2013 Presented few surprises for Australia’s agricultural machinery industry as demand for its products and services remained strong. Tractor sales remained above 10,000 units for the third year in a row baler and hay tools sales turned the corner, demand for self-propelled windrowers and sprayers and tillage and seeding equipment remained strong as did demand for lifestyle products and commercial mowing equipment. There was one down side though and that was demand for combine harvesters, sales declined 30% but this was not unexpected given the strength of the market in the preceding two years.

From an agricultural stand point it was another good year with the value of production at historical high levels as was exports and farm cash income.

Adjustment

All in all, the environment in which the industry operates was very stable so you would think that the machinery industry would also be stable but it’s not, in fact it is going through one of the most important periods of adjustment in the last fifty years.

Dealers, the distribution channel, the front door of the industry, call it what you want but it is this one area that is changing the course of our industry.

In my forward for the 2013 State of the Industry report I wrote at length about the changes in the dealer network, our 2014 review has confirmed that this change is accelerating but do we really understand what is at the core of this change.

Dealerships

If we go back to 1994 there were approximately 2,000 Dealers in Australia, most being single-outlet Dealerships. At that time average tractor sales per outlet was about 3.5 tractors a year; worth around $364,000 (in 2013 $). Compare this to today, where the average sales per dealer outlet is 18.4 tractors; worth $1,648,000. That is 4½ times the capital needed today compared to 20-years ago. And this is at the heart of the change facing our Industry. The inherent problem today is that the strength of a single-outlet Dealerships balance sheet basically rests on the value of its tangible assets: namely its land and buildings. Whilst it may have a strong franchise(s), these can quickly evaporate. It is only through merger and acquisition that a Dealership can generate enough income to service the necessary capital required to trade.

This is a key factor driving the change.

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Greying Industry

Other changes are the increasing age of the owner(s) of the Dealerships. Our industry is no stranger to the Baby Boomer affect that is impacting our overall economy. Dealers who do not have succession plans in place will look to move on, hopefully sell their business to a neighbouring Dealer or, as we have already seen, just close their doors. In other words, the best they can realise for a lifetime of hard work is a discounted offer for the assets of their business.

If you have no plan today, and you are one of these Dealers it might be time for a reality check. The industry must come to terms with the fact that the way it will connect with the buyers of its products is changing. It does not have the option it once had of a Dealer in every town. Its challenge is to find financially strong businesses willing to invest in their future and for Suppliers to invest in their Dealers’ future.

Foreign Ownership

Our customer profile is also changing rapidly. The latest Agricultural Land and Water Ownership survey by the Australian Bureau of Statistics (released in July) found that a total of 49.6 million hectares of agricultural land had at least some level of foreign ownership as at June 30, 2013, compared to 44.9 million hectares as at December 31, 2010.

In total, 12.5% of Australia’s agricultural land is now foreign owned.

It showed that when foreign investors get into Australian agriculture, they get in big, with 45 businesses accounting for 95% of all foreign-owned farmland in Australia, or 47.2 million hectares.

How do we connect with these new entities, and, more importantly, how do you access enough products to sell them when they look to equip their new farms.

This presents varying challenges to companies and dealers, large and small.

Rationalising Brands

We are already seeing that Dealers both single and grouped reducing the number of franchise that they represent, both Suppliers and Dealers invest a lot of time and money with every franchise they hold. But if the return on investment in a franchise is not there, then Dealers drop the line. This is nothing new. But if you’re a short line company, where do you go today? Again, you can’t go down the road to the next Dealer, because he simply isn’t there.

These are significant challenges facings our industry; and it’s happening fast. The next two or three years will be very telling for all of us. But for those who wish to ignore it, I suggest that you look at what’s happened to print media world-wide. In the space of just two years, it has gone from riches to rags.

Just two years!

If an industry so embedded in the way we live can change so fast then what’s to stop our industry doing the same.

Are you ready?

2013 New Machinery Sales

Sales of major new ag machinery totalled $1.598 billion in 2013. This was 13% down on 2012’s result of $1.832 billion. The value of new tractor sales totalled $945.8 million (5% down) compared to $999.8 million a year earlier – but still 4% up on the average value of sales between 2008 and 2012.

Tractors

Sales of new tractors in 2013 reached 10,569. This was 7.4% down on the 11,417 sold in 2012,

2013’s result was virtually identical to the preceding five-year average of 10,539. As we have highlighted in the past, many associate tractor sales with agricultural use. However for many years now the influence of the Hobby Farmer or Lifestyle Farmer cannot be overlooked. Demand for product in this sector has been steadily rising, historically this market was defined by tractors under 40hp, but today one could argue that due to the larger lifestyle blocks, this market now extends to 50hp, and it is on this basis that we review the market.

In 2013, the under 50hp market accounted for 32% of the industry (3,428 units), compare this to ten years ago when 1,930 units accounted for 19% 2004 tractor sales.

The 50hp plus market in 2013 totalled 7,141 or 68% of the market. This result was slightly down on the five-year average of 7,411.

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Lifestyle Market

The importance of the lifestyle market cannot be understated given its weight in the market place.

Demand in the over 200hp broadacre market segment softened in 2013 with sales declining by 5% with 1,663 units sold, it is worth remembering that the 1,745 sold in 2012 was the largest number of machine sold in the last ten years in the segment. In value of sales terms just over $440 million dollars was spent in this segment in 2013.

The 100 – 200hp row crop market segment basically held at 2012’s level with 2,483 sales, this was 26 fewer than the 2,509 in 2012. All up the value of sales in this segment totalled $280 million in 2013.

The 50 – 100 volume utility tractor market retreated in 2013 with sales of 2,995 tractors this was 13% down on the 3,459 units sold in 2012. Total value of sales for the segment reached $154 million.

The under 50hp Lifestyle market continued to be the largest segment but did weaken slightly in 2013 recording 3,428 sales (down 8%). Despite the drop, 2013 was still among the top two years for sales in the last decade. Total value of sales in 2013 was just over $70 million.

Other Products

Following the strong result recorded in both 2011 and 2012 Combine harvesters retreated heavily from the $565.3 million sold in 2012 to $363.7 million in 2013, a drop of just under 36%.

The tillage and seeding air-seeder market consolidated on the gains made a year earlier with estimated sales of $36 million and increase of 7% year on year.

Demand for Self Propelled Sprayers is estimated to have fallen slightly in the face of increased levels of second hand sprayers sales were estimated to be worth $127 million, a fall of 3% on the $131 million estimated to have been sold in 2012. The baler and hay tools market finally turned around in 2013 after 5 years of continuous declines in demand, combined sales in 2013 totalled $89.9 million, this as 22% up on a year earlier, which in itself was the worst year recorded for these products since 2000. Baler sales increased by 27% to $53.2 million, hay tool sales didn’t far quite as well as balers but still recorded a 16% increase from $31.6 million in 2012 to $36.7 million in 2013.

The value of Windrower sales increased in 2013 by 24% from $28.8 million in 2012 to $35.8 million in 2013 however, overall unit sales declined as buyers of small horsepower machines moved up to larger capacity machines.