk prices have dropped since February 2014, from an average of 33.95 pence per litre (ppl) to 27.22ppl in February 2015.

Milsted Langdon finds it astonishing that the overall profitability of farming is diminishing so rapidly. For further information on Milsted Langdon’s services to agricultural and rural businesses, please contact us.

Posted in ARA.