Agricultural Fertiliser and Feed: Rising Costs
(2 years, 4 months ago)
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Lord Redesdale
To ask Her Majesty’s Government what steps they are taking to combat the rising cost of agricultural fertiliser and feed.
Lord Redesdale (LD)
My Lords, I thank all noble Lords taking part in this short debate. I declare an interest: I own two tenanted upland farms. When I mentioned to one of the tenant farmers that I was bringing forward this debate, I had a conversation that lasted considerably longer than the debate will take. That is the issue we have with many farmers: discussing the price of feed, lamb or anything else takes quite a long time, because a lot of them are gambling on whether the costs meet the return on investment. Indeed, what I found worrying from talking to a number of farmers was that many of them are looking at whether the economic model they have been working from works in a period of such rising costs, which of course affect other people. An issue that they raised, which I have not heard them raise before, was carbon off-sets for trees and moving away from farming as a viable alternative because of the uncertainty that many farmers feel at the moment.
This debate is an opportunity for the Government to give any indication they have about how they are looking to deal with certain issues around the rise in fertiliser costs. I agree that this subject is not at the top of everyone’s priority list, although it came up frequently on the doorstep at the recent by-election in Tiverton and Honiton. I very much hope the Minister, like me, will welcome the excellent new MP for Tiverton and Honiton to the other place—or, then again, perhaps not.
We are of course in the midst of a cost of living crisis. The Government will face a large number of debates from many sectors about how to deal with issues raised by the cost of energy. From looking at the figures, one can see that the rise in the cost of energy has exceeded that of the 1970s, which led to an economic depression. The fallout from that rise will be seen throughout the sectors. The food sector is particularly vulnerable through fertiliser and other costs.
I shall set out the cost of fertiliser at the moment. According to the Agriculture and Horticulture Development Board’s latest market update, covering May 2021 to May 2022, the cost of ammonium nitrate produced in the UK has risen by 152%, imported ammonium nitrate by 171%, potash by 165% and phosphates by around 120%. This has a major knock-on effect, because fertilisers are used not only for cereal crops but mostly in this country for the production of feedstock for animals. This will lead to an increase in the cost of meat generally for consumers. Focusing on one foodstuff—the nation’s favourite, chicken—I thought it interesting that Steve Murrells, the chief executive of the Co-op, said that it is quite likely that the price of chicken will be the same as the beef going forward because of the cost of feed, but also the energy costs of heating chicken farms and pens, and of cooling chicken sheds.
Of course, that has to be put into context. We have had a period of extremely low food costs in this country, which has been of benefit to all, and a chicken still costs less than a pint of beer, as has been pointed out in the press recently. However, the recent rise will be noticed by many consumers and will probably move people away from some of the eating habits they have at the moment.
This raises a question that the Government might have to look at. In the past, as prices have risen rapidly, supermarkets have often pushed the cost on to producers, rather than consumers, but with such rapid rises I do not believe that that situation can be upheld. I think there will be question marks over contracts between supermarkets and producers, especially in areas such as milk. I wonder whether Defra sees that it has a role in any of the discussions that are taking place.
Rising food costs will lead farmers to look carefully at their options. They could raise the price of their produce. However, there is a question mark about that. I have seen a number of farmers who, with such rapid rises, cannot predict whether the prices they think they can charge will meet production costs. Farmers could also consider switching crops. According to Farming Online, there has been a recent move away from certain crops to legumes and peas. The benefit is that they fix nitrogen in the soil. Most legumes and peas are exported, so that would perhaps be an issue for the food security of the country. Farmers could avoid using fertiliser at all, but that would lead to a 20% crop reduction, and while there are other, more sustainable fertilisers produced on farms, looking at the availability and feasibility of that method, it is more beneficial for smaller holdings than for large ones. Farmers could avoid planting crops altogether if they do not believe that the return is going to match the investment, and that will have an effect on prices, as the amount of food produced will reduce.
While asking the Government, as often is the case, for a short-term solution, I am not sure they have anything in place at the moment. The Minister might say there will be intervention on fertiliser prices, but I doubt it. However, the Government need to look at a longer-term plan for a fertiliser strategy. I know Defra has been looking at the use of land in its recent review of agricultural policy, but there are two main issues on fertilisers that need looking at. The first is climate change. This was raised by the IPCC and the Climate Change Committee this morning as an issue that, if not addressed, will mean that we will break our carbon target quite badly.
Fertilisers are a major emitter of CO2 in their production and use. Ammonia production accounts for 1.8% of global CO2 emissions. It also consumes between 3% and 5% of global natural gas production totals. Virtually all the ammonia produced today is made using the Haber-Bosch cycle. Natural methane gas is used to produce hydrogen, releasing 6 tonnes of CO2 for every 1.1 ton of hydrogen, and then this hydrogen is reacted with atmospheric nitrogen to produce ammonia.
There is a ray of hope in this area, which is the work being done in Australia by Monash University. The noble Baroness, Lady Worthington, brought this to my attention recently. It is working on a way of producing ammonia without using natural gas but using electrolysis powered by energy from wind. I would like to pass that information to the Minister and his department, because it is an area where we could vastly reduce the amount of emissions from ammonia.
In my last 15 seconds, I shall finish on the other area, which is security of supply. The Government may not be looking to subsidise fertilisers, but are they taking steps to secure a reliable supply? Ammonia is reliant on natural gas and there is a real risk that there will be a shortage of gas on the continent. The largest producers of ammonia locally are Ukraine, Germany, Poland and the Netherlands, and the second largest producer in the world is Russia. With the shortage of gas next winter, is there a real risk that we might run out of fertiliser?
The Deputy Speaker (Baroness Finlay of Llandaff) (CB)
My Lords, the noble Lord, Lord Campbell-Savours, is taking part remotely. I invite the noble Lord to speak.
Lord Campbell-Savours (Lab) [V]
My Lords, the best way to combat
“the rising cost of … fertiliser and feed”
is to end a war which I have opposed since before it began. An early settlement, which I have argued in detail over nine contributions in debates, would have saved thousands of lives, billions in cash and enabled a post-pandemic economic revival, with an early restoration of the international economy, particularly in the area of agriculture.
These days I have limited knowledge of agriculture, although in the early 1990s I had shadow ministerial responsibilities for agriculture in the Commons. With market stability in mind and on the advice of cattle breeders, I promoted a national cattle identification scheme. Following a five-year campaign, in 1997 the Labour Government rewarded my efforts with the establishment of the British Cattle Movement Service in my Workington constituency, which at its peak hired 1,200 people. With efficiency savings and developments in technology, its workforce of 578 helps maintain stability in the market. The crisis in Ukraine is undermining that stability across the world. Price stability is critical in agricultural markets.
My work on the BCMS helped foster my long-term interest in the fortunes of Cumbria’s farming community, to which I have turned for comment on this debate. In the words of one farmer, “It’s breaking my heart. An extra £3,000 a month in cattle feed costs, fertiliser up from £300 to £800 a tonne, and when they say you can spread more manure, they forget we are already doing that. My red diesel price doubled from 60p to 120p a litre. My electricity bill has gone from £24,000 to £70,000 a year. My extended credit terms have ended. Suppliers of feed and other agricultural inputs demand 28-day settlements. Yes, the milk price has risen to an all-time high, but it doesn’t cover my additional costs”.
Add to that testimony the increase in tariffs, reduced fertiliser supply internationally, banking restrictions, the international energy crisis, poor harvests and drought, export bans and other controls, and you have a crisis spiralling out of control. Then add to that a period of hyperinflation, with unimaginable potential consequences: starvation in the third world, certainly in rural Africa; millions in the advanced economies driven into not only fuel poverty but real poverty; millions cutting back on food and children suffering worldwide. You will then get the picture.
This is far too high a price to pay, yet we all know the war will end up in a costly compromise. Yes, there will be a peace of sorts, but historians will judge it all with a more critical eye. A brutalised Russian people appear unaware of the atrocities being carried out in their name by a desperate, brutal Putin leadership and a military establishment that is out of control and fearful of defeat. We need cool heads to think through an alternative strategy. We need a military build-up so that we can negotiate from a position of strength and avoid an escalating war.
Farmers throughout Europe are paying a very heavy price indeed for the failure of leadership in the civilised world. I suspect that all they want is an early end to the war and the return of stability. A settlement cannot be left to the Government of Ukraine; their agenda is not necessarily ours. Putin will not be there for ever. Our mistake has been to underestimate the potential for reform in a modernising Russia earlier this century. It is still not too late, but it will never happen while Europe lacks vision and sees the resolution of the conflict on the proxy battlefield and not in the conference room.
The Earl of Devon (CB)
My Lords, I am grateful to the noble Lord, Lord Redesdale, for securing this important debate. I note my interests as a Devon farmer and a lawyer working for a firm with an agricultural law practice.
The noble Lord, Lord Campbell-Savours, highlighted the humanitarian catastrophe unleashed by Russia’s invasion of Ukraine, from the devastation on the ground to the blockade of the Black Sea, which has held hostage so much of the world’s wheat, sunflowers and other key food commodities on which so many rely. As we focus our attentions on the unprecedented impact of these events on our own food and farming sectors, let us not forget the unimaginable suffering that will be experienced by the Middle East and north Africa over the coming months and years. The Government have my support in urgently seeking to unlock routes to market for Ukraine’s produce.
I turn specifically to the impact on UK fertiliser costs. The numbers are stark, as we have heard, with fertiliser prices increasing fourfold or more. I am aware that the Government have taken preliminary steps to address these costs, but ammonium nitrate has gone from £200 to £800 a tonne, and I understand that the cost of gas suggests it may reach £1,000 a tonne soon.
At the same time, domestic fertiliser production has plummeted as one of only two fertiliser factories in the UK has shut. I was totally unaware of the fragility of our domestic fertiliser production, and I ask the Minister to explain what steps the Government will take to ensure that domestic production recovers and that we establish better resilience and variety of production in the years ahead. It seems highly risky to allow a single company to control all domestic fertiliser production, and it suggests a severe market failure in a strategically crucial agricultural input. Will the Government undertake to monitor this and ensure it can never happen again?
Given that fertiliser cost and supply are likely to remain tight for months, if not years, and that the cost of imported animal feeds will also remain prohibitive, what steps are the Government considering to promote domestic production of alternatives? We have already heard about legumes, such as peas and beans, which are well suited to the UK climate. They are an excellent alternative to soya, they are flowering plants that support biodiversity, they fit well into a combinable rotation and, crucially, they are not dependent on nitrogen fertiliser.
I understand that Northern Ireland has run a protein crops payment pilot in recent years. Will the Government consider expanding this across the UK in response to the fertiliser and feed cost crisis, or perhaps as part of ELMS or the sustainable farming initiative?
Talking of sustainable farming, I went back to Professor Dieter Helm’s work, Green and Prosperous Land: A Blueprint for Rescuing the British Countryside, which I bought in 2019 when we began to consider the Agriculture Bill. His was the seminal work that inspired the agricultural and environmental revolution that we are currently undertaking. In his chapter on food production and self-sufficiency, the professor notes the farming industry’s concerns that farming is about food production and food security first, and then about nature. Dismissing this, he noted:
“Food security is largely an empty slogan of lobbyists. It should not be taken seriously.”
How times have changed. Following the hard Brexit, the pandemic, escalating climatic catastrophe and now the war in Ukraine, the world has turned on its head. Food security, famine and the migration and misery they cause are now top of the agenda.
I have been a keen proponent of the environmental and biodiversity agenda in recent years but have always sounded a word of caution, particularly given the excessive demands being placed on our island’s limited reserves of natural capital. Many of us called for longer to complete the agricultural transition from BPS to ELMS, citing the considerable stresses that would be placed on the fragile farming community. Those requests were rebuffed, with the Government confident that seven years would be sufficient. With fertiliser and feed prices now at unprecedented and wholly unsustainable levels, are the Government giving any further thought to the timing of our agricultural transition?
Noble Lords will recall plenty of debate over the merits of rewilding and the concept of sparing productive land for nature, rather than sharing it. Given the crisis in food production, will the Minister finally confirm that government policy favours the sharing of land and will not support the wanton destruction of productive and essential farmland in pursuit of expensive dreams of an impractical prehistoric wilderness that never truly existed?
Does the Minister agree that environmental benefit will be achieved not by condemning farmers and punishing them but by ensuring their operations remain profitable and productive, while improving environmental and biodiversity outcomes through agri-environmental schemes and agritech solutions? Our academic research institutions are leading the world in these two sectors, and we need to support them better.
I am looking for some silver lining. This crisis may present an opportunity to fast forward the development of environmentally friendly alternatives to existing production methods. Of particular significance is the need to find natural, organic alternatives to the polluting and energy-hungry application of nitrogen fertilisers. For instance, what steps are the Government taking to encourage the development and application of seaweed-based fertilisers? Seaweed is rich in nitrogen, potassium phosphate and magnesium. Given our extensive coastline, surely this is an area ripe for expansion.
Likewise, our green and pleasant land delivers one thing, grass, better than almost anywhere else on earth. Given the cost inflation and the environmental degradation inherent in soya-based animal feeds, will the Minister endeavour to provide better support to the pasture-fed meat and dairy industry? Of particular concern in Devon is the ongoing uncertainty regarding the farming rules for water, which remain opaque and unclear. Their uncertain and punitive enforcement is preventing the application of much-needed organic matter to Devon’s pastures.
Finally, conscious once more of the terrifying hunger that will result from the war in Ukraine, are the Government making any efforts to ensure that UK farming produce is available to assist those hungry and in need around the world?
Lord Northbrook (Con)
My Lords, I declare interests as an arable farmer and NFU member.
The war in Ukraine has brought home the importance and fragility of food security for the UK. As an island nation, being able to grow enough food to feed a substantial proportion of our population is a key measure of food security and national resilience. I had not anticipated the Ukraine crisis when I moved an amendment to the Agriculture Bill asking for government support for the domestic production of food and agricultural products. This was voted against by my own party and Labour. I had no great foresight in having been ahead of the game on this issue, as it already seemed to be a pressing matter even before the war.
I will focus my remarks on the fertiliser situation. As already stated, the latest figures from the Agriculture and Horticulture Development Board show that fertiliser prices have more than doubled since May 2021 and imported fertiliser prices are up by 171%.
Fertiliser is a key input related to crop yields. A severe tightening of supply will lead to a reduction in the output of commodities. Gas, the main input in producing fertiliser, and ammonium nitrate play major roles in successful crop growth. Gas prices have increased fourfold over the last year and ammonium nitrate prices have also increased fourfold since January 2021. As a result, fertiliser is in tight supply for 2022, with impacts expected to become more serious next year. The significant increase in cost and reduced physical availability of this key input will likely reduce the crop yield from UK farms in the coming years.
The Government are helping the situation but can do more. I welcome the consultation on reducing ammonia emissions from solid urea fertilisers admitting that a full ban is unfeasible. I am also pleased that the Government made an agreement for one UK fertiliser plant at Billingham to be reopened after both had closed. However, on 8 June CF Fertilisers announced that it intends to close its fertiliser plant in Ince, Cheshire. There were only two plants overall in the UK, so this is a serious problem.
The NFU recommends that the Government and industry help farm businesses to plan for next year’s crop by publishing fertiliser prices. At the moment, I hear from my tenant farmer that they will publish them only daily, due to volatility. The NFU suggests the publishing of a gas fertiliser index; it also recommends mandatory food resilience impact assessments for new regulations or policy. How can the Government help in this regard, and does the Minister agree with the NFU’s proposals?
I welcome the advance payment of this year’s BPS, which will help farmers’ cashflow. I also welcome the recent announcement of some measures to try to support the agriculture industry, including the formation of a market monitoring core group and steps to assist farmers with the availability of fertilisers. The NFU acknowledges parliamentary support for these changes.
What is not helpful are remarks, maybe taken out of context, alleged to have been said by the Minister from the other place. These were that “there is no shortage of organic matter to replace all the manufactured fertiliser we currently use in the UK”. Mike Neaverson, a potato farmer from Lincolnshire, wrote in Farmers Weekly in April:
“Using Defra’s own documents—and ignoring its rules about … spreading it—we can deduce that to replace all the UK’s manufactured nitrogen with manures would require, for example, an extra 2.5 billion laying hens, or 10 million dairy cows. Taking a hybrid of both, this would mean that every man, woman and child in the UK”
would have to have
“an 18-egg omelette, washed down with five pints of whole milk”
every day of the year. Neaverson continued:
“We could eliminate all of our manufactured nitrogen tomorrow but … it would reduce our yields very significantly, to be replaced by imports.”
The Government could take a leaf out of the assistance programme of the US Department of Agriculture, USDA. In March this year, it announced that it would support additional fertiliser production for American farmers to address rising costs. USDA will make available $250 million through a new grant programme this summer to support independent, innovative and sustainable American fertiliser production to supply American farmers. Additionally, to address growing competition issues, USDA will launch a public inquiry seeking information regarding seeds and agricultural inputs, fertiliser and retail markets. The new programme will support fertiliser production that is independent—outside the dominant fertiliser suppliers —increasing competition in a concentrated market. It will support fertiliser made in America, produced by domestic companies in the United States, reducing the reliance on potentially unstable or inconsistent foreign supplies.
One idea I would put to the Minister is assistance for smaller farms in buying fertiliser. The problem comes when banks refuse to increase overdraft facilities to help farmers with this. They then have to decide whether to use less to keep within their banking limits, while facing the uncertainty as to whether crop prices will hold up. Some sort of Covid-type loans would be an important idea here. Will the Minister give this some thought?
Finally, the Government need to wake up to the fact that they are losing support in rural areas, as evidenced by the Tiverton result. Not taking farmers for granted would be a good way to start addressing this, and careful awareness of the fertiliser problem is a hugely important issue. Does the Minister agree?
Lord Carrington (CB)
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.
Baroness Bakewell of Hardington Mandeville (LD)
My Lords, I congratulate my noble friend Lord Redesdale on securing this important debate and on his excellent introduction. The cost of agricultural fertiliser and feed has rocketed in the last three months, and it is not difficult to see why this has happened.
First, wholesale gas prices have risen by 284% in 12 months—a phenomenal increase. The use of gas is a critical component of fertiliser production, contributing 90% of the cost. Currently, the UK produces only 40% of its fertiliser requirements. There were two fertiliser plants, one of which has now closed. The second is owned by the same company, CF Fertiliser. There is, therefore, no competition in the UK market in terms of our own fertiliser production. This is a critically important industry for the agriculture sector. What are the Government doing to ensure that the remaining plant remains open and operational? The noble Earl, Lord Devon, and the noble Lord, Lord Northbrook, have referred to this.
Secondly, the war in Ukraine is having a dramatic effect on the UK. Ukraine was a crucial supplier of sunflower oil and wheat, the supply and price of which have been affected. The shortage of sunflower oil does not adversely affect the British housewife, but it is a vital ingredient in sunflower meal for animal feed. In 2019, Russia was the world’s biggest exporter of wheat and Ukraine the fourth biggest. The conflict is hitting hard and is not likely to be resolved quickly. AHDB figures show that UK pelleted wheat feed prices rose by 60% in the 12 months to May this year. Our farmers accommodating or budgeting for this into the future is unsustainable.
The other side of this equation is the effect on countries in north Africa and the Middle East which rely heavily on grain from Ukraine. We are aware of severe food shortages in Eritrea, Kenya, Somalia and Sudan—countries which may face starvation as a direct result of the Russian invasion. It is therefore imperative that the Government do not allow our own production of climate-friendly food to drop, but put in place measures to ensure that neither escalating energy prices nor fertiliser shortages affects crop yields where this can be avoided.
There is another method of producing fertiliser, in the form of green ammonia using CO2 from renewable resources. This has a minimal impact on the environment and is produced with little waste. In the normal course of events this method of production would be ruled out due to the cost, but with the exponential rise in cost of traditional fertilisers, this could come into its own. We do not have a plant in the UK that is currently capable of producing green ammonia, but there is one in Germany. Green ammonia production makes use of renewable energy sources such as hydro-electricity, solar power or wind turbines, through the Haber-Bosch process. Are the Government having discussions with those producing green ammonia and seriously considering this more environmentally friendly method of producing fertiliser to help our farmers?
The Minister could commit to establishing a gas fertiliser price index to increase transparency in the market, as the NFU has requested. Are the Government considering this? Despite the difficulties being well-trailed, Defra has yet to announce whether it is likely to respond to rising animal feed prices. On 26 May, responding to a Written Question from Daniel Zeichner MP on action to tackle animal feed inflation, Minister Prentis said that she had
“already set out measures to support farmers and growers in England ahead of the coming growing season”
and that the UK was
“largely self-sufficient in cereal production, growing 88% of all the cereals that we need”.
The debate this evening demonstrates that this statement is not correct. Not only are we not able to grow sufficient cereals for our needs, but the cost of producing them far outweighs the price paid for the end product. What are the Government now going to do to make a positive contribution to tackling the current crisis?
Baroness Jones of Whitchurch (Lab)
My Lords, I thank the noble Lord, Lord Redesdale, for initiating this timely and important debate and thank all noble Lords who have contributed. We are all acutely aware that these very specific extra agricultural costs are driving food inflation at a time when the cost of living crisis is already causing widespread hardship. More than 1 million people are already regularly using foodbanks and over 2 million are regularly forced to go without food. The impact of food insecurity at a household level is all too clear. It is a real and pressing issue for millions of people in this country.
The tragedy in Ukraine is more than a story of an illegal invasion and thousands of civilians being murdered at the whim of a Russian tyrant. It has also upset our reliance on international sources of fuel, food, fertiliser and labour, and has laid bare the weaknesses of our global markets. Arguably, given how fundamental food security is to the welfare of our nation, the Government should have had more robust contingency arrangements. Instead, an air of complacency has been allowed to creep in.
While tensions were mounting between Ukraine and Russia last year, the Government’s landmark food security report concluded:
“Real wheat prices are expected to decline in the coming years based on large supplies being produced in the Black Sea region”.
So, we have to question what the purpose of this report is if it does not factor in the most obvious upcoming risks. Farmers are taking a major hit from the Government’s lack of effective contingency planning and reliance on world markets. This is why we have argued for a robust food security policy with a commitment to higher UK food production levels, to give better assurance that in a crisis we can feed the nation.
Meanwhile, as noble Lords have said, our farmers are suffering a double whammy on food and fertiliser costs. Prices for agricultural fertiliser in the last year have doubled, and in some cases trebled. As well as price increases, fertiliser is in short supply, with impacts expected to become more serious in the new crop year for 2023. This will lead to higher food prices and lower yields. That is why it is so frustrating that the Government have allowed the permanent closure of the Ince fertiliser plant to go ahead, leading to a major loss of production as well as 350 jobs lost. Removing a large proportion of the UK’s CO2 supply as a by-product is causing further food production chaos. The owner of the plant, CF Fertilisers, restarted its other operation in Billingham after the Government intervened. Why, therefore, are the Government not intervening on the Ince plant as well?
The fact is that the Government’s measures to address fertiliser inflation are too little, too late. Industry round tables, revised guidance and far-off plans to develop less gas-reliant fertilisers will do little to help the farmers struggling right now. We should use this opportunity to implement the growing scientific evidence that shows that farmers could continue to produce high-yield crops with far less artificial fertiliser if they adopted environmentally sustainable practices, such as rotating peas and beans, which we heard about earlier.
Meanwhile, the Ukraine invasion and the humanitarian tragedy are also impacting on feed costs. Ukraine and Russia produce 30% of the world’s wheat and 50% of its sunflower oil, seeds and meal exports. This is having a direct impact on the cost of animal feed in the UK: for example, the NFU has warned there will definitely be a turkey shortage at Christmas as a result of wheat prices doubling. Pig farmers have also seen a significant rise in costs, with feed prices now contributing up to 70% of costs. So, for a sector that has been struggling anyway, the outlook for pig farmers is dire.
What are the Government doing about this crisis? Obviously, it is welcome that the payments of the basic payment scheme have been brought forward. This might help with cash flow, but it is money to which farmers were entitled anyway; it is not new money. Other than that, the Government’s policy can best be described as “wait and see”. In response to a Question from my honourable friend Daniel Zeichner in the Commons, the Minister, whom the noble Baroness also quoted, said:
“We continue to keep the market situation under review, by working closely with industry-led groups and key stakeholders to monitor the position on animal feed.”
This really is not good enough. This crisis is hitting not only farmers but consumers, as the price of food rockets, and it needs action now. Farmers have no option but to pass on the additional costs, which will fuel further inflation, food shortages and suffering. It should be a national priority to address these issues.
So I hope that, when the Minister responds, he is able to provide greater assurance the Government intend to act on these issues. I look forward to what he has to say.
The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord Benyon) (Con)
My Lords, I refer noble Lords to my entry in the register. I congratulate the noble Lord, Lord Redesdale, on securing this debate and the clear passion with which he introduced this subject. I am grateful to other noble Lords for their contributions. The Government are of course more than sympathetic towards and understanding of the plight and costs that farmers face now, as they try to plan for the future.
I hope that the noble Lord will put pressure on his Front Bench to dump the idea of suspending the transition in farming from BPS to the new farming future, because that would precisely help the arable farmers who will see their gross margins double and perhaps even treble in certain areas this year. Suspending it would not help the chicken farmer that he mentioned or small tenant farmers, upland farmers or the family farmers who have grown up around me, and it would perpetuate a system that gives 55% of the money to the largest 10% of the landowners. It is deeply unfair, and now would be completely the wrong time do this.
Agricultural commodities are closely linked to global gas prices, as the noble Baroness, Lady Bakewell, and the noble Lord, Lord Campbell-Savours, pointed out. Farmers are facing increased input costs, including manufactured fertiliser, livestock feed, fuel and energy. Natural gas is a key input in the manufacture of nitrogen-based inorganic fertilisers, which include the two main mineral fertilisers used in Great Britain: ammonium nitrate and urea. A combination of global demand and supply pressures has caused the price of gas to increase dramatically since the end of summer 2021, causing significant issues for both the global and the domestic fertiliser industry. As has been said, the invasion of Ukraine by Russia this year has obviously further disrupted global supply chains.
We want farmers to be able to keep running a viable business and continue producing food. This is right at the top of the Agriculture Act, which requires Secretaries of State today and in the future to have the production of food at the heart of what they do. We recognise that increasing input costs, particularly fertiliser, animal feed, fuel and energy, are creating short-term pressures on cash flow. On 30 March, the Government announced measures to address the cost pressures impacting farmers as a result of the global instability of demand and price increases. I remind the noble Baroness, Lady Jones, that changes to the use of urea fertiliser have been delayed until at least spring 2023—this was one of the many actions that we have taken and will continue to take. When restrictions are introduced, they will include the use of protected or inhibited fertilisers, rather than a complete ban. Farmers will be further supported through new slurry storage grants as of this year, helping to meet the farming rules for water and reducing dependence on artificial fertilisers by storing organic nutrients.
We have published additional details of the sustainable farming incentive, which will help farmers move towards sustainable farming practices over time, supporting them to build the health and fertility of their soil and to reduce soil erosion. This is essential for sustainable food production, helping to bolster food security and the longer-term resilience of the sector.
On 6 May, we agreed to bring forward half of this year’s BPS payment as an advance injection of cash to farm businesses in England from the end of this July. I appreciate that many noble Lords on all sides have mentioned that. Payments will also now be paid in two instalments each year for the remainder of the agricultural transition period, to help farmers with their cash flow. Sympathy and understanding are easy; action is what matters and is what this Government are doing.
An industry fertiliser task force—previously known as the fertiliser round table—has been formed, made up of key sector bodies including the National Farmers’ Union, the Agricultural Industries Confederation, the Agricultural and Horticultural Development Board, and the Tenant Farmers Association. A lot of work has been done on innovations, much of which has been mentioned in this debate. I make the point that CO2 is a by-product of fertiliser industries; we need CO2. One of the measures we took in supporting a factory last year was to sustain the CO2 which is needed in food production in other sectors, particularly in abattoirs.
The task force has met regularly and continues to work on issues around fertilisers, identifying solutions to better understand the impact of current pressures on farmers. Actions need to be informed by facts, and that is what we are doing. We continue to keep the market situation under review through the UK Agriculture Market Monitoring Group, which monitors UK agricultural markets, including price, supply, inputs, trade and recent developments. We have also increased our engagement with the industry to supplement our analysis with real-time intelligence.
Fertilisers are vital for food production, providing essential plant nutrients, such as nitrogen. It is estimated that approximately 50% of human-edible protein produced globally is a direct result of mineral fertiliser usage. Mineral fertilisers, when used appropriately—tailored to the soil and crop requirement, with correct application timing and techniques—are highly efficient. Organic materials applied to agricultural land, such as livestock manures, biosolids, composts, anaerobic digestates and waste-derived materials are also valuable sources of plant nutrients.
Data from the 2020 British Survey of Fertiliser Practice suggested that around 65% of Great Britain’s farmers used at least some manure, slurry or biosolids. Careful recycling to land allows their nutrient value to be used for the benefit of crops and soil fertility. We are supporting farmers in making more efficient use of these mediums. However, we know that poor application of any fertiliser is bad for the environment. The UK has environmental objectives published in the Clean Air Strategy, the 25-year environment plan and the net-zero strategy. These aim to make farming more sustainable and to reduce the polluting effects of fertiliser use by developing further policies. However, I accept that this is the medium and long term; we have a current crisis to deal with.
The current increased cost of fertiliser provides a very strong incentive for farmers to increase their nutrient use efficiency to include every ounce of fertiliser—I have spoken to many who are doing this. Farmers in the UK, concerned about high prices and future supply, did not buy at their usual rates from autumn 2021 through to May 2022, which resulted in delayed or reduced fertiliser application. However, the UK has a highly resilient food supply chain, as demonstrated throughout the Covid-19 pandemic. It is well equipped to deal with situations with the potential to cause disruption.
Every year, yield is heavily affected by the weather—the amount of rain and sunshine that crops receive. It is not yet clear the exact impact on crop yields for the 2022 harvest, but, as has been said, it looks pretty good in many areas—although we must not count our chickens before they are hatched. After a largely dry April, welcome rain was seen in May, so let us hope for the best.
Farmers aim to produce food while also providing themselves with a profit for their livelihood. However, to produce a profit, it is understood that farmers have to reduce crop areas in favour of different land use, sow different crops with lower fertiliser requirements, or choose to apply less fertiliser to get a lower quality yield. Our supply chain providing imports of fertiliser to the UK has remained dynamic in sourcing products. As has been said, CF Fertilisers continues to produce ammonium nitrate fertiliser from its plant in Billingham.
I understand noble Lords’ concerns about access to affordable animal feed, particularly in the context of high inflation. For the livestock sector, animal feed is a vital input, with increases in price and problems in availability impacting variable costs and productivity. Cereals and oilseeds make up a significant proportion of animal feeds, most of which are internationally traded commodities. Subsequently, their supply chains are dynamic and responsive to global market developments in price and availability. These developments may be influenced by both the war in Ukraine and additional factors unrelated to the conflict, such as weather conditions and currency fluctuations.
The question of what we are doing to make the UK more self-sufficient in fertilisers was raised. As I have said, it is a global market; the UK sources fertiliser from a wide range of countries and already produces fertilisers such as ammonium nitrate. While global fertiliser prices have risen, we are still producing it here and we are working very closely with the sector to make sure that it is happening.
We must also look at alternatives. The Secretary of State and I have, at different times, visited a company called CCm, which produces such technology. It is an absolute game-changer. CCm produces fertiliser that can be used in the same way as prilled inorganic fertiliser, but it is produced from sewage sludge, potato peelings and so on, and it is an entirely circular economy. I would commend a greater understanding of it, because I think it has great possibilities for the future.
Our dependence on inorganic fertilisers is something that we have to face in the medium term. We have suspended many of the changes on the farming rules for water, which was a point made by the noble Earl, Lord Devon.
On fertiliser market transparency, Defra is working with the AHDB, the AIC and the NFU on how fertiliser price transparency can be improved in order to aid farmers in their decision-making. Defra is also looking to review fairness in the supply chain across the agri-food supply chain business, which was a point raised by the noble Lord, Lord Carrington.
The noble Baroness asked for action now, but she did not in fact say what action she was talking about. I think I have proved that we are taking action. We are aware of the pressures on farmers caused by rising fertiliser and feed costs and we have taken active steps to mitigate these. We continue to work in partnership with key sector bodies, so that any wider impacts on the food supply chain are minimised and to ensure the UK is well equipped to respond to the global forces that continue to drive the supply and price issues that we are facing. We are deeply mindful of this very serious issue for farmers. We are taking action and working with them and the whole supply chain. I hope that I have answered the questions.
Lord Redesdale (LD)
The Minister made the assertion that we are against ELMS and for BPS. I can happily say that, after massive pressure, we are quite clear that we are for ELMS, rather than BPS.
Lord Benyon (Con)
I am aware that, across this House, there is great support for the environmental land management scheme, but there was a suggestion by his Front Bench in another place that it should be suspended. Now is not the time to do that; now is the time to make the farming industry more secure and more sustainable to withstand these kinds of global impacts, and make it fit to produce food in the future.