Agricultural machinery industry – the state of play

09 December, 2016

Agricultural equipment is primarily required for professional use by farmers in producing foods, and to a growing extent by contractors carrying out such work on their behalf. However, with farmers diversifying, nonfood activities have grown and some agricultural machinery is being used to a greater extent outside pure agriculture, for example by local authorities.

Additionally, the standard definitions of the sector also cover non-agricultural mowers so any statistical material will normally include items used for the care of lawns, parks and sports grounds.

Nevertheless, farming still provides the central requirement and at the core of the variation of demand is the development of farm incomes. Eurostat data show that, for the aggregated EU, farm incomes remained almost static in 2015, declining by 5.3%, largely due to crop prices falling by 0.3% and animal prices by 5.9% whilst input costs fell 3.6%.

Influences

It is often said that the two main influences on the fortunes of farming are those of the weather and politics.

Global weather patterns have been very variable over recent years. Until the 2012/13 season grain supplies had been tight, with correspondingly elevated prices, but the last three harvests saw more favourable weather conditions that have allowed output to recover with cereal prices adjusting downward quite sharply.

In similar vein, dairy products went through an excess demand period where output was constrained at a time of increased global demand with the consequential boost to prices. However, there has since been a recovery in milk output at a time of some easing of demand, notably from China, which has resulted in a plunge in commodity prices.

As for the impact of politics, the reform of the CAP has been paramount with a complex set of arrangements being negotiated with considerable emphasis on ‘greening’ measures to encourage environmental outcomes. Whilst for the majority of farmers the changes will not be devastating there will over time be less financial support whilst restrictions on farming operations will increase.

Issues

There are naturally a number of other factors that impinge on the market and are therefore issues that occupy the industry; these include:

• The economic constraints.

• Legislative changes.

• Meeting noise and emissions limits.

• Currency movements.

• Land usage concerns.

• Environmental objectives.

Consolidation

All these forces encourage greater adaptation to the market and create pressure to gain efficiencies and to reduce unit costs. The customer base is shrinking but the dependency upon reliable mechanisation becomes ever greater. The trend in the number of units sold may reduce each year but the increase in size and sophistication largely compensates.

Just as the client profile consolidates so too does the supply industry, in fact at a greater speed. There are now a handful of true multinational companies that each have a tractor range at the heart of their offering, plus a modest number of multi-range machinery suppliers, all supplemented by a still numerous but rapidly reducing set of national players or niche specialists.