The agricultural machinery market and its "variables"
EIMA 2021 was the setting for the Club of Bologna session dedicated to the analysis of the factors that can influence the global agricultural machinery market. The elements that were analysed included the emergence of the Coronavirus, the impact of mechanisation on employment in agriculture in the various areas of the world, and the trend of strategic segments such as components
In these times, the machinery markets of the world are in a special focus of the news because it has already come to production delays and even stops, due to bottlenecks in the supply chains. The Corona Pandemic, the blockade of the Suez Canal, and the lorry drivers’ shortage in the UK have shown how sensitive the production of machines has become. If even the automotive sector is affected due to missing components then it is intuitive as this also concerns the agricultural machinery market. On the other hand, it could be shown in the past that in many cases the agricultural machinery market behaves differently to the usual trends and drivers which are known from other areas.
Besides these current uncertainties in the production, the understanding of the agricultural machinery markets is of utmost importance. Topics like: the global warming and the trend to reduce the pollution by eliminating combustion engines at least in the automotive sector, the growth of the world population and the linked hunger in many regions of the world, force the governments and associations of the world to guide the markets in the right direction. How can this work if the agricultural machinery market behaves differently and the drivers are not fully understood?
Based on these aspects, the Club of Bologna as part of its work session at EIMA 2021, last October, it drew the focus on this topic by discussing, in one dedicated session, different perspectives of the agricultural machinery market and its perspectives.
Worldwide market drivers
During the Club session dedicated to the development trend of mechanization Ignacio Ruiz, Secretary General of Agrievolution, analysed the agricultural machinery market trends of the past to derive the most useful drivers. This analysis has been challenging due to the lack of real and disaggregated data in a number of countries. Nevertheless, he looked on the supply and the demand side of the agricultural market from a global macro perspective. His collected statistics have been divided into former, current and future drivers for the market.
Already in former times you could notice that, despite of worldwide growing arable land, and also growing permanent crop land, the human labour decreased continuously. Thereby, the differences for low- and high-income countries are tremendous. The share of employees who are working in the agricultural area in the high-income countries amounts to 3%, while in the low-income countries these are 60%. For the machinery market it is the complete opposite. Areas like Africa are far away from implementation of mechanization in agriculture, which leads to a high human capacity to compensate this.
The study of the current drivers has shown that governmental programs are positive but generate only short-term effects on the agricultural market with noticeable effects of 1-2 months. Also the Corona crisis had such a short term impulse on the agricultural machinery market that could be monitored in the tractor registration statistics.
To analyse long-term trends it is worth studying the yearly change of farm incomes. From 2014 to 2016 the farm income in the world decreased – as a consequence of this the investments in this business started to stagnate. Furthermore, it is also worth studying the investment trends.
In a sentiment analysis context Mr. Ruiz could show that the expectation for Europe, Central Asia, North and Latin America is growing while the Pacific region and Africa (low-income countries) will decrease until 2030.
That implies that the mid- and high-income countries have to produce enough food also for the poor areas of the world. To avoid this trend it will be necessary to strengthen the low-income countries. Therefor employment needs to be created and vocational programs must be introduced.
Covid-19 impact on EU market
Also in the context of the Forum of the Club of Bologna, Jerome Bandry, the secretary general of CEMA, reported on the specific impact of the Covid-19 Pandemic on the European agricultural market. While the tractor registrations in the total year 2020 were largely unimpressed (just -3% vs. 2019), the sudden decrease in the second quarter of the year 2020 hit the market significantly and with long term consequences. The tractor registrations dropped down by almost 20% in Q2 2020 versus Q2 2019. The recovery of the market to almost usual annual figures demonstrated the resilience to catch up with demand despite of the distribution constraints and the supply chain challenges.
But not all tractor powerbands could catch up later in 2020. The powerband between 56 to 129 kW, which represents almost 60% of all registered tractors in Europe, is still facing a 8% drop in comparison to 2019. This is related to the transition phase of these engines to lower emissions, which required a lot of capacities in engineering and production. Fortunately, the EU decided to postpone the transition phase of this powerband, which contributed essentially to manage through these extraordinary times.
In the first half of 2021 the demand for tractors was still on a high level (+25% in first half of 2021 vs. 2020) to compensate the drop down that was caused by the Covid-19 impact, but the distribution constraints are still challenging the machinery productions. Meanwhile 45% of the machinery producers expect a production stop due to lack of parts in the next coming months (after October 2021).
Mr. Bandry also pointed out that the challenges in the agricultural machinery market are ambitious, even without Covid-19. The consensus towards more sustainable farming, the protection of nature and safeguarding the biodiversity (see also the European Green Deal) and the challenges to produce enough food, also for the poor regions of the world, will significantly impact agricultural practices in the coming years.
In the times of Covid-19 Pandemic, the associations and governments have to find the right balance between stimuli for the advanced agricultural machinery and solutions to seed the future of sustainable farming.
Online machinery market
The CoB-Members and the presenters expressed their expectation that the Coronavirus crisis might enforce the trend towards online machinery markets. Dave Mowitz, Editorial Director at Meredith, has performed an investigation of this possible trend. He studied the trend towards online machinery markets for the North American auctions.
Meanwhile it is possible participate in an auction while sitting on a harvesting machine thanks to smart phones and good internet availability.
The usage of the online format, also for new machinery purchase, is still limited. Over 90% of these sale transactions still take place at the dealership, on the other hand, more than 82% of farmers research the features of new machines and compare prices prior to visiting a dealership.
During the discussions in the CoB it was concluded that the online selling of machines and the offer of services will also impact the service behaviour of agricultural machines. Today the dealers are usually the drivers of repair services, with the online market, this might change due to the need for a local or nearby service possibility.
Spare parts sector
The Deputy Director General and Head of Foreign Markets of FederUnacoma Fabio Ricci, has analyzed the spare parts market. In 2020, the total after market of spare parts in Europe had a volume of 6.790 million € – huge market that is shared between the original and non-original components. In Europe, almost 43% are not original components; in some countries like Italy, Spain and Portugal the share between original and not original components is even 50%.
The split depends mainly on the average income of farms, the age of machines and the number of manufacturers of components in the area. Mr. Ricci also summarized the success criteria for the after market. One of the most essential criteria is the fast delivery of parts to keep the machines running. In this context you can also take the clients’ time optimization into account. Furthermore, a good partnership with the dealer is important.
Besides other criteria also the packing should be mentioned which sometimes tends to be not so relevant, but this might be also an indication for a “quality” or “European” product. Besides the spare parts market, Fabio Ricci also gave an outlook for the agricultural machinery business. A growth of ca. 18% is expected in the global agricultural production from 2021 to 2030.