$100 a Barrel of Oil: Impacts on the sustainability of food supply in the UK

Published by the Sustainable Development Commission, a new study undertaken by ADAS, starting with the premise that oil prices reach $100/barrel of oil, explores:

• The direct impact of increased energy prices upon UK farm businesses, with consideration to the potential for a change in farm practice.
• The wider impact of increased energy prices on the UK food supply chain, and hence the competitiveness of the UK agricultural industry.

This report makes the following key findings:

When the cost of energy is doubled from $50 to $100 per barrel, the impact of production cost is in the order of 3-13% of farm-gate price.

Total household food expenditure could by 4% if the oil price rises from $50 to $100 a barrel and all costs are passed on to consumers. The increase could be 5% to 10% if all costs are passed on to consumers and secondary impacts are allowed for.

The impacts will be different for different commodity types and there will be impacts on how land is allocated between commodity types.

Northern Ireland, Scotland and Wales will be hit most hard due to their reliance on livestock and distance from processing or markets.

With regard to competitive position, higher energy prices are not necessarily detrimental to the UK when taking into consideration transport costs from exporting countries to the UK. Wheat, chicken and beef will be more competitive though this does not change the wider position of having higher production costs than many third countries.

Extensive and organic production systems in the UK are less severely affected by energy prices than intensive systems but lower output per unit area means that these systems will need to continue to have low costs or secure market premiums to prosper.

Along the food supply chain, farmers are most vulnerable to higher energy costs, and processors will also be impacted. Food retailers have most market power, dealing directly with consumers. They are best placed to pass on the costs either upstream or downstream along the supply chain. While this can be negative in that suppliers are forced to find cost savings and rationalise, retailers can drive positive change in the UK food supply chain and in the longer-term deliver competitiveness through efficiency and innovation. A partnership approach is essential.