The Association of Farm & Forestry Contractors in Ireland (FCI) has published its FCI Contracting Charges Guide for 2021. At FCI, they are satisfied that this averaged price guide continues to provide fair and reasonable guidance for both Farm & Forestry Contractors and their client farmers. However, it must be remembered this is only a guide.
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.
This year sees contractors quoting an average of a 4% increase in charges, rounded off to meet some of the increases in costs of machinery, insurance and labour costs that have been experienced by FCI members, since the beginning of 2020. 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 the finance costs.
The increasing costs of new machinery for Farm & 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 Irish Farm & Forestry Contractors.
Increasingly, farmer clients are becoming aware of this business challenge for their Contractors. Agricultural contractor services have been proven to be the most tax-efficient, economical, and reliable choice for many Irish farming businesses. “The dedicated land-based FCI contractor provides the best and most cost-effective choice for Irish farming businesses in the long run,” said Michael Moroney. “The value of this professional service is being increasingly appreciated by many farmers as they work with their contractors in a partnership for the planned future growth of many successful farm businesses,” he added.
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,” Michael Moroney, FCI Chief Executive Officer.
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 & Forestry Contractors between 6% and 7% of turnover. That amounts 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,” said Michael Moroney, FCI Chief Executive Officer.
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. 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.
Michael Moroney, FCI Chief Executive Officer said, “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.”
“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, with 25% 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.
“FCI contractors provide their customers with a professional, prompt and efficient service, with modern equipment, that’s properly maintained and with skilled operators and the use of precision farming technology that meets the traceability required for a modern world-class food producing industry.