Ulster Bank had its annual Pre-Balmoral Show breakfast this morning. It discussed and outlined some of the key issues around the performance and outlook for the agri-food sector.
One of the key things of note is that Total Income From Farming (TIFF) surged by 82 percent in real terms in 2017. This is double the average of the past 20 years, after accounting for inflation.
And when we look at farm-level incomes (i.e. stripping out subsidies), there was a rise of over 50 percent in the 2016/17 financial year. A further increase (+73%) is expected in the 2017/18 financial year just ended, according to the figures from the Department of Agriculture, Environment and Rural Affairs.
It is also a positive story when we look at gross output. Overall – i.e. taking into account the various sub sectors such as dairy, livestock and pigs – there was a 17 percent increase from 2016 (double the rate of growth in input costs). This was driven in large part by the recovery in the dairy sector, which saw output rise by 46 percent in monetary terms due to an increase in the price of milk.
Northern Ireland’s farming industry is dominated by the dairy sector, so the strong recovery in this part of the industry has a big effect on overall performance. This also explains why Northern Ireland’s TIFF is significantly outperforming the UK’s as a whole. The dairy sector makes up 32 percent of gross output in Northern Ireland’s farming sector, compared just 14 percent for the UK as a whole.
But whilst the figures for the farming sector are positive, inflation is a challenge for consumers.
To illustrate the point, we presented the annual Ulster Bank Ulster Fry Index, which shows that the price of items making up a cooked breakfast have increased by 2.8 per cent in the last 12 months, based on the Retail Prices Index (RPI).
This is the second year running that the rate of Ulster fry inflation has been 2.8 percent – the highest rates of annual Ulster fry inflation in the past five years.
The bank’s popular measure of food price inflation shows that prior to this, consumers had been benefiting from falling prices – the Ulster Fry Index fell by 9 per cent in 2016 and 3 per cent in 2015.
Of the main items in an Ulster fry, bacon and sausages were amongst the biggest risers, both up 3.8 per cent, according to the latest index. Meanwhile the price of butter was up almost eight per cent, and bread saw a price increase of 3.9 per cent.
Not all items making up the Ulster Fry Index saw a price rise though – tomatoes, eggs and margarine all saw price falls in the past year. Margarine saw the biggest fall of all the items in the index at -5.1 per cent.
Those who eat healthier breakfasts will be pleased to hear that smashed avocado is getting cheaper, down 1.9 per cent in the past 12 months.
Looking at changes over time, despite the rise in the past 12 months, the Ulster Fry Index is still 7.2 percent lower than it was five years ago. Though it is 22 percent higher than 10 years ago. And the Ulster Fry Index up 51 percent since the Belfast / Good Friday Agreement was signed 20 years ago.
Food makes up a significant proportion of household spending. Food and drink is also a key sector of the Northern Ireland economy. So, understanding how the price of food items is changing gives us some insight into both the current state of consumer finances, and also some of the challenges facing the agri-food industry.
There are a wide range of alternative indices around the world – from the Big Mac Index to the Cappuccino Index – which are intended to explain economics terms in a straightforward way and to shed new light on important economic issues. Ours is the Ulster Fry Index, and it hopefully gives the man or woman on the street a clearer idea of why their household finances currently are the way they are.
Looking ahead, we only see the Ulster Fry Index going one way; up. Consumers are going to feel an increasing squeeze as the price of food rises in the months ahead.