Agricultural Fertiliser and Feed: Rising Costs
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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.