‘Higher raw material price, lower production’ – 2022 will not be good for the farmer, says the bank

In many cases, the higher costs have negative consequences for the production volumes and the margins of agricultural entrepreneurs.

Gas and electricity prices have been extremely high for some time as a result of shortages. Both the European Union (EU) and China are facing gas shortages, causing countries to outbid each other. How gas prices will develop in the coming period will depend on the weather conditions and the tense geopolitical situation around Russia and Ukraine. But even without escalation, the tightness will drive higher energy prices throughout 2022.

Production in floriculture will probably fall by 5%; for greenhouse vegetables the decrease will be greater

The higher energy prices are forcing some of the greenhouse growers to adjust their cultivation strategy. Greenhouse horticulturists who have not or only partially purchased their energy needs in advance will take a critical look at their business operations. Some will choose to save energy by lighting and heating the greenhouses less. This leads to lower production volumes. ABN AMRO expects a 5 percent decline in the volumes in floriculture, while the decline will be greater for greenhouse vegetables.

Higher gas prices also cause fertilizer prices to rise. Relatively much gas is required for the production of fertilizer. The average selling price of fertilizers from the Dutch industry increased by approximately 50 percent in 2021 and even doubled in November 2021. Higher gas prices and the continuing demand for fertilizer will ensure that the fertilizer price will remain at a relatively high level in 2022. Demand is mainly driven by the fact that farmers worldwide can get more money for crops such as soy, maize and wheat. They therefore want to continue producing and need fertilizer for this.

The higher fertilizer prices affect Dutch arable farmers and greenhouse growers. These entrepreneurs therefore look more carefully than usual at the use of these means of production. In some cases, it is possible to opt for animal manure, which increases the demand for it. This is beneficial for animal manure processors and livestock farming.

The high fertilizer prices lead to more use of animal manure. Livestock farmers benefit from this

Pig farmers and dairy farmers, among others, pay for the collection of the manure. Now that demand is high, these collection costs are lower. The lower collection costs are favorable for livestock farmers, because other costs are actually very high.

The selling prices of the Dutch animal feed industry have increased by approximately 15 percent in 2021. Things went fast, especially in the second half of 2021. The animal feed costs represent on average between 60 and 70 percent of the total costs and therefore determine to a large extent the margins of the livestock farmers. ABN AMRO expects animal feed costs to remain high for part of 2022 due to a shortage of specific animal feed raw materials and the relatively high price of grains and soy. Transport costs, adverse weather conditions, labor shortages and high fertilizer prices are putting upward pressure on grain prices.

selling prices

Energy, fertilizers and animal feed are important cost items for agriculture and horticulture and will determine the margins in agriculture and horticulture in 2022. In addition, there are also other shortages that drive up the costs for agricultural entrepreneurs. There is also a scarcity of packaging materials and labour. The latter in particular is increasingly a problem for entrepreneurs.

With a multitude of inputs becoming more expensive, higher output prices for farmers and horticulturists would make sense. However, that is not always the case

Higher prices

With a multitude of inputs becoming more expensive, higher output prices for farmers and horticulturists would make sense. However, that is not always the case. For example, the price of piglets and finishing pigs is very low and the price of eggs in 2021 did not rise enough to compensate for the higher costs. In 2021, this also meant a lower income for entrepreneurs in these two subsectors. For dairy farmers, a higher price could compensate for the higher feed costs. The income of dairy farmers also increased. Due to persistently high demand, the prices for ornamental horticultural products and greenhouse vegetables are also considerably higher. Inflationary pressures are important for the demand for ornamental horticultural products and foodstuffs, which could reduce the purchasing power of consumers in 2022.

Brexit
In July, the phytosanitary certificates and veterinary health certificates at the British border will become mandatory. As of that date, physical checks will also take place at the border with the United Kingdom. This demand has already been postponed a number of times, but it seems that it will actually happen in July. The enormous amount of goods involved here will put a lot of pressure on customs at the British border. In addition, the processes of companies must also be adjusted, because from that date they should also have their own company controls in order. Brexit has already had an effect on the Dutch export value of foodstuffs to that country. After a 4 percent decline in 2020, the export value fell further in 2021 by approximately 6 percent. And that while the value of food exports to other countries actually increased by an estimated 5 percent.

volumes prognose

Read the report ‘Higher costs limit production in agriculture and horticulture’ here.