There has been plenty of better news on the cost front in recent months for farmers.

Electricity prices are slowly moving in the right direction. Fertiliser costs are certainly lower, with some quotes at half the levels seen 12 months ago.

Milk replacer costs have also significantly dropped from last year.

However, not all of the wide range of cost increases which hit the agricultural sector since 2022 are unwinding.

Crude oil prices dropped in the last few months of 2023, but have since started to rise again. A barrel of Brent crude dropped in price by almost 25% between mid-October and mid-December last year, but has gained almost 10% since then.

The outlook for the commodity is very uncertain at the moment, with tensions in the Middle East meaning there is a risk to future supply, while demand forecasts are tempered by sluggish Chinese growth.

Major banks such as Citi see the price of oil remaining close to current levels for this year. For farmers, that would mean that we have probably already seen the lowest fuel levels we’ll see this year.

Debt repayments

Another factor where a drop in costs may be delayed is in the cost of debt repayments. There were indications that the European Central Bank (ECB) might start to unwind its rapid series of interest rate hikes early this year.

In recent weeks, members of the board of the ECB, including Irishman Philip Lane, have tried to move market expectations for a rate cut to later in the year.

So, on interest rates and fuel, we might have to wait longer for some relief.

However, there is even worse news on the labour side, where hourly pay rates have rapidly trended higher in recent years (see Figure 1).

The future cost of labour, particularly for lower-paid roles, is only going to rise further. 1 January this year saw the rise in the minimum wage from €11.30 an hour to €12.70 an hour and there is more to come there, with the annual report from the Low Pay Commission suggesting the minimum wage will be set at €15 an hour by 2026, which is around €31,000 a year.

While there are probably not many people in industry earning the minimum wage, the rapid increase of the base earnings rate does have an inflationary push for all other wages.

ADVERTISEMENT

If the least experienced member of staff is earning €15 an hour, then those with more experience or seniority will have to earn relatively more.

This means all wages will be driven higher by the moves in the minimum wage, which will lead to higher costs across all industries and services.

This will mean prices for those goods and services will have to rise. All of which means inflation is probably not going to be cured any time soon.