How Iran conflict has pushed up UK farm costs

The impact of the US-Israel and Iran conflict is ‘starting to bite’ on UK farms, according to agricultural scientists and food economists at the University of Reading. 

The University of Reading directly runs approximately 800 hectares of mixed farming land and woodlands in Berkshire, carrying out crops research at Sonning Farm and with animals, including a herd of dairy cattle, at Hall Farm in Arborfield.

The fallout from the conflict is having a profound impact on farming costs locally and nationally, according to Dr Sven Koops, the University of Reading farms manager.   

Dr Koops said: “The conflict in Iran has pushed up costs significantly on our farms. Red diesel, the fuel used for tractors and other farm vehicles and machinery, has almost doubled in price, from around 69p per litre to between £1.15 and £1.20. With planting and some harvesting seasons already underway, that is starting to bite. Based on our annual usage of around 100,000 litres, our fuel bill is set to rise by roughly £25,000 above what we budgeted for.

“We are fortunate on fertiliser this year. We bought our full requirement last season at around 60% of what it would cost today, so we are protected for now. But if prices stay high, next season could look very different.

“Transport companies are also beginning to pass on their increased costs for bulk commodity deliveries, for things like animal feed and fertiliser, so the pressure is coming from more than one direction. This is not unlike what happened during the Ukraine war, though the increases then were even steeper.

“In the short term we can absorb the extra fuel costs and are looking at ways to improve efficiency, such as reducing cultivation where possible. We are not planning to cut production. But if high fuel and fertiliser prices persist, wider input costs could rise by perhaps 10-15%, and at that point we would need to look at more fundamental changes to how the business operates.”

The University of Reading’s dairy herd operates as a commercial supplier of high-quality milk to UK supermarkets, as well as providing the ideal testbed for innovations in animal husbandry and other techniques. These are tested to improve food quality and animal welfare and to reduce the environmental impacts of dairy farming.

Professor Richard Bennett, Professor of Agricultural Economics at the University of Reading, said: “As we have seen in previous conflicts, wars affecting oil-producing regions can send shockwaves through agricultural supply chains that go far beyond the pump price. 

“The disruption to key shipping routes caused by several weeks of conflict around the Gulf has impacted the global flow of fossil fuels and hence fertilisers, and market prices respond quickly even when direct supply links are not obvious. 

“UK farmers are ‘price takers’ in global markets and cannot easily pass on sudden cost increases to their customers, but as global costs and prices increase consumers in the UK will face higher prices. Shoppers, businesses and the UK Treasury will be hoping that the de-escalation of the conflict will last, so that supply chains of key commodities can flow again and prices stabilise.

“While higher prices can put an extra squeeze on cost of living and impact economic growth in richer countries like the UK, supply problems can be the difference between normality and famine for people in low-income countries, if key supplies cannot get through.”