Significant cost increases for machinery replacement, tyres, fuel, lubrication oils, insurance and labour throughout 2022, with more expected in 2023, are the reasons behind a 5% increase in contractor charges for 2023, the Association of Farm & Forestry Contractors in Ireland (FCI) has said.
The association said additional machinery, replacement parts and tyre cost increases during 2022 and into 2023 are driving up machinery purchasing and ownership costs. It explained that the quoted costs of a new self-propelled silage harvester for a contractor operation have increased by more than €80,000 since 2022. The cost of replacement silage trailers has increased by more than €5,000 in one year, while hedge cutters are being quoted with €10,000 price increases.
FCI says these increasing costs of new machinery continue to affect the sustainability of many Irish agricultural contracting businesses. Meanwhile, it adds that sustained investment in new technology in the sector is vital for its survival.
This year sees the 2023 FCI Contracting Charges Guide offer two sets of figures, one excluding and the other including VAT. It says this is as a result of an increasing number of farmers moving towards VAT registration, especially those who have moved to limited company status. According to FCI, the 2023 charges guide reflects some modest increases in some charges up to 5%, while others are virtually unchanged.
FCI has said these guide figures are produced on an annual basis and are compiled by collating an average figure for each operation from a panel of FCI contractor members from across Ireland. Because of the local differences the actual guide charge may vary between regions, across soil types, distance travelled, size of contract undertaken, size and type of equipment used, as well as the scale of the work done.
FCI says the guide reflects some changes to farming practices with 98 items of work listed compared with 94 in 2022. While the guide charges in some sectors have been consolidated, to give greater clarity, new areas have been added including grain crimping, liquid nitrogen application, and bagging silage services.
Fuel
FCI acknowledged that the major variable cost each year continues to be the fuel cost. It says contractors faced fuel cost increases of more than 60% in 2022 compared with 2021.
The organisation said: “While fuel costs have stabilised in recent weeks, we cannot predict what the fuel market will be like as we face into the busy sowing season, followed by silage harvesting.
“As an example, in 2021 one contractor purchased 189,282 litres of fuel for €136,558.41. As a result of the drastic increase in cost of fuel in 2022, the purchase of 173,873 litres of fuel generated a cost of €224,298.53, a staggering increase of €87,740.
“The overall fuel cost for that contractor increased by 64.21% in comparison to the same period of 2021. This illustrates clearly how big of an impact the increase in prices has had on operating costs for agricultural contractor businesses, especially during the peak harvesting seasons.
“The carbon tax component of the fuel cost for this contractor was close to €20,000, based on a carbon tax cost for MGO of €111.14 per 1,000 litres. This will again increase in May 2023.”
The FCI added that the huge hike in trebling the cost of AdBlue was another extra cost factor for 2022 and continues without any reductions into 2023. FCI estimates that with the increased AdBlue costs, Irish contractors’ machines are consuming more than €10m worth of AdBlue based on the sector consumption of more than 350m litres of diesel annually.
The association noted that the high cost of contractor insurance and the requirement to have comprehensive cover in addition to employers’ and public liability insurance, coupled with lack of competition, continue to drive up costs in the sector.
Typically, in Irish conditions, business insurance is costing contractors between 6% and 7% of turnover, which amounts of close to €50m in premium payments per year from the sector.
Fuel Costing Index Calculator
For 2023, FCI has produced an online fuel costing index calculator to allow contractors to establish their breakeven charge rates for a range of services that they provide.
The calculator is accessible to all contractors and is available to download on your smartphone at www.fcicalculator.ie or through the homepage of the association’s website www.farmcontractors.ie with no charge.