The poultry and pig sectors are likely to be the most susceptible, as feed makes up a major part of production costs, but the impact will also be felt in the dairy, beef and sheep sectors to some degree, the NFU's economics team has concluded.

"Although dairy prices have improved in recent months, and producers will be compensated for increased feed costs, this has come as a result of a similar fundamental shift in dairy commodity prices," the report says.

"Even though it is expected that similar shifts will eventually be experienced in other sectors, market prices have so far remained relatively unchanged and profitability has, therefore, worsened. In the absence of rapid and commensurate adjustments, the long-term viability of these sectors is at stake."

The report analyses the prospects of each commodity in detail. Cereal prices are expected to remain relatively strong and oilseed stocks are expected to decline as demand outstrips supply for the first time in several years.

Continuing cost pressure in the beef sector, as a result of market developments and regulatory pressures, highlights the need for higher market returns to ensure the sustainability of the sector, especially as there has been a decrease in farmers' share of retail prices despite a strong demand for beef meat.

Foot and mouth and bluetongue movement restrictions have exacerbated recent low lamb prices and a large part of the sheep market continues to operate below costs of production. New Zealand imports have continued to increase their share of the retail market.

Dairy production is down on last year as a result of poor weather and reduced cow numbers. Rising farmgate prices have seen an improvement in profitability, although the long term pressures remain from rising costs.

Profitability remains a serious concern for the poultry sector, despite an increase in farmgate prices, as feed prices have risen by 40 per cent and production continues to decrease. Profitability also remains a concern in the egg sector.

New crop prices in most areas of the horticulture sector are close to last year's prices but seasonal labour shortages remain a concern, with fears the situation could get worse in 2008.

The market surplus in sugar is set to continue, sustaining downward pressure on the world price. The EU Restructuring Scheme has been amended to encourage greater take-up, including further incentives to growers and producers.