Soaring energy prices drive up input costs

Last week’s Balmoral Show gave farmers a welcome, and long awaited opportunity to take a day away from the farm.

Fertiliser production across Europe is being scaled back in response to escalating gas prices.
Fertiliser production across Europe is being scaled back in response to escalating gas prices.

The weather was good and everyone across the industry enjoyed meeting, catching up and renewing friendships.

As always the current challenges facing the industry were discussed at length and every show has its big issue - the one that crops up in every conversation. This year farmer concerns about rising input costs was the recurring theme as escalating energy costs threaten to impact on every sector of the economy.

The dependence of UK industry on gas as the principle energy source has been brought into stark focus in recent weeks as supply concerns and a massive surge in contracted gas quotes have hit the energy market. For feed manufacturers running heavy production plant this represents yet another cost burden to add to a number of inflationary factors which are facing the trade. Freight costs on both land and sea continue to run at high levels and the global grain markets are very firm with all commodities trading significantly higher than last year.

The complex nature of our supply chains has been highlighted and the role of fertiliser manufacture in producing the carbon dioxide essential for the food processing sector has had to be secured by government intervention.

The consolidation of Europe’s fertiliser production in the last twenty years or so means that only a very small number of large scale manufacturers remain and two businesses now dominate the market. The principal fertiliser manufacturers, recognising that their product could not be produced at a price which would be viable for their customers have scaled back production with Yara reducing their Ammonia production by 40% across Europe. CF industries decision to suspend production at two plants in England had implications beyond the fertiliser industry and caused an outcry throughout the food chain. The knock-on effect of that closure was that the supply of carbon dioxide – which is a by-product of fertiliser production, was also impacted. The three week window of government support to get these plants back in production has given a breathing space for the CO2 market to adjust but also adds to the stock of fertiliser available for the new season. In the absence of any longer term measures, or of any correction in gas prices the outlook for fertiliser price and availability will be a concern for local farmers. The Autumn requirement for planting winter crops has been met but next Spring will bring challenges.

With Asia outbidding the European countries for the gas supplies and South America competing strongly for the limited stocks of fertiliser on the back of a strong global grain market Europe could be significantly short of fertiliser next year.