Senedd Cymru
Pwyllgor yr Economi, Masnach a Materion
Gwledig
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Welsh Parliament
Economy, Trade, and Rural Affairs Committee
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Costau byw
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Cost of living
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COL–04
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Ymateb gan: NFU Cymru
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Evidence from: NFU Cymru
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To:
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Senedd Economy,
Trade and Rural Affairs Committee
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Date:
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May
2022
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The Senedd’s Economy, Trade and Rural Affairs Committee
– Inquiry into the Economic and Rural Impact of
cost-of-living pressures
NFU Cymru is the
voice of Welsh farming, championing, and representing farmers
throughout Wales and across all agricultural sectors. NFU
Cymru’s vision is for a productive, profitable, and
progressive farming sector producing world renowned climate
friendly food in an environment and landscape that provides
habitats for our nature to thrive. Welsh food and farming
delivering economic, environmental, cultural, and social benefits
for all the people of Wales whilst meeting our own ambition for net
zero agriculture by 2040.
We consider it
very timely that the Committee is gathering views on cost-of-living
pressures, and we are pleased to be able to provide the Committee
with the following submission on this issue. We recognise
that the enquiry’s terms of reference are of course wide
ranging, however NFU Cymru’s submission will focus primarily
on the impacts being felt by farmers and rural
communities
- As consumers,
NFU Cymru’s members and their households are impacted by very
many of the same cost of living pressures felt by individuals and
families across the UK. As small business operatives
and primary producers our members are also feeling the impacts of
cost of production pressures. These costs of production
increases are in turn likely to impact on incomes as our members
are not well placed to transmit these increased costs through the
supply chain.
- Rural
communities often face additional costs in their daily lives, costs
which might go over and above those typically faced by those living
outside of rural areas. Factors which can contribute to
additional costs of living in rural Wales include the higher petrol
and diesel costs in rural filling stations coupled with the lack of
available public transport in rural Wales. This tends to lead
to higher use of private motor vehicles for purposes such as
commuting to work, transportation to and from school, shopping for
essentials and leisure and social activities.
- Although the
Covid pandemic has opened up options for many people to work from
home, the nature of many types of rural employment and factors such
as difficulties with rural internet connections may well mean that
rural dwellers will disproportionately have to travel to a fixed
place of work.
- The off-grid
nature of many rural areas means that there is an increased
reliance on oil and LPG fired central heating which is more
expensive than networked energy supplies and not subject to energy
price caps.
- Rural housing
stock is often less energy efficient than urban housing stock and
may prove difficult and costly to improve in terms of energy
efficiency particularly when it comes to retrofitting with new
energy efficient technologies.
- Households in
rural Wales may well have fewer options available to them in terms
of purchasing a range of day-to-day essentials items including food
and clothing and will typically end up paying higher prices as a
result of this.
- Disruption
caused by covid and the adjustment to the UK’s new trading
relationship with the EU27 have exerted upward pressure on both the
cost of living and the cost of production.
- The Russian
invasion of Ukraine in February represents a humanitarian tragedy
whose effects continue to ripple out across world.
National and international efforts are rightly focussed on seeking
an end to the conflict.
- Although the
priority must be the resolution of the conflict, we cannot ignore
the profound implications and risks for our food production, food
security, food supply chains and the availability and affordability
of food to consumers.
- The invasion of
Ukraine is having significant consequences for Welsh agriculture
and has exacerbated existing inflationary and supply chain
pressures. The war has also re-focused attention on the
importance and fragility of food-security both at home and
abroad.
- Wales and the UK
are facing the sort of economy-wide disruption which could last for
many years, impacting our food production, our food supply chains
and ultimately the availability and affordability of food to
consumers. NFU Cymru sees a vital role for Wales’
farmers at this critical time to help ensure that we are able to
feed ourselves and other parts of the world.
- As part of an
island of nations, being able to grow enough food to feed a
substantial proportion of our population is a key measure of food
security and national resilience. Despite our good access to
global trading networks, shocks can and do expose weaknesses and
deficiencies in global food supply chains and the risks inherent in
becoming overly reliant on imports. In order to maintain our
position a global leaders in climate-friendly food, we must not
allow our production levels to drop, we should instead be looking
to maintain and increase domestic food production to help
sustainably feed the world’s growing population and so avoid
undue pressure on more vulnerable nations and
environments.
- Wales is home to
some of the highest food safety, animal welfare and environmental
standards in the world, and has the ideal temperate climate for the
production of a range of food products. Our climate is
particularly suited for the growing of grass on which to feed
livestock.
- Our domestic
food security has fallen from the high-water mark of 78%
self-sufficiency in temperate foodstuffs in 1984 to just 60% self
sufficiency in 2021. NFU Cymru believes that with the
right signals from government, our agriculture can be central to
the green recovery from Covid and can confirm Wales’ place as
a global leader in sustainable food production.
- Wales’
agricultural industry now faces a crisis of confidence which could
lead to a minimum of a double-digit drop in production by 2023
across all sectors as multiple compounding factors continue to
impact on food production and food security. Maintaining
confidence and stability so that Welsh farm businesses can continue
to produce food for the months and years ahead must be priority for
government.
- Confidence
across all agricultural sectors is being undermined by dramatic
inflationary pressure and market volatility arising from the
conflict, which are orders of magnitude out of scope of commercial
risk management. Amongst the key factors impacting farm
businesses and the food supply chain are
·
Energy – In
particular, the price of diesel and gas which are two key inputs in
food production
·
Fertiliser – Gas
is a feedstock in the production of fertilisers
·
Grain and oilseeds
– Ukraine and Russia account for 30% of world wheat and 50%
of world sunflower oil production. This has led to
sky-rocketing commodity prices impacting both on consumer food
prices and the cost of livestock feed.
·
Labour –
Ukrainian workers have made up 60% of the seasonal workers scheme
since the UK left the EU
- In addition to
these main areas there are a broad range of supply risks which may
cause bottlenecks in food chains, these include machinery
components, organic feed grains, animal micro-nutrients and plant
protection products. All of these supply risks, individually
and cumulatively, add to cost of production, to potential food
insecurity and to costs paid by consumers.
- Whilst crop
markets are trying to stimulate production (via higher prices),
farmers’ supply response is constrained by price uncertainty
and access to inputs
- In relation to
livestock agriculture, which predominates in Wales, farmers’
ability to respond with increased production is limited by the
long-term production cycles involve. The high cost of inputs,
and ultimately the lack of farmer confidence in the fact that
increased costs of production will be reflected in higher market
returns.
- In the poultry
sector, producers are having to take critical decisions about
whether to stock sheds with young chicks or point-of-lay pullets as
the cost of critical inputs soars and labour availability is
challenging. For a sector which operates on very tight
margins, even small movements in input costs can make the
difference between profit and loss. For many the least risky
and costly option is to simply decide not to re-stock sheds, a move
which will of course impact on the availability of eggs and poultry
meat.
- Farmers’
confidence in their sector has been tested by inflationary
pressures for some time. Defra’s agricultural price
index showed farm input costs had increased by 18.3% year-on-year
to December 2021.
- Confidence is
now being further eroded by truly dramatic inflationary pressures
and market volatility arising from the conflict, examples
include
·
Natural gas –
This now stands at 145p/therm compared to 60p/therm this time last
year and having peaked at 619p/therm on 7th
March
·
Red diesel which was
58ppl in July 2021 reached a high of 151ppl in early March.
During week commencing 2nd May it was at an average
price of 103.9ppl, although members report wide variations in price
with some being quoted as much as 130ppl.
·
Fertiliser –
Ammonium nitrate stands at £950-£1000/tonne compared to
£283/tonne one year ago.
·
Feed wheat has risen
by 57% over the last 12 months to reach a high of
£191/tonne. The Russian invasion of Ukraine has
cut off international shipments of wheat, destroyed many Ukrainian
grain stores disrupted spring planting, and is almost certain to
disrupt harvesting. All these factors are pushing price ever
higher.
- Whilst these
impacts are being felt at the present time and into the short term,
NFU Cymru and its members are very much of the view that some of
the most serious implications are to be felt in the medium term,
particularly in relation to livestock agriculture, as these impacts
work their way through the production cycle.
- In order to
manage cash-flow, or in anticipation of not being unable to recover
the additional outlay from the marketplace, many farm businesses
have already scaled back or will be scaling back on their use of
inputs. Such decisions will inevitably manifest as
reduced yields of crops, milk, and meat. Decisions made now
regarding cropping are likely to impact on livestock farms in a few
months’ time.
- Many farmers are
therefore in the invidious position of scaling back on expensive
inputs now in order to ease cash-flow pressures in the short term,
only to find themselves with lower stocks of feed and fodder going
into the winter as a result. This means that they either have
to offload livestock ahead of the winter, or purchase in additional
feed and fodder over the winter months when, owing to reduced
levels of production and poor availability, prices are likely to be
very high.
- NFU Cymru
therefore anticipates that the winter of 2022/23 will be
particularly difficult as supplies of animal feed and farm
conserved fodder will be limited, in high demand and therefore
costly.
- Policy factors
which are exacerbating the difficulties and uncertainties faced by
farmers include uncertainty over future support schemes, the
long-term impact of future trade policy and immigration and the
availability of labour. These are factors which are within
the control of the Welsh and UK Governments.
- Whilst we fully
recognise that many of the factors impacting on farmers’
ability to produce food are outside of the control of the Welsh and
UK Governments, in relation to what the Welsh Government can do, we
would suggest the following policy interventions
- The Basic
Payment Scheme to be maintained at current funding levels for the
period 2022-2024 (in line with the indicative Welsh budget).
This will help provide stability and certainty for farmers facing
cash flow issues as a result of input cost inflation
- At this
difficult time, we need clear signals from the UK and Welsh
Government that food security and the continued supply of
affordable, high-quality food is a strategic priority for the
nation.
- We believe a
Minister-led mandatory food-production impact assessment of all new
legislation and policy changes across Welsh Government is needed,
with a moratorium on adverse regulation. This should include
a review of the planning regime where it leads to increases in the
cost of food production, stifles investment or otherwise presents
barriers to efficient and sustainable food production and renewable
energy production.
- A review of the
direction of travel with regard to the Agriculture (Wales) Bill and
future food and farming scheme policy design to ensure that it can
still meet the needs of Welsh agriculture and consumers in light of
the implications of Russia’s invasion of Ukraine which
include dramatically increasing inflationary pressures in relation
to energy, fertiliser and feed costs, and disruption to supply
chains which has impacted consumers and primary producers
alike.
- Welsh Government
to ensure that food production is properly recognised and rewarded
in future agricultural support policy and that future support
includes a stability payment to help farmers manage the volatility
which is an ongoing and increasing feature of food
production.
- Make full use of
the current Wales Rural Development Programme and Rural Economy and
Sustainability programme to fast-track interventions and
investments which assist with resource use efficiency.
- Many farm
businesses will have borrowed money to invest in infrastructure and
equipment. We would like to see Welsh Government and the UK
Government working together to encourage and support the banks to
take a flexible approach to repayments, including the deferral of
repayments without penalty in order to free up cashflow to manage
extreme volatility.