Farmers must “stand their ground” on price inflation and ensure that the rising costs they face are reflected in the prices paid to them by supermarkets for their produce, the UK’s environment, food and rural affairs secretary has demanded.

George Eustice told the online Oxford Farming Conference on Thursday that rising input costs should result in higher incomes for farmers, but that increasing farm gate prices need not result in food inflation for consumers.

“We do need producers to stand their ground and take quite a tough position with retailers to ensure that the money they are paid reflects the costs of their production,” he told the conference.

He said food prices were rising as a result of international pressures, as the price of farm commodities internationally was linked to energy prices, which have risen strongly as economies have recovered from the coronavirus shock. But he said farmers obtaining more for their produce need not affect consumers.

“You can have reasonably modest increases in farm gate prices, and significant impact on farm profitability, that does not result in major changes to consumer inflation,” he said.

Farming leaders reacted sceptically. Producers wield little power against the UK’s mighty supermarkets, a handful of which control the vast majority of the food retail market. The problem of farmers having their margins cut to the bone by supermarkets, and being threatened with the loss of their contracts for speaking out, has been one of the biggest sources of distress to farmers for more than two decades.

Martin Lines, UK chair of the Nature Friendly Farming Network, said: “It’s very difficult for individual farmers to stand their ground against price pressures from retailers who hold all the bargaining power. There is a role for the government to play in giving farmers more power within the supply chain so they are fairly rewarded for food produced to high environmental standards. Government should intervene to ensure contracts between buyers and sellers are fair.”

George Dunn, the chief executive of the Tenant Farmers Association, said: “There is significant imbalance within the supply chain with retailers and food service operators able to wield significant power within the supply chain. Down the years, there have been warnings about the sustainability of the ‘cheap food culture’ to which we have become accustomed and it seems now we are seeing the fulfilment of those past prophecies of doom. However, retailers and food service providers have the means to avoid a catastrophe by allowing their prices to increase.”

Labour accused the government of letting down farmers. Jim McMahon, the shadow environment secretary, said: “Not only is the government neglecting its duty to support British farmers, leaving them exposed to undercutting through inadequate trade deals, ministers now appear to be washing their hands of that responsibility completely. Our rural businesses deserve better and it’s little wonder many are feeling completely let down by the Conservatives’ failings.”

The government’s previous efforts to shift the balance of power, by installing a “groceries code adjudicator”, have had limited impact. Jo Lewis, policy director at the Soil Association, said an overhaul of the UK’s food systems was required: “Eustice is right to say farmers need to get a much fairer share of the value of the food they’re producing, but his suggestion that the solution is them ‘standing tough’ with retailers seems far-fetched.

“Farmers will continue to lack power while they are forced to supply commodity crops into a globalised market for ultra-processed foods. They need infrastructure and skills support from government to help them access shorter, fairer supply chains and they need government to get real food back into shopping baskets by tackling the unhealthy takeover of ultra-processed foods with a national reduction target.”

She said the government’s response to the national food strategy – which Eustice promised for this spring– would be a key test.

Eustice also took a robust line on the potential for price rises caused by a shortage of migrant workers, saying that “employers need not look for cheap labour” from the EU. “There is no reason why the price of daffodils should not rise to £1.10,” he said, a reference to warnings from Cornish growers that they cannot harvest their flowers, at devastating cost to their business.

Eustice cheered farmers by announcing 30% higher payments for environmental stewardship schemes, which reward them for taking basic measures to protect the environment, and there was a cautious welcome from many to his proposals for “environmental land management” contracts that will come into force in 2024, with payments to farmers for a broader range of measures, from soil nurturing and tree-planting, and providing habitats for wildlife, to floodplain and watercourse management.

However, plans by the government to support rewilding through 10 to 15 large-scale pilot projects of between 500 and 5,000 hectares came under fire. Jyoti Fernandes, policy coordinator at the Landworkers’ Alliance union, representing farmworkers, said: “The danger of this approach is that many of the holdings of this size will be land owned by corporations or landed gentry, which means our public money will continue to flow to the very richest in society, while access to land will become increasingly more difficult for new entrants to farming.”