Latest figures from the Anglia Farmers Agricultural Inflation Index (click here) show an annual reduction in overall farming costs of -6.32%. But the agricultural purchasing group stresses this is mainly due to a fall in the cost of fertiliser and drop in interest rates. In reality farming costs have risen by 26% since the index was launched in October 2006.

The index is based on actual cost change information from the Anglia Farmers’ purchasing office on 95 products. The method is similar to that used for the retail price index (RPI) where products are grouped and then weighted.

The overall agricultural inflation index covers nine cost centres and the impact of these is then equated to five enterprise sectors for combinable crops, potatoes, sugar beet, dairy and beef & lamb.

“In all but sugar beet the overall inflation figure of -6.32% is lower than the remaining enterprise figures,” says Clarke Willis, chief executive of Anglia Farmers. “This is because the overall figure encompasses the whole farm including the infrastructure as opposed to a larger proportion of the marginal costs in a specialist enterprise.

“The fall in costs of cereals and dairy seems marked but both are directly affected by the high cost of fertiliser and feed a year ago. In fact, looking at the index since 2006, cereal and dairy costs have risen by 22% and 30% respectively which become more significant when compared with output prices received over the same period.”

Analysis also shows that costs attributable purely to livestock have risen 60% over the three-year period while the indices for fuel and fertiliser have respectively risen by 43% and 42%.

The smallest decrease is seen in sugar beet largely due to the limited use of fertiliser and the increased proportion of costs connected with fuel and machinery.

“With the value of outputs falling dramatically in recent months to levels similar to three years ago, the rise in prices over the same period throws a warning out that farm businesses will be under increased cash flow pressure this autumn and beyond,” warns Mr Willis.