Huge energy cost increases may force British animal feed manufacturers into raising their prices.
In past 18 months, the price of gas and electricity has almost doubled in the UK, putting a strain on manufacturers with large energy demands.
In January 2004 a megawatt hour of electricity cost just £22 whereas today it costs £40. Likewise, the price of a therm of gas has risen from 22p to 45p during the same period. Typically this equates to a cost increase of about £1.10/tonne of finished feed.
According to analysts, the market is unlikely to ease in the foreseeable future.
Speaking at a feed sector meeting organised by the Agricultural Industries Confederation (AIC), Mike Coulten, Head of Strategy for the Energy Information Centre, warned that tough times lie ahead.
“The current UK market is an absolute disaster and is unlikely to change in the short term. We don’t see any relief for you,” he said.
“Electricity prices are rising because the cost of the fuel needed to generate it is rising and we are not building sources of renewable energy quick enough.”
Gas and electricity prices tend to follow similar patterns – partly because most electricity (between 30 and 40 per cent) generated in the UK is produced from gas.
“To date feed manufacturers have been absorbing the increased costs, but this cannot continue indefinitely,” said David Caffall, Chief Executive of AIC.
“If the market does not change the costs will have to be passed on to the customer. Manufacturers do not want to raise their prices, but they may be forced into doing so,” he said.
Most manufacturers purchase their energy supplies months or years in advance, but fluctuating markets make choosing the right time to buy a very tough task.
Members of the AIC feed sector heard that they must decide either to buy now and accept a high price or take a risk and wait to see if the market drops.
“Those that buy now will know the amount they are going to spend and can budget for it. Those that wait may see prices come down and be better off as a result, but there is a chance prices could rise even further, exposing businesses to a crippling cost escalation,” added Mr Coulten.