'Global food price movements are the sum of many individual events, but despite all the talk of food price inflation, the direction is relentlessly downwards'

Headlines quite rightly describe the current historic rate of inflation as a cost of living crisis.

We have all got used to the steady rise in the cost of everything we buy, although farmers have been at the sharp end of that equation for a longer time. Talk is around the cost of food, although this is partly a reflection of the pain for consumers moving away from years of food being under-valued.

Despite current price increases, people still spend a lot less of their income on food than their parents and grandparents – indeed, currently less than those in many other countries. The rise in prices has, perhaps, made people less willing to take food for granted, but that will be short-lived. The pressure is for a return to the bad old days for farmers of a cheap food era.

Figures from the European Commission on farm gate prices and input costs confirmed that while the prices farmers receive had risen, the increase in costs had been greater. At best, that means farmers have been running hard to stay still; the situation is even worse for some where they are running hard but going backwards financially.

Food prices have risen and remain stubbornly high, but global figures confirm this is now being driven by factors other than global, European and indeed Scottish farm gate prices. According to the UN Food and Agriculture Organisation (FAO) food price index, prices fell again in February, making this the 11th month in a row where prices fell from the peak of March, 2022, just after the Russian invasion of Ukraine.

Global food price movements are the sum of many individual events, but despite all the talk of food price inflation, the direction is relentlessly downwards. The exception is cereals, which have held up, but overall prices are now 18% back from where they were in March 2022.

The big drivers of this steady slide have been vegetable oils, which were affected by events in Ukraine and dairy prices. That dairy prices are on a downwards slope is already evident in milk payments and the drop from January to February was dramatic at 2.7%.

The dairy price falls have been driven by butter and skim milk powder, both now struggling to find buyers willing to hold stocks. The market is weak and being made worse by forecasts the southern hemisphere will have large volumes to export, potentially further depressing the market.

Demand for dairy products is weak in Asia, which has been driving dairy growth in recent years. This is depressing for farmers in Scotland. They are now on the receiving end of a sliding market at a time when their costs are still high.

This takes them back into the Mr Micawber situation where the difference between happiness and misery being the difference between income being above or below expenditure.

This underlines the weakness of the situation farmers have always been in. They are price takers and have rarely had the market muscle to be price makers, even in an era of food price inflation.

If food prices are staying high, it must be because everyone else along the food chain is better than farmers at passing on cost increases. These are justified, in that wage costs, energy and packaging costs have all been driven up by inflation – but the same applies to farmers, who are still struggling with high costs for fertiliser and other inputs.

Central to this problem is that at a time of massive cost inflation it is strong businesses, including supermarkets, that are able to pass on to consumers higher costs and the impact of margin pressure.

When things go the other way the process of getting prices back down again seems a lot slower. This cost/price lag is a financial fact of life and the same applies to interest rates on debts and savings.

For a year now, farmers have been on the receiving end of criticism about higher prices for food. The message now should be that consumers need to question why prices on supermarket shelves remain stubbornly high when a key factor driving them upwards – world commodity prices – have fallen back from their peak in 2022.

Sadly, it seems normal service has been resumed. Farmers are in a worse cost/return squeeze than ever; consumers still blame them for higher prices, and while food security briefly got its head above the political parapet it has fallen off the agenda again, with the environment back in the ascendency.