Cost inflation is running at up to 24% for growers of the UK’s most important vegetable crops, says a report published by the NFU in May. That’s significantly ahead of the overall rate for agriculture, which stood at 18.6% for the 12 months to January.
Onion growers are seeing the highest rises in production costs, according to research and grower interviews conducted by consultancy Promar for the NFU in February and March, with inputs up 24% year on year. Inflation is running at 18% for iceberg lettuce production, 14% for carrots and 13% for broccoli.
The biggest percentage rises are in energy (up 80%), fertilisers (75%), diesel (50%), packaging (25%) and transport (17.5%).
Inflation in labour costs is 15% overall, but the report points out that because labour is the single biggest element of growers’ expenditure – accounting for more than one-third of total production costs for the horticulture sector overall – it is the area where any cost increases have the most significant effect on a business. When ‘indexed’ against total costs the extra spent on labour this year accounts for around 5.5p in the pound, an impact almost as high as the extra cost of energy.
During its research Promar interviewed 18 of the UK’s leading growers, focusing on seven crops across the vegetable, fruit and greenhouse sectors, representing around 50% of the total UK horticulture production volume and a mix of labour-intensive and more mechanised production systems. Report author and Promar director John Giles said the responses from growers showed a strong degree of consistency.
Growers interviewed said they were responding to the situation by reducing production by as much as 10% and rationalising the range of crops grown, with many pointing out that they had no further scope for cutting costs.
The report warns that without appropriate increases in farm-gate prices some produce would be left unharvested this year and some producers could be forced out of the sector altogether, leaving the supply chain more dependent on imports from countries where growers are facing similar economic challenges.
Many of those interviewed for the report said the level of inflation could not have been predicted at the time last year when they were negotiating this year’s prices with their customers. The delay and confusion around extending the seasonal workers scheme, and the associated minimum pay rates, came in for particular criticism. “Trying to do crop budgets, when it was not clear what we would be paying for labour when this is by far our biggest cost in the business has been a total nightmare,” one grower summed up. “It hasn’t helped one little bit when it has come to talking to our customers about what a sensible price for our produce would be and what return we can expect to generate at the end of the season.”
Growers also highlighted to Promar the difficulty of negotiating with retailers to pass costs on. One said: “It really is a game of cat and mouse. We agreed prices with them some time ago, they know our costs are going through the roof, they know we have crop in the ground and know we have to be able to sell it. Some have been a bit more predisposed to discussions on the potential to increase prices to them but we also know they are highly reluctant to pass on additional costs to consumers.”
The report also clearly highlights the frustration of growers in what is traditionally a hugely resilient sector used to dealing with the unpredictable. “It might seem we are being over dramatic – but we are not – make no mistake,” another grower told Promar. “This sector is facing an existential crisis, such as we have never seen before.”
“If this pressure continues, it will be simply unsustainable for some businesses to continue as they are,” said NFU horticulture and potatoes board chairman Martin Emmett. “This report presents the stark reality of what will happen if we continue without any action from the rest of the supply chain to bear some of the cost pressures and ensure a fair return for growers.
“Losing growers at a time when people want to see more British food in shops would be a huge loss, not just for UK horticulture but for the entire nation. Faming needs long-term planning and investment, so the current situation, if left to continue, will mean dire and irreversible consequences for the future of British horticulture.”