Horticultural input cost increases put pressure on margins

Growers are unable to absorb increased costs, without seeing an increase in what they are paid for their produce

Horticulture

18 November 2021

Irish horticultural producers provide local, fresh, top-quality produce and plant material to the retail market. Horticulture production input costs have risen significantly in 2021, mostly due to external macroeconomic factors. Based on information collated and referenced by Teagasc Horticulture Development Department, input cost increases will in many cases exceed grower margins, meaning growers will be unable to absorb increased costs, without an increase in what they are paid for their produce.

Valued at €477 million (farm gate value), horticulture is the fourth largest sector after dairy, beef, and pigs in terms of gross agricultural commodity output value. In recent months, growers have seen unparalleled increases in costs of key inputs to the horticulture sector in Ireland. Considerable volatility remains as primary producers try to forward plan business for 2022 and manage cash flows. In an environment where cost planning is difficult, risk is increasing significantly for primary producers.

The Teagasc Horticulture Development Department recently assessed the key input costs that have seen the biggest increases, gathered and validated data, sourced from a range of businesses and trade suppliers. The key objective of this report is to surface facts about specific inputs cost increases, to apportion the relative importance of input costs to the different sectors of horticulture production arriving at average increases in costs of production in each sector for 2021. It also speaks to the current and potential impacts of very high input costs for primary producers now and for the 2022 season.

Across all enterprises, there has been a sharp increase in the cost of labour, packaging materials, fertiliser, energy, peat-based growing media, and a myriad of other inputs that are key components of production. Total input costs have increased by between 10.5% and 17.7% depending on enterprise type.

Dermot Callaghan, head of the Teagasc Horticulture Development Department said: “Given that growers’ costs have increased substantially during 2021, producers are potentially facing significant decreases in margins. In some cases, input cost increases will exceed grower margins. Some growers are considering cutting back on production for 2022 in order to manage their cash flow, or to minimise their exposure to high costs. Where energy is required for early and late season production in glasshouses, where a three-fold increase in energy costs persists for 2022, it is likely to lead to a significant reduction and/or cessation of both early and late production.”

“The horticultural sector is exposed to several input price increases, chief among them labour, packaging and fertiliser,” said Andy Whelton, Teagasc Horticulture Advisor. “The impact on overall costs of production are very significant, particularly for crops that need to be harvested and graded by hand.”

The full report Horticulture Input Costs 2021 – Impact Assessment can be viewed at teagasc.ie/publications/2021/Horticulture-Input-Costs-2021—Impact-Assessment.php