Rising cost of fuel is hitting farmers hard

3:10pm Friday 18th July 2008

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Gordon Brown and Alistair Darling have finally scrapped October’s planned 2p rise in fuel duty, but that will not sort out the current high prices – especially as that duty increase will probably hit next April. In the last of our features on Facing the Fuel Crisis, the Gazette looks at the problems facing Essex’s farmers – and why two of our biggest supermarkets are not feeling the pinch.

Essex's wheatfields might not be on the same scale as Kansas, but they still take up nearly 250,000 acres.

There is quite a bit of rape, too – just over 74,000 acres – plus barley, sugarbeet, vegetables and fruit. In fact, if it has roots, Essex will grow it.

“This is a big farming county,” declared Brian Finnerty.

“There are 450 farms in Essex and 10,000 people work in the industry. They also use a lot of fuel.”

Mr Finnerty is regional press officer for the National Farmers’ Union (NFU) East Anglia and, from where he is sitting, the year to date has been “quite challenging”. Next year? That, he stressed, is “financially, a huge uncertainty”.

Similar to everywhere else, the rising cost of fuel is hitting agriculture big-time. Within the next few days the harvest will begin, and that means the use of fuel will rocket.

However, unlike other industries, farming has what the majority in the commercial sector see as a get-out-of-jail card. Red diesel. Even at the new high of 67p a litre, farmers must be laughing all the way to the bank.

“Hardly,” said Mr Finnerty. “Other businesses can pass on rising costs to the consumer almost immediately. Farmers can’t. They have to sell at worldwide fixed prices – and those prices were set long before the harvest and long before the increase in fuel prices.”

Very little duty is paid on red diesel – dyed red with a chemical marker so it can be easily identified if used illegally – and no duty at all on kerosene.

With agriculture at the mercy of the European Union as well as international crop prices, red diesel gives some flexibility.

“With the big increase this year, farmers are set to face massive fuel bills,” he pointed out. “Even though they have already bought in fuel for the harvest, they will have paid a lot more than last year.”

John Jinks has been running Gibbon Farms – 1,750 acres at Colchester and 900 acres at Southend – for the past four years.

“The price of red diesel has doubled in the past year alone,” he revealed, “and I believe it will continue to go up. This has been the biggest rise in the cost of red diesel for 45 years.”

But it isn’t only the price of fuel which is increasing. Anything oil-based costs a lot more than 12 months ago – and farmers use a lot of oil-based products.

“Each farm has to buy tons of fertiliser and pesticide – and all have risen on the back of crude,” he explained. “We can cope this year because we have already bought fertiliser at the lower price – £150 for 300 tons. But when we buy for 2009, that price will be between £325 and £350.”

The Colchester farm has 550 acres of wheat, 158 of barley, 150 of rape, 125 of sugarbeet and 110 of peas, and it takes two combines, a grain drier, four tractors, two Land Rovers and a pick-up truck to bring in the harvest. Together, they use 5,000 litres of fuel a week.

“During the harvest we always keep in store about 12,000 litres,” said Mr Jinks. “To deter any would-be thieves, we spent about £8,000 at each farm on new fuel storage facilities.

“If we are to turn a profit – and farms have to do that – we must look at how we do things differently.”

Gibbon Farms have already started, and both farms are now “practising minimum cultivation” in some fields.

“Ploughing is a big use of energy,” he explained. “If we can cut back there and change the way we establish our crops, we can save fuel.”

And if red diesel continues to rise?

“We will work it out somehow,” he insisted. “We have to.”

TESCO AND SAINSBURY'S - RIDING THE STORM?

Neither Tesco nor Sainsbury’s would reveal the size of their UK lorry/van fleets, how much fuel their fleets use in a year, their fuel budgets for April, 2008 to March 2009 or if they will exceed those budgets.

Instead, both spokesmen cited “company confidentiality” and “commercial sensitivity”, but they insist that they are holding down fuel prices at their filling stations (Tesco, 425 stations in the country; Sainsbury’s, 246 stations in the country) “as much as possible”.

“We have seen some (fuel) price inflation,” explained Tesco, “but, because we are a big company, we have been able to absorb it and not pass it on to our customers.”

Sainsbury’s and Tesco are “big”. Tesco’s net profit for 2007-2008 was £2.1 billion, while Sainsbury’s was up 28 per cent to £488 million. When it comes to negotiating fuel deals with the big oil companies – for their own fleets as well as for filling stations – both have got a lot of clout.

Which is why they can shrug off what the rest of us can’t.