Continued deflation in food products poses a “very real threat” to the farming industry says the NFU’s head of food and farming, Phil Bicknell.
Noting that the UK is in a period of deflation for the first time in over 50 years, Mr Bicknell, writing an NFU blog, takes a very different view on the development to the “we enjoy it while it lasts” comment made by Bank of England governor, Mark Carney.
“While some might think that stuff getting cheaper is a good thing, economists and business leaders get concerned about deflation,” commented Mr Bicknell. “Generally speaking, if we expect to see lower prices tomorrow, then we’re more likely to put off our purchasing today. That delayed spending can be bad news for our economy.
“Shoppers buying less stuff means businesses produce less stuff. The knock-on effect is that businesses need to replace the equipment needed to produce stuff less often, and fewer workers are needed to produce that stuff. In farming, we’ve been experiencing deflation since the early part of 2014 and the price falls are widespread.
“Whether it’s dairy, cereals, sugar or meat, we’ve seen prices of a whole host of commodities fall. For example dairy and pig prices are currently almost 20% lower than they were 12 months ago. Lamb and beef prices have also under pressure in the recent weeks.”
The impact of deflation in agricultural products is already being felt, he continued, adding that profitability has come under pressure and margins have been squeezed. This is particularly the case for food, where prices have fallen every month since May 2014.
“Carney’s view is that the deflation we’re seeing is driven by lower food and energy prices, and we tend to buy those things as we need them, and that even if we’re expecting falling prices tomorrow, we’ll try to make sure we’ve got enough food to eat today,” added Mr Bicknell.
“I’m much more anxious, because I know the implications of falling food prices at the retail level. I know that the basket of UK farm commodities that makes up Defra’s Agricultural Price Index has fallen by 12% and is at its lowest level since November 2010. At the national level, I expect us to be measuring the drop in farming’s revenues in 2015 in billions rather than millions. That impacts on the bottom line for tens of thousands of farming businesses.
“Farmers are remarkably resilient, but continued deflation in the products we produce poses a very real threat to our industry.”