Farmers, as a whole, are price takers!
That cannot be a surprise, as a supplier of widely available staples. The market is far larger and diversified, therefore, prices at which we sell our produces are dictated by the market and not by us, hence the prices in Q1 and Q4 when the vast majority of fruits and vegetables are imported, are a lot higher.
That is true for about half of our turnover. It is not true for our cheese or our butter, which are both produced on the farm. Our butter is sought after by restaurants for several reasons, but primarily the fat content (don't ask, it's not important). Both productions are severely limited and we sell to a small list of buyers that have been with us for a long time.
The fruits, vegetables and animal protein we sell to our ancillary business are different, we still sell at market prices, as per our initial agreement with our partners, we also share in the upside in increased prices to buyers and consumers. We share the value added based on a simple formula based on the percentage ownership, less attractive for the farm in times of high prices, but we share the burden when things are slow.
As an example, when we "launched" the meat pie business about seven years ago, "we" would sell each meat pie for £29. Today, we sell each pie for about £40, a 25% increase in price, which for us translated into nearly identical total net profit. The price is sustainable, obviously since our sales have not declined, and the staff and the other owners are happy with the outcome, wages have risen by about 30% during that period. However, we expect that prices will have to rise another 10% in 2027 because of energy costs that are…through the roof.
So on about half our business we are price takers, and on the other half we are price givers. We anticipate that prices from our produce divisions will rise quickly in 2027 as every producer and transport company have seen a massive increase in energy costs.
Overall, this is a massive transfer of wealth away from the consumers to the producers (mostly energy). There is nothing we can do about this, but to observe the changing world. Yes, the farm itself is well insulated from energy price increases. This year marks the fifth year of operation of our biodigestors, and based on "current" energy prices, why may still be transitory, our biodigestors will be "paid off" sometime in early 2028. About 18 months ahead of schedule. Less than 10% of our total energy consumption is from fossil fuel, however, every day and every week our goods are transported by diesel powered trucks. We are less exposed, but we are still exposed. Energy is one of the most important production components on a farm (aside from the land acquisition obviously).
Now you know
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