Why is the Iran war impacting UK farming?
Iran borders the Strait of Hormuz. Through this channel passes roughly:
- 20% of the world’s oil and gas shipments.
- One fifth of global ammonia and urea supplies.
These are key components used in food production, with fuel and fertiliser typically accounting for between 25-30% of total costs.
Crude oil:
Used in producing red diesel, a fuel used in off-road vehicles and machinery such as tractors.
Fertilisers:
Boosts the growth of arable and horticultural crops, as well as grass for grazing livestock.
- Urea – one of the nitrogen fertilisers produced and applied to crops.
- Ammonia – a key feedstock for producing nitrogen fertilisers and not widely produced in the UK.
Natural gas:
Used to heat glasshouses which produce things like tomatoes, cucumbers, peppers and ornamentals.
• Provides heat for young poultry birds and regulate temperatures in sheds to keep birds comfortable.
• Used in the production of nitrogen fertilisers, accounting for between 60-80% of the input costs associated with its production.
How are different farming sectors impacted?
Arable crops
Eg, wheat, barley, maize, pulses, oilseeds, and oats.
Farmers busy planting spring crops in March, which require both fuel and fertiliser, and the use of these inputs is always high at this time of year.
With the costs increases coming at the same time, farmers are forced to pay more for these vital inputs.
Although most growers will already have bought their fertiliser for spring planting, it can also be applied later in the growing season. For example, nitrogen fertiliser can be used in late-April/early May to boost the protein content of milling wheat. But there are questions around how market volatility will impact cost.
Livestock and dairy
This is a critical time for these farms as pastures emerge from winter and into the main spring growing season. Cattle, which are often housed over the winter to protect them and the fields from wet winter weather, are released back onto the fields as the weather and ground conditions improve and farmers want plenty of lush grass for them to graze.
Fertilisers help sustain grass growth, providing plenty of nutritious food for grazing cattle. It also provides greater grass yield for farmers who will do multiple cuts over the spring and summer to build their stores of silage and hay to feed cattle in the winter months.
However, unlike most arable farms, livestock and dairy farmers do not typically buy fertiliser in advance due to weather, ground conditions, cash and storage constraints. Instead, they buy it when they need it, which means they can be more susceptible to volatility in global fertiliser markets.
Horticulture
Eg, protected crop (tomatoes, cucumbers, peppers, mushrooms) soft fruits, top fruits, vegetables and salads, herbs, bedding and garden plants and cut flowers.
Similarly to arable farms, horticulture businesses require fuel and fertiliser, but most prominently felt by those planting crops in the spring such as potatoes, vegetables and salads.
For those growing protected crops in glasshouses, eg, tomatoes, cucumbers, peppers, courgettes and flowers, (some soft fruit is also grown under glass to offer year-round British supply) energy from heating contributes around a third of the total cost of production. These businesses are therefore facing significant cost increases from the disruption to natural gas supply chains.
It comes at a time when horticulture businesses are seeing large increases to their standing charges for electricity use, which started to come into play from October with the biggest hike due to happen in April.
This is a particular issue for horticulture businesses as the current standing charge tariffs are based on peak demand, which disproportionately affects seasonal users of high-consumption equipment, such as grain dryers, as well as seasonal supplementary lighting, storage and refrigeration.
This results in these users paying high standing charges all year round. Some members are reporting their electricity bill has jumped by an additional £1 million which is unsustainable, let alone with additional costs now coming from using national gas.
Poultry
Meat and eggs.
Poultry is a highly automated sector which relies heavily on energy to ensure businesses can run efficiently and optimise bird welfare.
Natural gas is needed to provide heat for young birds and regulate temperatures in poultry sheds to keep birds comfortable.
The increasing costs of haulage is also an issue for the sector as specialist bird movements are critical.
We are monitoring the impact on specialist feeds for poultry, which includes micro-nutrients which are imported from overseas and could be impacted by shipping disruption.
How much are input costs increasing by?
Markets are volatile and quickly changing in response to events in the Middle East.
Oil
Oil prices rose rapidly on Monday 9 March, with oil hitting close to $120 per barrel. Prices on Wednesday 18 March sat close to $108 per barrel. This compares to $71 on 27 February.
This has driven an immediate and widespread spike in red diesel prices, with NFU members reporting prices anywhere between 92pence per litre to 138ppl since the start of the conflict. This compares to less than 70ppl in the week before the conflict began.
Gas
Since European and UK gas prices peaked on Monday 9 March to over 160 GBp/therm (double where they were before the conflict began), prices had stabilised close to 128 GBp/therm. However, on Wednesday 18 March prices surged again to over 140 GBp/therm in response to attacks on an Iranian natural gas field.
All of these undermine farm profitability, as seen in anecdotal evidence from NFU members across the country during the early weeks of the Iran crisis.
On-farm data
Early reports (up to 20 March) show that members are already experiencing significant price increases.
For example, members have reported:
- Fertiliser prices rising by around 27%.
- Red diesel costs increasing across a wide range, from 4% at the lower end to as much as 90%.
- Kerosene prices showing similar volatility, with one member reporting a 21% increase and another seeing a rise of 112%.
These figures are based on anecdotal evidence rather than comprehensive data, but they provide an early indication of the emerging volatility.
Is price the only issue?
Transparency
As well as increasing prices, farmers and growers are also citing price transparency as being a key issue. Many farmers are only being given a price once the fertiliser or oil has been delivered to the farm, making it difficult for farmers to decline or challenge the price. This limits their ability to plan and make decisions.
The only public UK fertiliser price data comes from the AHDB (Agriculture and Horticulture Development Board) and is updated just monthly, which is inadequate in a market that is moving daily. Dame Angela Eagle, Defra Farming Minister, has said she’s asking AHDB to provide reporting on fertiliser supply and to publish more reference data to support greater market transparency. The NFU supports this ask.
Red diesel pricing is even less transparent than for fertiliser, with no recognised index. However, the Competition and Markets Authority has now committed to monitoring the sale of fuel, including red diesel, which will help provide some transparency within the market.
Are we seeing shortages of these inputs?
At the start of the conflict, the NFU heard from suppliers that imported supply of fuel and fertiliser is robust. While we're not hearing of widespread issues with red diesel or fertiliser supplies just yet, some members are reporting extended lead times for deliveries and some haven't received their full orders.
This is a fast-moving situation and, understandably, farmers and growers are worried about access to these key products over the coming months.
There are particular concerns given the UK’s lack of domestic fertiliser production. And, as harvest begins later in the summer, fuel will be vital to bring in the season’s crops.
However, the most immediate and pressing concern continues to be affordability over availability.
Are food prices going to go up?
It is likely that these cost pressures, which span across the whole food supply chain, could lead to food price inflation. We’ve already seen a similar situation play out with the Russian invasion of Ukraine which drove an ongoing cost-of-living crisis here.
Even if the war concludes in the next couple of days, supply chains have been hit hard enough for long enough that it’s unlikely to evade further inflation.
Protected crops
The British Tomato Growers Association has said this week (w/c 16 March) that, in six weeks or so, we could see a rise in the price of things like tomatoes, peppers and cucumbers.
However, sector markets act very differently.
While some costs will inevitably be passed on to the consumer, some farming sectors will have to shoulder much of the additional cost burden. The question will be how long businesses can afford to do this for, with such costs drastically undermining farm profitability.
Cereals
The price of grain is set globally. These are based on supply availability, not the cost of production.
At the moment, AHDB reports that global supplies of wheat and maize remains comfortable. We are also expecting larger yields in Argentina, Australia and Canada to keep world markets well supplied, dragging global grain prices.
This means that, for many UK arable farmers, it will cost them more to grow the crop than they will be paid for it.
UK farmers are particularly vulnerable because, after leaving the EU, they have lost access to subsidy payments they used to get through the EU’s Common Agricultural Policy. These payments continue to provide a level of resilience to EU farmers, helping them to withstand global shocks such as these, which UK farmers now don’t have.
Poultry
It is unlikely that retailers will put prices up in a cost-of-living crisis, which means producers and the wider supply chain is most likely to absorb these additional costs.
Wider supply chain costs
While some sectors won’t be able to pass costs up the supply chain through to the consumer, the cost of production at farm level is only one aspect of retail costs.
Pressure from increasing oil and gas costs will be felt throughout the entire food supply chain, including processing, packaging and transport, all of which will contribute to food price inflation.
Is the government doing enough to support UK farming through this period?
The NFU met with the Defra Secretary of State, Emma Reynolds, and Farming Minister, Dame Angela Eagle, on 11 March to discuss the UK’s food resilience in light of the war.
Transparency
Defra then fed our concerns around lack of transparency in the fuel market in to the Competition and Markets Authority, which has now committed to monitoring the sale of fuel, including red diesel. This will help provide some transparency within the market.
We now need similar transparency for fertiliser. Following the meeting with the NFU, the Farming Minister has stated she is “asking AHDB to report back on fertiliser and red diesel supply and use across agricultural sectors, and to consider what they can do to publish more reference data to support greater market transparency for farmers and growers”. The NFU supports this ask.
Domestic fertiliser production
On 19 March, Defra launched a consultation on plans to support innovation in the fertiliser sector and diversify supply. This is a much-needed long-term focus.
In 2023, CF Fertilisers significantly scaled back its manufacturing operations, meaning we now import more than 60% of our fertilisers. For the fertiliser it does produce, the shut-down of its on-site ammonia production and move to imported ammonia means it is susceptible to global prices. This is not sustainable in the face of such volatility in global markets.
Farmers need a fertiliser market that is reliable and affordable. The NFU will work with Defra to ensure the final framework is practical, boosts productivity and supports long term food security.
However, while boosting the domestic fertiliser sector is an important long-term goal, it won’t help farmers and growers through this immediate crisis.
Government engagement
The NFU continues to engage with the government at the highest level to ensure it has a clear picture of the impact this is having on domestic food production now and could have in the future.
What more can be done in the future to prevent global shocks affecting food production and food prices in the UK?
In the long-term, it all comes down to resilience. We need to find ways to prevent UK farm businesses becoming collateral damage to global politics.
This is about ensuring we have a stable homegrown food sector which can withstand shocks from global volatility and continue to produce food for the 70 million consumers of the UK.
Resilience key to food security
The government has repeatedly said that ‘food security is national security’. These are welcome words, but they need to be backed up by policy and real investment in building resilience into the UK’s food sector.
The NFU has outlined various policy areas in its new ‘Building Farming’s Resilience’ report. It outlines practical policies and targeted investment which would help businesses to withstand sudden changes in things like market prices and weather events without them having a major impact on their ongoing viability, such as:
- Stabilise farming incomes.
- Drive productivity.
- Strength farmers’ position in the supply chain.
- Manage climate extremes such as drought and flooding.