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The real impact of cost pressures on the horticulture sector

A new report, prepared by Promar International, has found that growers’ cost of production has increased by as much as 27% in the past 12 months, with products such as tomatoes, broccoli, apples, and root vegetables most affected.

The main drivers being energy (up 165%), fertiliser (up 40%) and workforce costs (up 13%).


The report also warns that despite food inflation at record highs, growers are not achieving the returns needed to run sustainable, profitable businesses, with additional further concerns on future energy prices following the end of the government’s six-month price cap. This means the situation could yet get worse for British growers.


Report findings:


Inflation gathers pace


In Promar's initial report in spring 2022, the biggest year-on-year inflationary increases were reported in energy (+81%), fertiliser (+75%), packaging (+25%), transport and raw materials (both +18%), and labour (+15%).


By autumn 2022 energy costs had seen a staggering 165% increase year on year, with fertilisers up 40%, transport 28%, packaging 23%, plants/raw materials 20%, and workforce costs up 13%.


Broccoli, tomato, onion, lettuce and potato suppliers interviewed reported year-on-year production cost increases of between 20% and 27%, while even the least inflationary product – mushrooms – recorded a 17% production cost hike.


All crops have seen additional increases in the past six months compared to the March report, underlining the huge extra strain heaped on growers over the summer and autumn.


Labour


While the cost of businesses’ seasonal and permanent workforces has risen by a relatively modest – in comparison with other categories – 13%, the significance of that cannot be understated as it accounts for anything between 40-70% of a horticultural outfit’s overall production costs, depending on the crop.


Promar’s report suggests that producers are struggling to keep their heads above water, and with the efficiency of workers from some new source countries lower than that which growers have been used to with eastern Europeans, lower productivity also comes at a cost.


Energy


The Energy Bill Relief Scheme was aimed at offering businesses some respite from astronomical gas and electricity price rises, but while its introduction was welcome, it has not necessarily changed much for growers, some of whom have already fixed their prices in advance of the scheme being introduced.


With the price cap limited to six months, the horticulture sector lacks any long-term certainty that bills won’t go through the roof once next spring comes around. The way the scheme is administered is also not totally clear to many growers.


Mitigating the impact


Across the industry, growers are taking a range of measures to mitigate the impact of inflation if they are not making a sufficient margin.


Promar found that some growers were taking steps to reduce production, with plantings scaled back by up to 20% in some cases this year already. That is only likely to accelerate, especially in the glasshouse salad sector as energy costs remain staggeringly high.


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