The Association of Farm & Forestry Contractors in Ireland (FCI) has published its FCI Contracting Charges Guide for 2021.
This year’s guide sees contractors quoting an average of a 4% increase in charges. According to the association, price hikes have been linked to meeting some increases in costs of machinery, insurance and labour that have been experienced by members, since the beginning of 2020.
The FCI stated that it is satisfied that this averaged price guide continues to “provide fair and reasonable guidance” for contractors and farmers.
How contracting charges 2021 are calculated
These FCI 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 amount of product spread, the association points out.
Michael Moroney, FCI Chief Executive Officer said, “FCI always advocates working out individual charges based on the actual cost of the operation; this guide is helpful to both contractors and farmers in highlighting a national average.”
“There are some consistent operating costs which transcend all regions. These include the machinery depreciation costs and finance costs.”
Covid-19 driving up costs
The increasing costs of new machinery for farm and forestry contractors and their client farmers are impacting on the sustainability of many agricultural contracting businesses.
Further machinery cost increases in 2021, due to worldwide raw materials and component shortages, induced by the Covid-19 virus, are driving up machinery purchasing and ownership costs for contractors.
Furthermore, the association added that for many years, the now almost annual inflationary new tractor prices have been absorbed by contractors in their charges.
“It has never been more important for contractors to take account of these additional costs balanced against possible improvements in output, in establishing their charge rates with the support of the FCI Contractor Charges Guide,” Moroney added.
The high cost of insurance and the legal requirement to have comprehensive insurance cover for road work in addition to employers’ and public liability, means that farm & forestry contractor businesses have endured the high cost of insurance premiums more so than many other businesses.
Typically, in Irish conditions, business insurance is costing farm and forestry contractors between 6% and 7% of turnover, amounting to close to €50 million in premium payments per year that the sector must fund.
“While FCI continues to monitor the insurance issues as they impact on farm & forestry contractors, this is still an incredibly significant cost that must be included in our members operating costs.”
The cost of farmer credit continues to rise for farm contractors. A significant minority of contractors have outstanding debt from 2020, despite it being a profitable year for most farming enterprises, the association added.
FCI is encouraging all contractors to issue monthly or weekly invoices followed by monthly statements to help to manage cash-flow.
This level of long-term debt level is estimated at more than €60 million, now owed to farm contractors, and is costing the contracting sector in Ireland in the region of €3.5 million each year in interest.
Moroney added, “FCI always advocates that all contractors should examine their costs of operation in working out their individual charges.”
“To ensure sustainability of the business, charges must be based on a realistic examination of the cost of the operating tractors and a full host of machinery, as well as the costs of running a modern progressive rural enterprise.”
€55/hour for 120hp modern tractor
“An FCI tractor cost analysis has shown that a 120hp modern tractor will require a minimum rate of €55 per hour in order to cover the operating and labour costs, irrespective of the work done,” he added.
He believes that 55% of that hourly cost is accounted for by labour and diesel costs. A further 25% is allocated to maintenance, repairs costs, fuel and insurance costs, giving a very tight operating margin.
“Contractors need to look very closely at costs in order to establish rates for their services that will allow for profit and take into account the huge depreciation costs associated with owning modern farm equipment,” he added.
That’s Farming will be publishing a series of articles on FCI Contracting Charges Guide for 2021.