Rising contractor debt: ‘We’re concerned this is not being taken into account’

Agricultural contractor debt needs to be considered as machinery depreciation costs rise on Irish farms, according to the Association of Farm & Forestry Contractors in Ireland (FCI).

The FCI welcomed the latest Teagasc National Farm Survey 2019 report, which highlighted the level of debt on farms, as well as the consequential additional depreciation costs due to the increased level of machinery investment.

The contractor representative organisation said that such increased investment on many farms has been fuelled by the Targeted Agricultural Modernisation Scheme (TAMS) and the Young Farmer Capital Investment Scheme (YFCIS).

While the latest Teagasc National Farm Survey 2019 shows that 62% of farms have no farm debt, down from 64% in 2018, FCI is concerned that these figures do not take into account the levels of contractor debt that have been increasing.

Commenting, Richard White, national chairman of FCI, said: “We are seeing increasing levels of debt to farm contractors across the country during this period of dairy expansion and we are concerned that this is not being taken into account in terms of the Teagasc research.

“All too often this farm contractor is seen as hidden debt because it is not part of regular banking debt, while it is sizeable in our sector,” he added.

The FCI said that it has written to Teagasc seeking clarity on whether contractor debt is included in the Teagasc on-farm debt figure.

The contractor group also noted the survey results showing that the TAMS and the YFCIS continue to assist on-farm investment.

Much of this investment is in farm machinery that is competing with non-grant supported contractor machinery.

“The Teagasc report noted that 6% of farms participated in these schemes in 2019 receiving an average payment of €12,839 per farm translates to grant support of over €71 million – much of which is competing with non-grant aided machines provided by contractors,” he added.

One of the consequences of additional machinery investment is increased machinery depreciation costs on farms, White added.

The Teagasc research has shown that machinery depreciation costs as a percentage of overhead costs on Irish farms have increased by 13.5% year on year.

“[This is] a factor that is rarely taken into account when comparing machinery ownership costs, with the value of contractor service costs, which the Teagasc figures showed had recorded a 2.7% increase, between 2018 and 2019,” the chairman concluded.