Government Must Take Impact Of Spiralling Fuel Costs Into Account In Next Budget

IFA President John Bryan said that spiralling fuel and energy costs are aggravating an already serious income situation on farms due the worst summer weather for decades.  “Ever increasing fuel prices are putting inordinate pressure on farmers’ margins, but also on the agricultural supply and processing sectors, as agricultural goods and inputs tend to be high volume and export orientated. In the last two years alone, agricultural diesel has gone up by a massive 55% while road diesel has increased by almost 35%.”

Mr Bryan said, “Escalating energy costs are impacting negatively on Ireland’s economic and employment recovery as our productive food and drinks sector are heavily dependent on exports.  The Government need to factor this in fully in framing the next Budget”.

Fuel is one of the main expenditure items on farms. Agricultural diesel is breaking through the €1/lt mark and road diesel is fast approaching €1.70/lt. The combination of increased prices and use, due to higher than normal grain moistures and abnormally wet silage, is putting serious upward pressure on costs and rapidly eroding farmers’ margins.

This latest crude oil price increases in dollar terms builds on prior year increases of 43% in 2009, 21% in 2010, 13% in 2011 and 9% on a year to date basis. However, a weakening euro has aggravated the price increase for Irish farmers and consumers. In euro terms the crude oil price has reached an all-time high of €92.41/barrel ($116). The imposition of a carbon tax across all carbon fuels on top of already high excise duty and Vat rates has seen the Government’s take on auto diesel increase to 79 cent per litre.

A number of factors driven by the absence of decisive political leadership across the developed world have exacerbated the recent spike in prices not least of which are:

·         Speculative investment by hedge and pension funds on foot of the ongoing euro-zone debt crisis;

·         The ongoing geopolitical tensions across the Middle East and North Africa with the threat of supply disruption.

Markets are estimated to have built in a risk premium of 10% to 13% on foot of the Iranian and Syrian conflicts while speculative investment as a result of the euro-zone debt crisis is adding a similar if not higher premium. Political establishments the world over need to move to limit speculative investment in food and energy commodities as this will reduce price volatility. While closer to home Europe needs to resolve the euro-zone debt crisis.

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