With agricultural diesel prices having jumped by 85% in recent months, the Association of Farm & Forestry Contractors in Ireland (FCI) is recommending that agricultural contractors include a fuel surcharge to their 2022 charges.
FCI is advising that contractors adhere to its existing published charges (see page two), but add on the fuel surcharge as a separate fuel-related cost on all invoices.
Based on the agricultural diesel cost increases, FCI is advising that the current fuel surcharge rate will be €0.65 per litre based on a fuel price of €1.30 per litre plus VAT. FCI has said it will monitor fuel costs weekly and issue an updated suggested fuel surcharge rate accordingly.
The association has said there is an increasing pressure on contractors to quote a charge for operations such as silage harvesting weeks in advance of the work taking place. The daily variation in diesel prices makes it difficult to quote a charge for work, even just days in advance.
FCI chief executive Michael Moroney said: “Where the self-propelled silage harvesting team will typically use 3,000 litres per day, then taking an average output of 100 acres, the fuel surcharge rate will be 3,000 x 0.65 divided by 100. In this case, the fuel surcharge amount will need to be €19.50 per acre in addition to the current rate based on our guide rates, solely to cover the additional fuel costs.
Each contractor now needs to carefully monitor their own diesel use levels for each service they provide
“Where the contractor is spreading bulk fertiliser and the monitored fuel consumption figures show that it takes six litres per tonne to spread. Then the fuel surcharge rate over your current rate will need to be 6 x 0.65 divided by €3.90/t. ”
The association noted that each contractor now needs to carefully monitor their own diesel use levels for each service they provide.
There will be variations in fuel use between contractors depending on their machinery systems. There will also be variations between farms, especially when it comes to long-distance transport of silage or slurry to outfarms, etc.
FCI said this surcharge option is being suggested, due to the ongoing uncertainty in the fuel supply market. It is advising contractors to keep accurate fuel usage records every day and charge a fair fuel surcharge accordingly.
Credit levels for agricultural diesel supplies will be under pressure, so funding the business will be critical and providing weekly invoices for farmer clients for work done will be important to maintain cashflow.
Earlier this year, FCI published its annual contractor charges guide prior to the spike in fuel costs, with the guide based on agricultural diesel at a cost of €0.75 per litre.
The association has said the current fuel price levels, coupled with increases in costs of machinery, parts, lubrication oils and AdBlue etc, have made the published charges no longer viable, and this is why the additional surcharge is required at a minimum.
The guide figures on page two are produced by FCI on an annual basis and are compiled by collating an average figure for each operation from a panel of contractors from across Ireland.
FCI says 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.
This year FCI was guiding an average minimum 5% increase in charges, rounded off to meet some of the increases in costs of machinery, tyres, lubrication oils, insurance and labour costs which are driving up ownership costs.
It said the increasing costs of new machinery for contractors and their client farmers are affecting the sustainability of many agricultural contracting businesses.
The association’s silage cost analysis for example shows that a modern contractor silage fleet will require a €140 plus VAT per acre.
Coupled with today’s recommended fuel surcharge of €19.50/acre, that brings its recommended rate to €159.50 plus 13.5% VAT/acre.