At least £337m will be added to the bills of already struggling farmers over the next 12 months if oil prices remain at their current elevated state, new research has revealed.
Donald Trump claimed on Wednesday that the US/Israel war with Iran could be “over in three weeks”.
However, the impact of soaring oil prices, which have consistently exceeded $100 a barrel for the majority of the conflict, was set to heap further financial misery on the farming sector, warned the Energy & Climate Intelligence Unit this week.
Brent crude briefly spiked to $119 a barrel on Tuesday as Iran’s effective shutdown of the Strait of Hormuz continued choking off oil shipments. The knock‑on effects are now starting to bite globally, via increasingly widespread rationing measures due to oil inventories tightening.
That pain was already being felt at farm level, the think tank said, with the average cost of red diesel, used in tractors, combine harvesters and other and farm machinery up almost 70% since the start of the war, hitting 117p per litre this week.
This price was higher even than during 2022’s oil price shock after Russia invaded Ukraine, said Tom Lancaster, land, food and farming analyst at the ECIU.
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“This fuel is used to help drill and harvest crops and apply fertiliser,” he added. “Farmers now face an oil cash crisis, just as arable farm incomes are forecast to fall to record lows after last year’s drought.
Lancaster’s comments follow warnings from food sector bosses this week that inflation could rise at more than triple the rate than had been predicted last September.
Food bills were expected to soar to almost 10% by Christmas, even if the Strait of Hormuz opened “within two to three weeks” and energy production in the Middle East returned to normal within a year, warned the Food & Drink Federation.
The oil price shock and increased cost of red diesel was hitting farmers at the same time many would be undertaking critical field operations such as ploughing, drilling crops and applying pesticides and fertilisers, which all involved significant fuel usage, Lancaster added.
Although fertiliser prices had also soared – climbing by at least a quarter on pre-war levels [AHDB] – many farmers in England will have bought ahead before the war in Iran began, the ECIU pointed out.
“The same will not necessarily be true of red diesel, with farmers reluctant to store the fuel for extended periods as it can degrade. The wet weather since January has also delayed field operations in many areas.”
As a result, growing cereals like wheat and barley was “now a very risky business”, the ECIU reported, citing comments from Buckinghamshire mixed farmer Tom Edmondson.
“With the extreme weather of recent years and repeated energy price shocks, it’s becoming increasingly difficult to make a margin on growing these key staples,” Edmondson said. “I’m now focused on how I can de-risk my business by farming with nature,” he added, echoing ECIU calls to reduce the sector’s reliance on fossil fuels.
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His comments follow calls by the UK’s main farming unions last week for “co-ordinated action” by the government to “improve transparency in red diesel and fertiliser pricing, including more frequent and accessible market data”.
It comes as the Association of Independent Meat Supplies this week warned meat and poultry prices would inevitably rise due to the impact of inflation across feed, fertilizer, fuel and finance.
“The sudden and steep price increases in fuel, feed and fertilizer will move along the supply chain and will inevitably have to be passed onto the consumer,” it predicted.
Elsewhere, concerns are also growing over the conflict’s impact on food supply. Traders at New Covent Garden Market are facing “broken” supply chains, resulting in shortages of some items. “We’re having to find alternative suppliers,” said Le Marché MD Marcus Rowlerson.
“For example, we source most of our basil from Israel, which is obviously causing great difficulty.”
Rowlerson added business like his, a premium greengrocer and catering supplier, were bearing the brunt of cost increases due to their widespread use of fixed price contracts.
“We’re not currently able to pass on those extreme costs that have been levied on us. Eventually, customers will unfortunately feel these price hikes.”
Food bosses call for government intervention as inflation forecast skyrockets
Meanwhile, Riverford Organic Farmers this week told The Grocer it was “seeing significant cost increases linked to fuel, rising EU haulage costs and packaging.”
Operational cost hikes were “around £30,000 a month extra, which we are currently absorbing”, said Riverford’s head of supply and technical Luke King.
Support in the form of reductions in fuel duty and VAT could help to ease pressure in the short term, but “would not fully address rising international haulage costs”, he stressed.
King added: “More broadly, this highlights how exposed parts of the food system are to global shocks – and why building farming systems that are less dependent on imported inputs and long, complex supply chains is so important.”
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