Contractors say 5pc rise in charges on the way
Contractors are quoting a 5pc increase on charges in order to meet with the increases in costs of machinery and higher labour costs since the start of 2019.
The Association of Farm & Forestry Contractors in Ireland (FCI) released their annual price guide which stated that increased costs of new machinery for contractors and farmers are impacting on the sustainability of many agricultural contracting businesses.
FCI CEO Michael Moroney said that machinery cost increases in 2018 and into 2019 as a result of the Tractor Mother Regulations (TMR) have added costs to new tractor prices, which have been absorbed by contractors in their charges, to date.
He advised that it is important that contractors understand the costs associated with such investments and take account of these additional costs as well as possible improvements in output, in establishing their charge rates.
Mr Moroney added that the arrival of the new Revenue Commissioners Payroll System from January 1, 2019 has been an added cost to agricultural contractors. Skilled operators must now be paid weekly and tax returns issued weekly, contributing to additional costs.
The cost of farmer credit continues to rise for farm contractors. Some contractors have outstanding debt from 2018. FCI is encouraging all contractors to issue monthly or weekly invoices followed by monthly statements in order to help to manage cash-flow.
This level of long-term debt 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, based on a 6pc interest rate.
“FCI always advocates that all contractors should examine their costs of operation in working out their individual charges. Charges must be based on a realistic examination of the cost of the operating tractors and a full host of machinery,” said Mr Moroney.
“A basic cost analysis will show that a 120hp modern tractor will require a minimum rate of €50 per hour in order to cover the operating and labour costs, irrespective of the work done.
“80pc of that hourly cost is accounted for by labour and diesel costs, with just 10pc allocated to depreciation, finance and repairs costs, giving a very tight operating margin.
“Contractors need to look 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 said that the FCI is also aware that some contractors are now making individual arrangements with their customers regarding diesel (eg separate fuel surcharge, fuel used on-farm etc).
The prices issued in the table below do not reflect this as diesel prices are variable throughout the season. Such individual agreements may make a difference to contracting charges.
Mr Moroney explained that the dedicated land-based FCI contractor provides the best and most cost-effective choice for Irish farming businesses in the long run
“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. “
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