Figures released by the Department for Energy and Rural Affairs at the end of last year summed up perfectly one of the biggest challenges facing the UK agriculture sector. Average input prices had risen nearly 32% in the year up to September 2022 but the prices at which they sell their outputs had only risen just under 23%.

This inflationary pressure is just one of many factors making it harder and more expensive to run a farming business. Another is a drastic shortage of labour, with many businesses struggling to find the workers needed to produce their goods.

Roddy McLean, our Director of Agriculture, explains these challenges could have serious implications on how some businesses approach the future.

“Farmers are going into 2023 with a very high cost base and some are saying they’re already selling their produce for less than it costs to produce, for example eggs and pork,” he says. “Some are even temporarily stopping production until they can see a profitable way forward again.”

Against such a concerning backdrop, our FutureFit research asked farmers what they are doing to make sure they are able to rise to the challenges they face today and in an uncertain future. It found that reducing cost is the common theme, typically through using greener energy solutions and reducing input costs, such as fertiliser, by farming more sustainably.

Adopting technology that helps farms run more efficiently, reducing labour costs, is also a key strategy for businesses preparing for the future, the survey finds.

Rising energy costs added to the pressure on farming businesses’ margins last year. Four out of five decision-makers we surveyed from the industry say they have been adversely impacted by rising energy prices – more than in most other sectors – including 20% who say the impact has been severe.

But, unlike other inputs, farming businesses have the power to reduce their electricity bills by investing in renewable energy, explains Roddy.

“Agricultural businesses normally have the problem of being price takers rather than price makers,” he explains. “You can't control the global price of fertiliser, feed, seed and red diesel, but you can at least control one of your input costs, through investing in renewable energy.”

Investing in green energy is therefore the biggest ‘no brainer’ for agriculture businesses as they prepare for the future, Roddy argues. “It’s an upfront cost but it will pay off.”

This investment is already under way – two-thirds of the those surveyed in the agriculture sector say they have invested in green energy solutions. So far, however, this investment has been overwhelmingly driven by the need to cut costs – not one of them says they have done so for environmental reasons.

That may be changing as 30% have yet to invest in green energy but plan to do so with environmental objectives in mind.

At dairy producer R, K, M & G King Farm Partnership, co-owner Mike King reveals renewables are reducing electricity bills significantly.

“We have 50Kw solar panel for generating electricity and a biomass boiler running off wood chips for the office and farmhouse,” he says.

“It works very well and is a massive saving. We also heat up the water that’s used to clean our milking machines via a heat exchanger fitted to the milk cooling system. As the milk is cooled, the heat goes into warming the water. It’s very clever and saves on water heating costs.”

• Invest in solar panels. Funding is available to help spread the cost.
• Switch office and farmhouse heating to biomass boilers.
• Investigate whether your land is suitable for wind turbines – both wind conditions and planning.

Agricultural businesses are feeling pressure from customers to be sustainable, our survey suggests, but not as urgently as some other sectors.

While 94% of agricultural businesses fear they could lose customers if they do not display their sustainability credentials, only 20% see this as a ‘significant’ risk, compared with 32% of respondents from all sectors (see chart below). And only 40% believe this risk will materialise in the next two years, compared with 48% across sectors.

Is your business at risk of losing customers if you are unable to demonstrate sustainability credentials? (% of respondents)

The move towards sustainable farming practices is accelerating, says Roddy, and will soon become essential for farming businesses seeking to future-proof their business. In his experience, large food producers are beginning to measure the carbon footprint of their supply chain, for example, because buyers are seeking to address their overall emissions and report what is known as their Scope 3 emissions (all indirect (not scope 2 emissions) that occur in the value chain either upstream or downstream).

But sustainable farming practices can also help businesses insulate themselves from inflation. The price of goods such as nitrogen fertiliser and herbicides has shot up in price since the pandemic and has accelerated by the crisis in Ukraine, Roddy explains. This has prompted many businesses to use complementary farming practices that keep nutrients in the soil with less need for expensive chemicals, with a growing interest and utilisation of the broad church of regenerative practices.

A good example is dairy farming couple Chrissie and Mat Crossman, founders of Moo2Yoo. They are readying their business for the future by supplementing their main milk buyer with a direct-to-consumer (D2C) offering that sells milk and milkshakes to the public through vending machines.

The Crossmans have taken the bold decision to not use fertiliser, relying instead on the slurry created by their herd. This is collected throughout the year and then sprayed in the spring.

"We're taking out the cost of fertiliser and grazing sheep on our oldest paddocks to naturally fertilise the land and encourage fresh regrowth in the Spring" Mat explains, "which also helps reduce the need for herbicides to control weeds. We're doing what we can to improve the grassland naturally."

As with investment in renewable energy, the adoption of sustainable farming practices can help farmers navigate short-term trends while also setting them up for the future.

• Consider using natural fertiliser from livestock to mitigate the rising cost of chemicals.
• Reduce the need for fertiliser with seed drilling, cover cropping and companion planting.
• Get ready for a carbon audit, as large buyers will soon expect this.

These rising input prices are accompanied by what a House of Commons report described last year as a “chronic” labour shortage. The report found that there are more than 500,000 unfilled roles in the UK agriculture sector, representing 12.5% of all positions in the industry.

This shortage is especially acute during harvest, says Ian Burrow, our Head of Agriculture, and some farmers may cut back on how much they grow this year.

“In the past, seasonal labour has been supplied by workers from the European Union but now it’s controlled by a visa process,” he says. “It provides around 20,000 visas, but the industry estimates it would need around 60,000 people seasonally, just for picking fruit and vegetables.

“There's also a number of dairy farms that have relied heavily on foreign labour and they're struggling to get people to come in to milk cows.”

One solution to this, Ian says, is to offer more flexible working hours. Three-quarters of our survey respondents (76%) in the sector plan to introduce hybrid or flexible working options in the next three years.

Another is to invest in technology that reduces their dependence on labour. We can see this in action at R, K, M & G King Farm Partnership,  which has adopted a robotic milking system. The system milks each cow three times a day. The cows are rewarded with extra feed but they are prevented from entering the machine too many times. The feeding system is also automatic and the yard is kept clean by a robotic vacuum cleaner.

Investing in this technology has allowed the partnership to cut down on labour costs, explains  Mike. “We save the equivalent of a full-time employee by not needing someone milking, driving the tractor and cleaning out the yard.”

It saves on other expenses too. “With robot technology we've got rid of the cost of a tractor and the diesel it would run on, plus a feed wagon and a yard scraper,” he says.

• Use automated milking, yard scraping, feeding and cleaning technology to take cost out of farming businesses.
• Use technology that can select the best seed and, if necessary, herbicide for location and crop. GPS technology can also be used when ploughing or drilling.
• Invest in fruit and vegetable picking technology, as this will be more efficient and reduce reliance on seasonal labour.
• Factor in the cost of reduced labour and lower diesel bills when determining how long a technology investment will take to pay itself back.

R, K, M & G King Farm Partnership is an example of a farming business that has laid the foundations for its future by investing today.

“We’ve been trying to future-proof the business for several years now by investing in greener energy and technology to keep our costs down,” says Mike. “Farmers need to find every way of becoming more efficient – we all need to keep ahead of the game.”