Key trends for the Agriculture sector in 2023

2022 will be remembered as a year of great political and economic turmoil. A year of three Prime Ministers, four Chancellor of the Exchequer’s, three Defra Secretaries of State, nine interest rate rises, double-digit inflation with agflation well exceeding this, the Russian-led war in Ukraine, a national strike, and the highest tax burden for 70 years!

So, following a turbulent year for the agriculture sector, what does 2023 look like?

Inflation

For the agriculture sector, the Russian invasion in Ukraine saw the cost of inputs, which were already on the up, increase with the cost of fertiliser, fuel, feedstuff, electricity, and labour – all critical to the industry, rising on what seemed a daily basis.

The ability for the increased prices to be passed onto the consumer has varied depending on the sector – dairy and combinable crops seem to have been in a healthier position in comparison to poultry.

There is now food inflation in the economy (at its highest since 1977), in some part arising from the starting point where certain foodstuffs have been far too cheap for too long compared to the price of production. It seems likely that the full impact of input price inflation will be felt in 2023 with potential shortages of products noticeable on supermarket shelves.

Additional concern is there are talks of output prices in some sectors expected to weaken as the world adjusts to the Ukrainian situation and demand for certain commodities potentially decreasing with the global economic downturn and the general tightening of belts. If output prices begin to fall whilst input prices continue to rise, margins are squeezed creating further uncertainty in the forthcoming months.

Climate change

As greenhouse-gas emissions in the atmosphere increase and the temperature rises, agriculture is one of the most vulnerable sectors impacted by climate change. It is also a sector receiving the most pressure to reduce their emissions to reach the goal of being net zero by 2050.

As each year passes, pressure rises, and we are likely to see an increase in regenerative farming, mixed farming diversification and technology introduced to combat climate change.
In addition, it is expected that suppliers and banks will start to imply further pressure on businesses to show their environmental and zero-carbon credentials as a requirement to do business in the future. The time to start looking at this is now.

Agritech

Whether it’s the climate crisis, staying ahead of the times or labour shortages, technology is advancing and can benefit the agriculture sector. As a firm we are seeing increasing numbers of our agriculture clients embracing technological advancements and seeking scientific and technical improvements. Be it improving or developing new harvesting methods, development of monitoring systems or diversification, you could be eligible for Research & Development (R&D) tax credits. To find out how our R&D team of specialists can help, click here.

Grants and policies

As the details of Environmental Land Management schemes (ELMS) are rolled out and tweaked it is essential that farmers keep a watching brief of developments here and how this might directly impact them and their business.

For instance, it has recently been announced that farmers who sign up to the Sustainable Farming Incentive (SFI) in England are to receive up to £1,000 each as a one-off management payment, as DEFRA tries to encourage better uptake.

In addition, the budget for Countryside Stewardship is also being increased, with an average 10% more available for revenue agreements and 48% more for capital payments. Given the changes, it might well be worth a second look.

The Future Farm Resilience Fund is still available which essentially gives farmers free advice from certain organisations during the period of funding changes. I have direct examples where this scheme has triggered changes that have seen farmers fortunes change dramatically and I would strongly recommend this is considered as an option.

In addition, grants can be used to provide essential funding for the sector such as the Slurry Infrastructure Grant, which closes on January 31, 2023. The grant is being introduced to support pig, beef or dairy farmers invest in slurry storage for up to six months and enable them to improve the use of organic nutrients, improve water and air quality and reduce greenhouse gases.

This is likely to be very popular and the key message is to apply as soon as possible. You can find out more here.

In terms of policies, it seems likely that the Countryside Stewardship Scheme will be retained, albeit slightly amended and it is also rumoured that the Sustainable Farming Incentive might also be tweaked.

Consumer habits

Since the pandemic, consumers have become more conscious about what they’re eating and drinking, with plant-based eating and healthier alternatives becoming in vogue. Although, there is clearly an element of education needed here as some of these products do not have the health or environmental benefits that consumers might think.

I do not see these changes reversing and with changing demands it is up to the farmers to react accordingly. Whilst for some this will create challenges for others this must present opportunity.[/vc_column_text][vcex_spacing][vc_column_text]How can we help?

Our specialist team of agricultural accountants have extensive experience with all the issues that farmers might come across with their finances. If you have any questions about this article, please get in touch.[/vc_column_text][/vc_column][/vc_row]