Farmers should brace themselves for a hike in contracting prices

Agricultural contractors have not escaped the pressure on input costs and are now being forced to pass them on to their customers. Higher fuel costs, of course, are one of the biggest costs, but there are others including the cost of replacement machinery, spare part costs and even insurance costs have gone up.

With more than 90% of farmers opting to use a professional contractor, their services are in big demand, but this year is going to be a real test for the farmer contractor relationship.

Based at Lockerbie, in Dumfries and Galloway, Anthony and Tracey Williamson, run their contracting business D and W Agri offering a full range of agricultural services and haulage across the whole of South-west Scotland and into Cumbria.

Like most other contractors, Anthony has to put his prices up to cover increased costs and to secure his labour force who also face higher costs of living. He said: “This year really is uncharted waters as our input costs spiral out of control. We have 18 full-time staff who are also experiencing higher living costs. We increased their salary by 6% at the back end of last year and by another 6% at the start of this year.

“Fuel is up, new machinery costs are up, as are parts and we really have to pass these on to the farmer, otherwise it would be hard to stay in business. We run a fleet of nine John Deere tractors here and usually replace them every 4000 to 6000 hours. Twenty years ago, we could replace them for around £4 per clock hour, but today it is more than £15 per clock hour.

“All our prices are quoted plus fuel. If a farmer does not supply it, then we charge them what we buy it at. However, we have to increase our service prices by over 10% this season to cover those extra costs.

“We retain over 90% customer loyalty each year. We are all under pressure with these costs hikes, but we have to work with it,” added Anthony.

With no farm payment safety net, plus cut-throat local competition, the pressure is agricultural contractors to find the right balance to retain a loyal customer base, whilst keeping pace with rising inflation.

Jill Hewitt, chief executive of the National Association of Agricultural Contractors, says price rises are vital if contractors want longevity in their business. “Fuel prices alone have increased by more than 50% to around 75p per litre and fertiliser is estimated to have leapt up by at least 100%.

Jill Hewitt CEO of the NAAC says that increase in contractors' prices are inevitable due to soaring fuel and machinery costs

“Farmers also face these hikes, but it is machinery replacement and labour that will be causing a massive headache for contractors. Put all this together and the industry must brace itself for increases in contracting prices.

“Only the foolish will try and cling to static prices this spring, as any contractor that understands their own costs will recognise that price increases are vital to keep pace, earn a living and retain some stability and longevity for their business.”

These days, contractors are expected to have extra responsibilities like environmental protection, specialist training, record keeping and having the latest technology on board, all of which require new levels of expertise and equipment. That means training costs also have to be factored in.

Jill said: “Farmers are increasingly reliant on their contractor to take on roles that they may no longer have the labour, skills or machinery to complete. At the same time, the industry needs to invest and look ahead at more complex technology to ensure that inputs are minimised and land can be farmed productively, whilst protecting the environment, and customers' environmental payments.

"As machinery comes up for renewal our sector will be faced with tough decisions. It will become increasingly apparent that ‘you get what you pay for’ and the industry must work in partnership to ensure all businesses can remain viable, today and in the future.

“Professionalism will be key when employing a contractor, both to complete paperwork and to drive forward sustainable agricultural productivity. To be a successful contractor, that means costing individual operations carefully and accurately.

"The NAAC has recently launched a new on-line pricing tool for its membership to allow contractors to cost out each operation accurately, taking into account all costs, so that they can see the cold, hard facts for each job.

“If customers want a contractor that has professional staff, working safely, with well-maintained reliable kit then this will come at a cost. It will be critical that farmers and contractors work together to support each other’s business,” she said.

NAAC's new contractor insurance

A new insurance policy aimed at farm contractors ahs been launched by the NAAC, in partnership with Towergate Farm Insurance.

Exclusively for NAAC members, the new policy will give agricultural contractors access to policy extensions, such as loss of yield, subsidy payment due to an unintended breach of a customer’s scheme and environmental impairment liability cover.

Commenting, Jill Hewitt, said: ‘We are delighted to be working with Towergate to offer members an exclusive policy, and a dedicated point of contact when getting insurance quotes.

"It is vital that contractors are comprehensively covered to ensure they are protected when working on a customer’s land. Even if offering services on a neighbour’s farm, contracting insurance is vital to protect all parties.’

"Mistakes and accidents do happen," added Jill, "but what starts out as a favour can quickly deteriorate. For example, it only needs a sprayer boom to not function correctly, and the damage is done. We recommend getting quotes to ensure a competitive premium from a company that has all the small print covered."

Towergate is a broker with 50 years’ experience dealing with the agricultural industry and is the largest agricultural insurance broker in the UK, whilst also providing a dedicated contact for NAAC members.

Lead account executive, Naomi Pine, is the dedicated contact for the NAAC Scheme and has working knowledge of agricultural contracting. "The breadth of services available to Towergate allows us to identify and advise on the risks posed to the sector, ensuring we can find appropriate, competitive insurance solutions to protect NAAC contractors across their businesses," she pointed out.