Middle East conflict will force up fertiliser prices

Britain imports all its fertilisers and the conflict in the Middle East is likely to force up their cost and, in due course, food prices in the shops.   Given that farmers have most of their stocks for this area, that effect is likely to be felt later in the year.

UK arable farmers will face a “cash crisis” this summer when they are forced to fork out for more expensive fertiliser as the US-Israeli campaign against Iran restricts the global supply of raw materials to help grow crops.  Farmers who grow grains are already under financial pressure following two consecutive years of poor harvests and a five-year low wheat price. 

Now they could see production costs soar, in what would be a repeat of the input cost crisis that followed Russia’s full-scale invasion of Ukraine.   “The hit to farmers’ pockets will be this spring and summer,” Nick Shorter, chief executive of farm management firm Velcourt, which oversees 56,000 hectares of UK arable farmland. told the Financial Times. “There is a real cash crisis looming.”  

 

The majority of arable farmers have secured their supply of fertiliser for the upcoming spring, which means the higher costs will not be reflected in the season’s grain price. But from this month onwards, farmers expect to start ordering fertiliser for next year at a higher price. The Middle East is a major producer of fertilisers and the conflict has caused trade flows through the Strait of Hormuz to grind almost to a halt, forcing up global prices. 

About 35 per cent of global exports of urea, a widely used nitrogen fertiliser, pass through the Strait, according to CRU data, as does 45 per cent of global sulphur exports, used to produce phosphate fertilisers. Granular urea prices in the Middle East have risen from $485 a tonne before the outbreak of the conflict, to $650 at the end of the week. 

The price of ammonia imported to Europe reached a three-year high of $750 a tonne on Friday, according to S&P Global.  “It’s not the same scale of increase that we saw in the Ukraine war but it’s still an extra cost,” David Swales, head of economics at the Agriculture and Horticulture Development Board, a levy board that supports farmers. told the Pink 'Un.  “We’ve had horrendous weather, the amount of arable [produced] has been down a lot, but the market has been well supplied . . . They’ve got a lower price and less to sell. Higher fertiliser prices chucked on top of that is a challenge for them.” 

Fertiliser is the biggest input cost for arable farmers, making up a quarter of production costs for crops, followed by fuel at about 10 per cent. Velcourt’s Shorter told the FT that since February 24, his urea supplier’s price had risen 14 per cent while ammonium nitrate was up 10 per cent. The price for red diesel had risen 55 per cent to 104p per litre.

Weather in Southern Europe could push up food prices

Looking across the valley from my family member's farm in Spain towards a distant urbanization.  Almonds and oranges are mainly grown in this part of the valley, but grapes are grown nearby.

Voters and consumers particularly react to food price inflation which has remained relatively high.  I certainly notice it on my trips to the supermarket and I am not a poorer consumer.   The least well off spend a great portion of their budgets on food and often have to rely on food banks.

One of my children has a small retirement farm in Spain and tells me that January has been unusually cold and wet, albeit that has replenished their water source.   The almond trees do seem to have blossomed more or less on schedule.

A lot of big fruit and vegetable producers in the UK decamp to Spain for the winter.   The carbon footprint of growing tomatoes under heated glass is greater.

A wave of extreme rain and flooding across the Mediterranean countries and north Africa has battered the winter growing regions that feed Europe, disrupting supplies of fruit and vegetables and threatening food price rises. Spain, Portugal, Morocco and parts of Italy and Greece function as Europe’s winter “pantry”, exporting tomatoes, cucumbers, avocados, peppers, berries and citrus fruit northwards when domestic output is limited.

But extensive damage to crops and infrastructure in recent weeks could quickly ripple through wholesale markets and supermarket supply chains, warn economists. “When you have the types of floods that we’re seeing in Europe and north Africa, combined also with the very wet winter here in the UK . . . there’s no way around it: we’ll see the pressure on vegetable and fruit prices,” David Barmes, policy fellow at the London School of Economics’ Centre for Economic Transition Expertise told the Financial Times.

Spain, which recorded its wettest January in 25 years, has already recorded damage to 22,000 hectares of agricultural land, according to insurance association Agroseguro. Luis Planas, Spain’s agriculture minister, told the Pink ‘Un that the affected area could “nearly double” once assessments were complete. The ruin extends beyond crops to irrigation systems, farm machinery and rural roads, complicating harvesting and distribution even where produce survives.

The concentration of European winter fruit and vegetable supply in a handful of regions makes markets particularly sensitive to weather shocks. In January last year, Spain accounted for more than 70 per cent of UK sweet pepper imports and 65 per cent of cucumbers, while Morocco supplied more than a third of British strawberry and raspberry imports, according to UK trade data.

“The biggest, probably most proximate impact [from the recent weather] is the impact on fresh produce from Spain and Morocco,” Tom Lancaster at the Energy and Climate Intelligence Unit, a UK-based think-tank told the FT. “If supply tightens, buyers may find themselves competing for smaller volumes,” he said. “You might also see an impact on quality: fruit damaged by heavy rain doesn’t travel or store as well.”

The Netherlands imports 35-40 per cent of its fresh vegetables from Spain, Morocco and Portugal, which together also provide 15-20 per cent of its fresh fruit imports during January and February, according to ING.    (Perhaps that explains why there are so many Dutch expats in my daughter’s area of Spain, indeed my great-granddaughter has a decent command of Dutch).

 In Andalusia, one of Spain’s main agricultural regions, farmers’ association Asaja estimates that 20 per cent of all production has been lost. In one province alone, Córdoba, Asaja said losses totalled €700mn, with olive groves accounting for €550mn of that sum and further damage to cereals and citrus. Last week Pedro Sánchez, Spain’s controversial prime minister, visited the storm-hit town of Huétor Tájar, west of Granada, where the mayor explained that 80 per cent of its population depended directly or indirectly on the region’s asparagus production. With harvesting due to begin within weeks, mayor Fernando Delgado said that as much as a third of the crop remained underwater.

The adverse weather across Andalusia and other major growing regions in southern Europe meant “prices would be higher year on year”, Thijs Geijer, a senior economist covering food and agriculture at ING told the leading economics and business paper, adding that consumers would see fewer discounts. But he noted that the effect on inflation data could be muted in the Netherlands, where the affected products carry little weight in the consumer price index.

Barmes told the FT that the latest storms were part of a wider pattern of climate shocks feeding into food price inflation. His recent research has shown that the gap between UK and euro area food inflation in recent months was largely driven by a small number of climate‑sensitive items — including chocolate and olive oil — some of which carry a much heavier weight in the UK shopping basket, leaving British consumers more affected when extreme weather hits.

“To me, there’s little doubt that we’ll see pressure on food prices later in the year, even if some of it will be more short term,” he told the FT. “It’s very difficult to substitute away from Spain and Morocco in particular for certain parts of the winter vegetable basket, so I think we’ll see that [impact] quite soon, and then later, we’ll probably see effects also on fruit, and then also on meat and dairy . . . and olive oil.”

Central banks have begun acknowledging the influence of extreme weather on inflation dynamics. In its August 2025 monetary policy report, the Bank of England noted that climate-linked disruptions were contributing to higher UK food prices and complicating efforts to return inflation to its 2 per cent target. Governments have pledged support for affected farmers through insurance payouts and EU crisis reserve funds linked to the bloc’s Common Agricultural Policy.

Spain has vowed to give farmers €2.2bn in direct aid and spend €600mn on rebuilding infrastructure.  But economists say the broader concern is structural. “I think we’re really seeing that this is not a one-off,” said Barmes. “These types of climate-related supply disruptions are becoming more frequent, severe, and geographically widespread.”

Weather adds to worries of British beef farmers

The only thing saving UK beef production from collapse os that an increasing proportion of calves born to dairy cows are being reared for beef.  Although generally inferior in taste, it is cheaper to produce as it uses calves that are effectively a by-product of milk production.   But even these calves ae increasing in number as the dairy herd shrinks.  More milk is being produced per ciow because of improved genetics.

British beef consumption per capita is in steady decline but beef imports forecast tt increase in the medium term.  British beef farmers face a double blow from the changing climate as relentless rain forces them to keep cows indoors, after last summer’s drought stopped them storing away enough hay for the winter. This year’s rain has left grazing fields waterlogged and cattle stuck indoors, with insufficient hay to munch on because last summer was unusually dry — adding to the pressure on farmers also dealing with lower subsidies and volatile energy and feed prices.

 If the rain persists it could eventually put upward pressure on beef prices — which rose 28 per cent last year — alongside global factors such as shrinking herds and growing demand. The rain has blown a hole in farmers’ planning because they would normally only bring cattle inside for four to five months over winter, for which they would buy enough feed.

As little as two or three extra weeks indoors is a significant extra cost. Lucy Eyre, a beef and sheep farmer in Wales,told the Financial Times that British producers have had the “worst of both worlds” with “very poor” yields of silage, a feed made from hay, because of the dry summer.

And now turning cattle out too early is risky: on saturated ground they “make a mess” and “the grass won’t do as well later”. “Having to house livestock for two to three weeks longer might be the difference between making a loss and breaking even for many farmers,” Eyre told the Pink ‘Un.

The episode shows how the changing climate can weigh on farmers’ profits and eventually feed through to diets and consumer wallets. Food price inflation has proved stubborn in the UK, and rising grocery bills remain politically charged. Food and non-alcoholic beverage prices rose about 4.5 per cent in the year to December 2025 — an acceleration on the previous month, even as overall inflation eased.

David Swales, the interim chief economist of the UK Agriculture and Horticulture Development Board, told the leading business paper that tight supplies of beef globally, including a declining herd size in the UK, had pushed up prices, but the bad weather could exacerbate the problem. “It’s been very wet the last two months — if it carries on as wet as this, it could be very disruptive, and it could add a lot to farmers’ cost of production in the year ahead,” he said. “And this could mean further down the line that food prices have to rise.”

While the weather in Britain would not have an impact on the global market, not all beef is easily swapped for imports. Swales said “100 per cent British” pledges by supermarkets and restaurant chains such as McDonald’s meant their prices were more likely to be affected by the weather.

The AHDB said UK beef production in 2025 was 3.5 per cent lower than the year before due to shrinking cattle herds. It expects production to fall again in 2026 and close 1.3 per cent lower than 2025.  David Barton, chair of the National Farmers’ Union Livestock Board, said wet weather “shouldn’t have much impact on beef supply . . . So long as we have good weather late March into April all should be fine.” He argued that global supply and demand imbalances were causing price rises.

Cattle numbers have been falling in Britain and abroad. In the US, drought across key cattle states has led to herds falling to their lowest levels in decades, driving up prices. Imports to the UK also fell last year, down 3 per cent year on year due to tight supply in Ireland, which accounted for 62 per cent of all beef imports last year.

Irish producers have been losing share of the UK market to cheaper suppliers from Brazil, Australia and New Zealand. But greater imports could also have an impact on the national diet. “There’s two different kinds of beef,” said Tim Hayward, author of Steak: The Whole Story and an FT columnist. “There’s the stuff that runs to the American standards, which is grown now pretty much all over the world, with restricted roaming and feeding on corn, and that gives you fat, soft beef, very, very quickly.” And then there is beef grown in the UK: “We tend to grass finish our animals over here . . . If there is a reduction in the UK herd, and we’re doing more importation, it would be more importation of the crap beef.”

Farmers line up behind Farage

Why I am not surprised that 40 per cent of farmers say they would vote for Reform if an election was held tomorrow?   Owner occupier farmers have always been on the right politically, many of them holding posts in local Conservative associations.   However, they have become disillusioned with the Tories, although in a real general election I am sure that many of them would drift back.

In the 2024 general election, Farmers Weekly data shows that 57 voted Conservative and 15 per cent Reform.  Labour support today stands at just one per cent.

Reform support was strongest in the Midlands (52 per cent) and lowest in Scotland (31 per cent).  In Wales 22 per cent of farmers said they would vote for Plaid Cymru, but Reform would attract 35 per cent.  Just nine per cent of Scottish farmers would back the SNP, behind the Liberal Democrats on 13 per cent.

The Lib Dems did best in the South East and their traditional stronghold of the South West,

Despite the IHT controversy, only 35 per cent of farmers have a robust succession plan.   This is a worrying feature of an industry where those who are 80+ think they know best

Government gives way on farm inheritance tax

In a Christmas Eve u-turn the Labour Government has backed down on inheritance tax for farmers.  My estate will still attract 40 per cent, but only a minority of farmers will pay 20 per cent over a ten year period.

No doubt farmers will say it was their parades of shiny kit in London that made the difference, but I think a revolt by backbench Labour MPs from rural seats was more significant.  As many as forty of them were prepared to move an amendment to the Finance Act in what would have been a major revolt..

Moreover, it seemed unlikely that the measure would yield significant sums.

Fewer farmers will start paying inheritance tax from April after UK ministers were forced into a £130mn climbdown by a fierce backlash against the policy from rural communities and some Labour MPs. In a surprise U-turn just before Christmas — and with parliament not sitting — the government announced it was lifting the threshold above which farmers will have to pay death duties.

Chancellor Rachel Reeves announced in last year’s Budget that farmland would no longer be exempt from inheritance tax and would be liable for a 20 per cent levy on assets worth more than £1mn from April 2026. But on Tuesday ministers bowed to pressure and announced the threshold would be raised to £2.5mn, meaning that spouses or civil partners with combined estates worth up to £5mn will pay no inheritance tax on top of existing allowances.

Officials said the changes would reduce the number of family estates facing inheritance tax bills to about 1,100, from 2,000 under the original plans (these official  figures have always been disputed by farm organisations).

Only 15 per cent of farms will be liable for the levy, down from 25 per cent under the previous proposals. Introducing inheritance tax on agricultural land had been expected to raise £430mn a year for the government by 2029-30, but that figure is now likely to be £300mn — meaning a net annual cost of £130mn.

Environment secretary Emma Reynolds said the government had “listened closely to farmers across the country” and was making changes “to protect” more ordinary family farms. “It’s only right that larger estates contribute more, while we back the farms and trading businesses that are the backbone of Britain’s rural communities,” she added.

Farming groups have organised regular, noisy protests in Whitehall over the past year, with ministers criticised by opposition parties and some rural Labour MPs. Markus Campbell-Savours, MP for Penrith and Solway in Cumbria, recently voted against the original proposals and was suspended from the Labour party as a result.

A significant number of backbench Labour MPs abstained. David Smith, Labour MP for North Northumberland, said on Tuesday that the government’s decision was “sensible and mature”. Prime Minister Sir Keir Starmer last week met Tom Bradshaw, president of the National Farmers’ Union, who urged him to protect “the vulnerable and elderly” from the tax changes.

Bradshaw said on Tuesday that “while there is still tax to pay, this will greatly reduce that tax burden for many family farms, those working people of the countryside.  Starmer was also spurred into action by last week’s government-commissioned review of farming by former NFU president Minette Batters which found nearly a third of farms in Great Britain were loss making last year.

Batters said the inheritance tax changes had left farmers “bewildered and frightened of what might lie ahead”. One Labour MP questioned the timing of the announcement during the Christmas “dead zone”, saying: “My general view is if you are going to U-turn, reap the political benefits of it and properly argue for it.”

Asked why the change was not in last month’s Budget, a government official said ministers had wanted to “get it right” after a long time engaging with the farming industry.

I do hope that despite this policy change farmers will take succession planning more seriously and allow younger family members more say in the running of farms.

It also seems to me that the Government has spent a lot of political capital and been distracted from other issues while gaining very little in fiscal terms: this also applies to the winter fuel allowance.

Of course the animal welfare strategy just announced by the Government has also raised concerns in rural areas, in part because of production restrictions on pigs and poultry that di not apply to imported food and in part because of the proposed ban on trail hunting.

Food production is no longer profitable

Minette Batters has completed her review of farm profitability which some see as the Government using the former NFU president as political cover.

Nevertheless, I agree with her that Defra has lacked good political direction, being treated as an up or out way station for ministers (my words, not hers).  It pains me to say it but the only minister who showed any real leadership was Michael Gove,   Certainly not Liz Truss with her selfies and disastrous trade deals.

Batters reckons that Brexit left a policy void created by exit from the CAP (in my view something better could have been put in its place but wasn't.)

For the average farm, food production itself is no longer profitable, the report found. In the 2023-24 financial year, the average English farm made a net loss on agricultural activities, with state funding and diversification out of farming “providing the bulk of an average farm’s income”. 

Rising input costs such as fuel, fertiliser and animal feed following Russia’s invasion of Ukraine — as well as increasingly volatile weather — have battered confidence in the sector, the report found. But constant shifts in government policy, including the swift removal of agricultural support schemes, had weighed on real farm incomes. 

In March the government suspended one of its post-Brexit support schemes, the sustainable farming incentive, because the budget had run out, leading to a sharp drop in income for many farms. The government has not confirmed when it will be restarted. 

In 2023-24, the average income from farming in Great Britain was £41,500 per farm. A review by land agents Strutt & Parker found fewer than half of England’s farms made more than £34,500, the minimum income they define as economically sustainable.

In addition farmers are still smarting from the (partial) imposition of inheritance tax where a prolonged campaign has led to only minor government concessions.

Farm returns fall but little benefit for consumers

Farmers are known for complaining, but right now they may have a point. Agricultural commodities such as grains and sugar have plummeted on futures markets as global supplies have surged. European farmers are suffering in particular as they contend with high input costs and increasingly competitive global rivals.

Benchmark wheat futures in Paris have fallen more than 20 per cent this year to multiyear lows, dragged down by bumper harvests in Russia, Australia and parts of South America. Meanwhile, speculators are building bets on further price falls, with investment funds adding more than 280,000 new short lots in milling wheat futures in the week to November 21, extending their net short position, according to Euronext data. For UK growers, the fall has been brutal. Wheat prices are now little more than half the levels reached in 2022 following Russia’s invasion of Ukraine. Yet fertiliser, fuel and machinery costs — inflated during the energy shock — have barely retreated.

For arable farmers in Europe, “it’s not a happy situation at all,” Ole Hansen, head of commodity strategy at Saxo Bank told the Financial Times. There is a big gap between “the cheap crop that leaves the farm gate” and the price of bread “when it hits the store”, he said. While the upcoming harvest in Norfolk looks promising, the UK’s wheat yields at this year’s harvest fell after last winter’s torrential rain. But because international markets are well supplied, that does not translate into higher prices.

The financial squeeze is prompting visible restructuring. Brown & Co, the UK’s largest dedicated agricultural auctioneer, said the number of agricultural machines being put up for sale has risen sharply. “It’s become hard to find a day of the week without an auction,” said partner Simon Wearmouth. “I’ve never known the calendar this crowded.”

Even as grain markets sink, UK shoppers have seen little relief in the cost of bread, beer or baked goods. That is because the raw commodity typically accounts for only a small fraction of the retail price. In a loaf of bread costing £1.50, wheat may only account for 16.5 pence to 22.5 pence, according to Financial Times calculations based on research by the Agriculture and Horticulture Development Board, while barley only accounts for a small proportion of a pint of beer.

Energy, packaging, transport and processing costs and retail margins are the main components of the final price. Annual food inflation in the UK was 4.9 per cent in October, up from 4.5 per cent in September. The rise has been driven by five products — beef, butter, milk, coffee and cocoa — where supply shortages globally have pushed up prices.

Across the Channel, growers say the situation is similarly dire. In France, where sugar beet is a flagship crop, producers describe a sector under existential pressure after global sugar prices plunged almost 50 per cent over the past year.

Concessions for South Africa, Mercosur countries in South America and traditional cane exporters have added to supply on a market where European consumption is flat or declining. The result, has been factory closures, with six sites shutting in France since the end of EU sugar quotas in 2017, with more expected if 2026 prices fail to recover.

Producers on both sides of the Channel emphasise a structural problem: Europe’s high environmental and labour standards, while politically popular, make production significantly more expensive than in major exporting nations. In Brazil and India, cane cultivation benefits from favourable climates, large vertically integrated estates and looser rules on pesticides and labour.