Farming’s economic pain ‘will not last’

Despite more short-term pain from price volatility, the new year offers light at the end of the tunnel for a competitive UK farming sector, a senior analyst claimed.

The struggle in farming at the moment is evident in that gross domestic output in agriculture remains 9.2 per cent lower than its peak, whereas the UK overall is 2.7 per cent above its Quarter 1, 2008 peak, said Andrew Naylor, Lloyds Bank’s head of agriculture.

And the picture is mixed, he said, depending on which market you are in.

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“A bumper harvest in the US has left grain stores bulging, driving down global grain prices. This is positive news for livestock farmers but not so good for arable producers. At the same time, other input prices, such as fuel and fertiliser, will reduce as global oil and gas prices fall.

“The counter side is that external pressures on agriculture are squeezing incomes further,” Mr Naylor said. “The supermarket ‘price wars’, for example, are placing increasing strain on suppliers – indeed, a new report suggests insolvency among food companies increased by 28 per cent over the past year, in comparison to an eight per cent fall in company liquidations in the economy as a whole. And on the demand side, Eurozone economic weakness continues.”

But agricultural output is expected to grow this year, he said - albeit at 0.5 per cent.

“Continued growth in global population and the global economy will provide plenty of opportunities for a competitive UK agriculture sector. Indeed, there is clear evidence that UK agriculture exporters are already finding new markets further afield.”