Agricultural diesel is currently trading in the region of 25c/l more expensive than the same period in 2020, while the increase in carbon tax (around 2c/l) announced in the 2021 budget has now also come into effect. We estimate that the combined impact on modern silage contracting outfits will total an additional €864/day.

This increase in carbon tax, now in play since 1 May, has added an additional €7.50/t C02 which equates to around 2c/l of agricultural diesel.

This increase has brought the total carbon tax on diesel used by contractors to €33.50/t C02, meaning the tax now equates to 8.93c/l of agricultural diesel. The Association of Farm and Forestry Contractors in Ireland (FCI) says that Irish contractors consume close to 350m litres of green diesel annually, meaning contractors will be forced to fork out an additional €7m in carbon tax yearly.

What does this mean for the average silage contractor?

Typically, a modern silage outfit is made up of a self-propelled harvester, a wheel loader, a tractor with double or triple mowers, a tractor and rake, and four tractors and trailers. Meanwhile, many contractors tend to operate a second mowing outfit, an additional rake and many at least one combination baler wrapper alongside.

Over the course of an average day in peak silage season, it is estimated this outfit will burn in the region of 3,200l of diesel. The recently introduced price hike on top of the existing carbon tax means this levy is costing such contractors a sizeable €286/day.

Diesel price increase

To add fuel to the fire, agricultural diesel was being bought in the region of 46c/l (including VAT) at the end of May last year. Although varying by region, agricultural diesel is currently trading in the region of 71c/l (including VAT).

Despite the huge jump in this period, the current price is almost reflective of the prices we saw for agricultural diesel ahead of the 2019 silage season.

However, based on the current price of fuel (which is forecast to increase), contractors are looking at forking out an extra €800/day in diesel costs alone for the coming year in comparison to 2020 figures.

Combine this with the recently implemented carbon tax hike (around 2c/l), and contractors are looking at a diesel operational cost increase of a crippling €864/day.

General operational cost increase

The true operational costs of silage outfits have actually significantly risen outside of fuel costs. The price of new tyres has risen by 4-8% while the price of hydraulic oils is reportedly up by about 25%, engine oils are up 20% and grease is up by 10-12%. Suppliers have warned that further price hikes are coming.

Meanwhile, the price of net wrap and film are also up and the price of components has also increased over the past six to 12 months. In addition to such commodities, the rising price of steel has considerably contributed to new machinery price hikes of anywhere from 2% to 10% depending on the amount of steel used in the build.

Meanwhile, depending on the brand, tractor manufacturers have increased the price of new tractors from 4% to 10%, with the move to Stage V complaint engines, rising production costs and inflation being blamed. The sad reality is that the costs of all the raw materials shortages, the new regulatory standards and the rising freight costs are being passed down to farmers and contractors.

FCI is standing over its annual contractor charges released earlier this year where it says contractors need to charge €135 plus VAT per acre of silage harvesting to sustain such hikes.

In an industry with such tight margins, the question is will contractors be able to sustain such extreme hikes?