Feeling the pain of soaring inflation

Apr 29 2008 by Paddy Rooney, Western Mail

THERE have been increasingly frequent criticisms of inflation statistics, with unfavourable comparisons between the official Consumer Price Index and the experience of particular groups.

Households, for example, are typically facing cost increases in many of their essential purchases at rates several times higher than the CPI indicates.

For the manufacturing industry, input cost inflation is recognised as a useful leading indicator of more general inflation, but with prices of farm produce having been depressed for many years, there has been a tendency to assume that food will always be cheap.

Suddenly, however, it seems that people are having to wake up. Farming strategists have realised for some time that growing demand from developing economies, alternative uses for food crops and poor harvests will force food prices higher, and we are now seeing the effects.

It is not just consumers who are affected, though. Farms, too, are suffering sharply-rising input costs – at more than 15% annually by some estimates – for fuel, feed, fertiliser, energy and so on.

With farm profitability as low as it is, especially in livestock, such increases cannot easily be absorbed; there may be some scope for efficiency improvements, but for the most part either they will have to be passed on to customers or more farms will go to the wall.

The situation is not helped by regulatory attitudes in Brussels – foot-dragging over GM approvals, the prospective imposition of electronic tagging, and so on – all of which increase farmers’ costs without any very evident marketing benefit.

And the British tendency to gold-plate can make things worse.

The reaction of some major customers is predictable. One major supermarket chain has come out with announcements of an even firmer crackdown on purchasing prices.

Inevitably some will rely yet more on imports from countries which do not have to carry the regulatory burden required by Brussels.

It will be essential that the review of agricultural support policies takes proper account of the world situation and is not just an exercise in introspection. It would be a sad irony if the EU – originally established with the aim, among others, of rebuilding European farming – should end up by undermining it.

Paddy Rooney farms near Llandovery and is a member of the Welsh executive committee of the Country Land and Business Association.