Agribusiness News August 2022

Welcome to the August edition of Agribusiness News.  If you prefer to download this document as a pdf then click on the download button above or here

News in brief

Will EBC interest rates put the brakes on inflation?

The recent interest rate rise by the European Central Bank of 0.5% (from 0%) signals a step up in the tone of the response to months of rapidly increasing commodity prices and spiralling inflation. The rise is the first in 11 years, and inflation has never been higher in the history of the Eurozone. This sentiment is being echoed around the world as the US Federal Reserve has increased the main interest rate by 0.75% for the second month in a row – now sitting at 2.5%.

What’s interesting about current inflation is that it is supply-led, rather than demand-led; usually inflation is driven by an overstimulated marketplace (demand-led), and therefore implementing higher interest rates will put a dampener on willingness or ability to spend. However, current inflation largely appears to be supply-led, due to lack of availability of commodities, and/or speed of production. This questions whether interest rates will have the desired (or enough of an) effect, where demand for key commodities will remain regardless of price. The effects are yet to be seen, but further interest rate rises are predicted in the ECB in the coming months.

For farming businesses, this will directly impact any unsecured lending and increase finance costs. As inflation continues and the direction of travel for interest rates appears to be clear, it may be a good time to consider what financing arrangements are in place and to see if any amounts could be fixed to help alleviate pressure of future interest rate changes. It is important that farmers consider their cashflow forecasts and consider what an increase in interest rates may mean for their specific business to ensure resilience.

For a range of expert advice on business management and finance, see the Farm Advisory Service website or contact the helpline.

Next month:

• Organics update
• Biodiversity