Consider shop rates a farm input

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“Within the agricultural sector, producers should consider shop rates as a farm input,” says Azam Nikzad, provincial market analyst/coordinating researcher with the Alberta government. “Shop rates refer to the hourly rate of basic shop charges for repairs to farm machinery conducted by a qualified mechanic or an authorized dealer.”

Over the past decade, Alberta's shop rates have shown a consistent upward trend. Notably, the rate of increase has accelerated in the last 5 years, with an average annual increase of 4.1%, surpassing the 3.8% of the past decade. The year-to-date (January to end of October 2023) increase for 2023 stands at 7.5%, marking the highest spike in the last decade.

Figure 1. Mechanical repairs for farm machinery, shop and labour (shop rates)

Chart with blue line showing Mechanical Repairs for farm machinery, shop and labour (shop rates)

Source: Alberta Agriculture and Irrigation

“Several factors contribute to the escalation of shop rates, including a shortage of skilled labour, increased wages, inflation, interest rates, utility prices and lease or rent cost,” says Nikzad. “Repair shops are heavily reliant on labour. People employed in repair shops often require on-the-job experience or specialized training, which can be another obstacle.”

To cope with labour shortages, businesses sometimes extend the working hours of existing employees, leading to a surge in overtime pay and increased overall labour costs.

“Shops can manage this challenge by integrating new technology to decrease their dependence on labour.”

It is important to recognize the dynamics of how labour and non-labour costs have contributed to overall cost increases in the past few years. Initially, labour costs played a more significant role, but in recent years, non-labour costs have become more significant.

Factors, such as increased interest rates, the required return on capital and lease or rent cost, have contributed to this shift, further complicating the economic landscape for repair shops.