While demand for gas and electricity may be declining, fertiliser and fuel usage will increase in the coming weeks as spring planting begins.
Iranian oil exports only account for 4.5% of global supply, but it’s the ongoing disruption to the Strait of Hormuz, via which around 20% of the world's oil and gas shipments pass, that has caused a surge in oil prices.
Qatar and the United Arab Emirates also produce around one fifth of global liquefied natural gas (LNG), much of which is shipped to Europe and Asia via the Strait.
“This conflict underlines why it’s so important that we build resilient farming and growing businesses in the UK.”
NFU President Tom Bradshaw
NFU President Tom Bradshaw said the escalating conflict in the Middle East “is a concern” and that the NFU is monitoring the situation closely.
“We’ve already seen how disruption to global oil and gas markets has influenced the price of fuel and fertiliser here in the UK, which are key inputs used for spring planting, growing crops and forage production,” he said.
“Continued supply of these is essential for resilient domestic food production. This is reflective of cost pressures across the whole food supply chain which, if it persists, could lead to further food price inflation and is something the government needs to take very seriously.”
Prices continue to fluctuate
The situation is constantly evolving and, as with Russian’s invasion of Ukraine, much will depend on the events of the coming days to determine the extent of the impact on farming and food.
The NFU is gathering evidence and reports from members, and is working with CBI, agricultural supply chains and Defra to ensure intelligence is being fed into the right government decision makers and keeping assessments up to date.
The increased volatility has exacerbated the lack of price transparency in supply chains with farmers often only being made aware of the price they will pay once products have been delivered onto farm. This limits the ability of farmers to make informed decisions and erodes trust.
Anecdotal evidence from members suggests that red diesel prices rose above 100ppl on Thursday and Friday last week with localised price variability reported.
The anecdotal nature of the reporting highlights a key failing – that there is a lack of transparency in these markets. The only public UK fertiliser price data comes from AHDB and is updated just monthly, which is inadequate in a market that is moving daily. Red diesel pricing is even less transparent, with no recognised index and many farmers only receiving the price at delivery.
Impact on farming
While the majority of growers will have already taken receipt or have fertiliser on order, where there is demand for later season application, then there are questions around how this will be impacted by the market volatility.
The removal of the direct support payment in England has also removed farmers’ main tool for managing these types of risk, which are out of their control. Farm business incomes are already under significant pressure and these price rises will add to that.
This is also a critical period for livestock farmers, who typically buy fertiliser when they need it due to cashflow and storage constraints.
“This conflict underlines why it’s so important that we build resilient farming and growing businesses in the UK – businesses that can continue to produce food for the 70 million consumers of the UK and withstand shocks from global volatility,” said NFU President Tom Bradshaw.
The NFU is:
- Closely monitoring commodity markets and encouraging members to feed through price information from the ground.
- Working closely with NFU Energy to understand the impact on electricity pricing and contracts.
- Engaging with the supply side, to understand the pressures they are facing, such as the AIC with respect to fertiliser and Fuel Industry UK on red diesel.
Members raised concerns with the Farming Minister Dame Angela Eagle this week to bring the effects of price volatility and availability to her attention. We are briefing the DIMMP (Defra Industry Market Monitoring Panel) and the Food Prices Analysis Forum on the existing and potential future impacts. We are also liaising with CBI on cross-business impacts.
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