We are in a fuel crisis and it may not go away soon. There is no doubt diesel users are being hard hit. The Government’s ability to ‘solve’ this is limited; we are at the mercy of world markets at a time of unprecedented political instability. So what can contractors and farmers do? Contractors work with very small profit margins and cannot ‘carry’ the cost of increases in fuel prices. So, a cost increase is essential, but the form of that rise is important. Surcharges have a role.

General price increase

At other times, a general price increase may be sought by contractors, against a background of rising fuel, labour and machinery costs. The disadvantages of a general increase in this case are:

  • The case for it is often not very clear for both contractors and farmers, with contractors struggling to justify it and farmers uncertain as to its validity.
  • A general increase is rarely formally ‘reversed’; competition might erode it if circumstances change, but it’s an uncertain process.
  • An unwanted by-product is that a general price increase could prove inflationary beyond what is justified.

    • An example of this inflation ‘drag’ occurred after Russia’s attack on Ukraine, resulting in steel and other price increases impacting on farm machinery prices. While the commodity prices subsequently dropped, the farm machinery tags tended not to. But that’s another story.

    Surcharges make sense

    Where a price increase is essential, a surcharge approach offers some advantages where the increase is caused by a volatile key input like oil:

  • It is clear and transparent to all, and only imposes a price change that is needed, but it does that instantly.
  • It is immediately reversed by the same mechanism if/when the fuel price drops again.
  • It does not add extra to inflation, beyond the change to the fuel price.

    • While this does not ‘solve’ the fuel cost problem at all, it gives a response mechanism that allows businesses to survive in the short term – they will still be challenged by high fuel prices.

    It’s important that the price is always quoted as ‘price + surcharge’ and not a single figure incorporating both.

    How would it work?

    There are a couple of elements to the system.

  • For each operation (silage, ploughing, etc) individual contractors would have their own base prices; eg 2025 prices which would include a 2025 fuel price.
  • The fuel consumption for each operation should be known on a per ha or acre basis. This is not simple, as contractors frequently will not have accurate figures as their weekly use figures for example, would typically include a range of operations.
  • In the absence of these figures, estimates could be made from a set of standard figures: eg silage harvesting could be 74l/ha or 30l/acre for standard haulage/draw distance.
  • A pricing index for agricultural diesel would be selected or developed and this would then be used to adjust the charge for each operation on a daily basis.

    • Example: silage harvesting

  • Contractor net charge in 2025: €170/acre inc VAT.
  • Fuel price in 2025: €1 / litre inc VAT.
  • Price on day of cutting 2026, say: €1.80/litre inc VAT.
  • Price increase: € 0.80/ litre inc VAT.
  • Silage fuel use rate, example 33l/acre.
  • Surcharge = 33 x €0.80 = €26.40/acre inc VAT.
  • Contractor charge in 2026: €170/acre inc VAT base + €26.40/acre surcharge.

    • Note: This is an example of how it works, the actual figures will depend on the price of fuel on the day of working (from an agreed index) and the use rate for the job (30l/acre in example). It’s important that the price is always quoted as ‘price + surcharge’ and not a single figure incorporating both. The recently announced additional fuel support for March to July 2026, which is stated to amount to approximately 20c/l, should be included, and reduce the surcharge by that amount, when it is confirmed.

    Impact for the farmer

    This will not address the substantial problem of increased fuel costs and its impact on production costs, but the transparency involved should help ensure the extra cost is only applied if fuel costs justify it. This in turn should ensure the contractor price comes back down once fuel drops. Internationally, increased fuel costs will tend to reduce agricultural production and increase farm produce prices, but past experience tells us that this is an unpredictable rollercoaster, where you are never sure whether costs will be covered or not. It would be far better if we were not in this position.

    It is particularly hard to take when the problem has largely been caused by failed international diplomacy.