My Lords, I declare my interest as a farmer, as set out in the register. I too welcome this timely debate, as farm input prices have risen by between 25% and 30%, depending on the farming sector, whereas the price index for UK agricultural products has risen by around 12%. I want to concentrate on the sharp rise in fertiliser prices, which other noble Lords have already underlined, as this has the largest impact on the cost of animal feed and, ultimately, the food we eat. There are many types of fertiliser but, basically, we are talking about nitrogen, for which there are very few effective substitutes, particularly in the short term.
Nitrogen is the essential multiplier of growth in all our major crops. To give a clear example of its importance to food production, let us take the dairy industry. In January 2018, the cost of 1 tonne of fertiliser was covered by the production of 900 litres of milk. In March 2022, the cost of 1 tonne of fertiliser required the production of 2,280 litres of milk. On dairy farms, 82% of crops and grass receive a dressing of artificial nitrogen fertiliser. Certainly, dairy farmers produce plenty of organic manures which help crop nutritional needs with potassium and phosphate, but this manure contains a mere fraction of the nitrogen needed to optimise crop quality and growth.
Alternatives to nitrogen fertiliser are already used by most dairy farmers in the shape of legumes, nitrogen-fixing plants, herbal leys, compost et cetera but they are not as effective. Saving costs by reducing artificials results in reduced forage production, an increased cost of bought-in food and lower milk output. With lower milk yields and rising input costs other than fertiliser, dairy farmers will experience lower margins and questions on the viability of their businesses. Without increased milk prices to reflect this, we will experience a reduced dairy sector and the offshoring of production. The AHDB estimates a 2% reduction in producers and a 1.6% reduction in herd size in the year to April 2022.
Turning to arable farmers, the outlook for the current harvest—weather permitting—looks good, with input costs less affected by the fertiliser hike and a high market price for their crops. For the 2023 harvest, the outlook is less clear but probably okay as although fertiliser prices are likely to remain elevated, output prices will probably remain firm. However, with rising input costs, the gross margin is likely to be substantially lower, resulting in farmers reducing fertiliser and other inputs, with the consequence of lower production and, probably, increased imports. For harvest 2024, the outlook is too opaque for any farmer to make any decision on cropping, stocking rates or other investment.
The simplest answer to protecting our domestic farming industry is either to pass the necessary rise in food costs on to consumers or for the Government to subsidise farmers. Neither option is likely to be wholly desirable, although the argument for a rise in food prices becomes more telling by the day. Government actions to date have been helpful. The acceleration of the payment of BPS money is good, while changes in the farming rules for water and urea applications are all welcome, together with various generous grants for technological improvements, slurry storage and processing,
but none of these will move the dial in the current situation. As with the pig industry, speedy and targeted support should be introduced to other sectors when in difficulty. The call by the NFU for greater transparency in the fertiliser market must be correct and is, I hope, being looked at by the market monitoring core group.
We need to support the neediest people in our country in the purchase of their food, among other necessities, but surely we need to address the power of supermarkets and processors in the pricing of food so that growers get a fair deal and those who can pay for food pay the right price. The GCA covers the supermarkets, but no such mechanism exists for processors and growers. There have been increasing complaints of unfair practices in the supply chain. I would be interested to hear from the Minister how market monitoring and any necessary intervention can be strengthened using the powers under the new Agriculture Act.
With the rise in global input costs, we need to ensure that our producers are paid a fair price by the market and not squeezed. With other countries experiencing similar issues, we need to maintain sustainable domestic food production. This means the continued use of artificial fertiliser while alternatives are explored and developed.
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