Diesel tax rise ‘will have to be passed on to customers’ – contractors

Farm and forestry contracting operations will continue to be open for business – but cash-flow concerns including the expected rise in carbon tax are putting pressure on contractors, who will have to pass on the cost increases, according to the Association of Farm & Forestry Contractors in Ireland (FCI).

In a statement yesterday, Monday, April 27, the organisation stressed that FCI members “are adhering to the best health advice practices as outlined by the Health and Safety Executive (HSE)”.

We have instructed our FCI members to inform and instruct their machinery operators about the new levels of machinery and personal safety and social distancing, in compliance with HSE guidelines.

“And we have also provided them with business advice and safety protocols,” the FCI noted.

Silage situation

“Due to the many unknown aspects of this Covid-19 crisis, some of the current restrictions will extend into the grass silage harvesting season,” the organisation warned.

The cash-flow requirements of the silage harvest are enormous given the fact that a modern harvesting team will have a diesel fuel requirement in excess of 3,000L per day.

The association also highlighted its concerns over the longer term impacts of this new cash-flow challenge on the contracting sector if farm product prices experience an ongoing reduction.

The FCI also expanded on its request to Minister for Finance and Public Expenditure Paschal Donohoe to postpone the €6/t carbon tax increase due to kick in on May 1.

The contractor representative group claims that the €6/t increase converts to an increase of €15/1,000L or 1.5c/L extra, plus VAT, based on figures obtained from the Revenue Commissioners.

“For a typical contractor, whose fleet of modern, sophisticated and fuel efficient machines consume in the region of 150,000L of agricultural diesel per year, this will raise the cost of agricultural fuel bills by at least €2,250,” the association said.

FCI national chairman Richard White noted that the increase will result in a 2.1% increased fuel cost to contractors, adding:

All of which will have to be passed on directly to our farmer customers – which will be difficult given the significant decline in farm incomes.

This 2% increase in contractor charges to farming customers will mean an additional cost to Irish farming of close to €14 million in 2020, due to the carbon tax increase alone, the association stressed.

The “additional €14 million levy on Irish farming” will bring no benefits, directly or indirectly to agricultural contractors and their farming customers, the group contended.

Contractor debt

The FCI warned that the looming increase will in turn raise farmers’ levels of contractor debt “as farmers will fail to be able to pay it along with their normal contractor costs”.

White expanded on this, highlighting:

We have estimated and independent surveys have further shown that annual farmer debt to the farm and forestry contractor sector runs at close to €200 million at any time, of which €60 million is long-term debt, costing contractors close to €3.5 million in interest annually, based on a 6% interest rate.

The FCI ended by warning that carbon tax “cannot be another hurdle in the way of recovery in the Irish farming and food sector”.

“We have appealed to Minister Donohoe to give the farming and food industry, supported by farm and forestry contractors, a real opportunity for recovery,“ White concluded.