Farming costs fell by an average of 2.59pc in the last year, according to analysis by Norfolk-based buyers - but they warned that farmers' profit margins are still "wafer-thin".

The AgInflation Index is generated using data from purchasing co-operative AF Group, based at Honingham Thorpe, outside Norwich, which sources more than £300m of agricultural goods every year on behalf of its members across the country.

The latest analysis shows another "welcome" fall in the overall cost of some - but not all - farming inputs in the year ending September 30.

The average cost reduction was -2.59pc, driven by falling prices in five of AF's nine product categories - with fuel and electricity, crop protection products and fertiliser seeing the greatest decreases at -21.28pc, -10.41pc and -7.04pc respectively.

However, the other four input categories showed increases, with seed up by more than 9pc and labour, machinery and contract and hire all up by 2-3pc.

The overall fall in costs also masked contrasting fortunes in different sectors. For example, cereal and oilseed rape growers saw costs reduce by -2.16pc compared to the previous year, and beef and lamb production costs fell by -2.36pc, while production costs increased by almost 1.5pc for potatoes and by 0.35pc for sugar beet.

The AF report says although food prices are rising in shops, it is not enough to cover higher costs of farming.

The total Retail Price Index (RPI) for a basket of foodstuffs has risen over the same one-year period by an average of just over 2pc, a repeat of the previous two years’ trend.

Although the gap between farm input costs and retail prices continues to narrow, the RPI is still "significantly below" increased farm input costs, says AF.

AF chief executive David Horton-Fawkes said: “Although the headline fall in aginflation over the last year is encouraging, the devil is in the detail.

"Our members are running their businesses on wafer-thin margins and there is a big impact in small differences.

"We know our AgInflation index is used by members to scrutinise their plans, and to negotiate with processors and retailers and it is good to continue to provide independent evidence to help them with that. It’s also good to see retail prices beginning to reflect the costs of production."