Are machinery companies biting the hand that feeds them?
I had an interesting discussion recently with a couple of farmers about why the cost of farm machinery and Ag tech was rising at a rate disproportional to the rest of society. Why is it that while the costs of new vehicles have remained flat or fallen in the past 20 years (in real terms), despite being more reliable, having more safety features and technology – while tractors, sprayers and harvesters have gone through the roof? Why is it that while computers and household electronics have fallen dramatically in price (despite massive increase in performance), Ag technology pricing continues to escalate. Or is that just a perception and not a reality?
It can be argued that the only ones able to put a deposit on a new piece of farm machinery today are the pigeons.
I think we would mostly agree that as farmers we are overcapitalised in machinery. But in many cases this is the only option in order to run an efficient operation. Note I didn’t say ‘profitable’ operation, as it could be argued that most of the increase in productivity and margin created by the machinery and Ag tech we use today is swallowed up in the ever increasing purchase and operation costs.
A few examples:
? In 2000 we purchased a new 4x4 traytop for A$25K. Similar vehicle today is $37K (increase of 50% in 20 yrs)
? In 2006 we purchased a VZ Commodore for $30K. Similar model before they shut down recently was around $40K (increased of 30% in 12 yrs)
? In 2000 I purchased a desktop computer and screen for $2700. Another in 2006 for $1500, along with a laptop for $1400. A basic printer in 2006 was about $400.
? Televisions, stereos etc a fraction of the price of 20 yrs ago, with significantly more technology built in.
Compare this to Ag:
? We purchased a new JD6800 (120HP) in 1998 for A$53,000.
Today potentially 3 times that.
? A JD7810 (175HP) in 2003 for A$130,000.
? The interchangeable touchscreen in tractors / harvesters / sprayers (yes packed with technology) is over $8000.
? Quotes on a number of different new pieces of machinery (not limited to any particular brand) were on average 17% higher in 2020 than in 2018 (despite 2-5 years of drought and seemingly lesser demand).
This is not about brand, as it is the case across the board. We have mostly green products. The person I was speaking to had mostly red. Had a similar discussion with someone with a variety of colours.
I am not sure what the answer is, but while new technology and machinery can be seem as imperative to the future success of our industry, if all (or a large portion) of the additional margin created through productivity gains is swallowed up by the cost of the new technology, we have a problem. Yes, it can be argued that there is a huge cost in developing Ag Tech, and someone needs to pay for it. But then, other domestic electronics also require huge development costs and are not really increasing in price. It is also argued that we are a niche industry, though I feel that is a hollow argument with the size of agriculture globally today.
We have a precision sprayer, which is awesome. It creates chemical savings of up to 95% which is not only great for the bottom line, but also for the environment. We love it. But its also very expensive. We have calculated that we need approx. $$50 - 70K worth of chemical savings a year to justify owning it. In most years this is the case, but if we were much smaller in scale, I’m not sure it would be justifiable. Which means this technology is effectively not accessible to smaller cropping farmers, which isn’t necessarily a good thing.
Some would say don’t buy new (and we haven’t for a few years), but the price of good secondhand machinery is also coming up to meet the new market.
So, are the global machinery companies biting the hand that feeds them? Where is the balance between the need for both farm businesses and machinery manufacturers to be profitable and is it currently right? If the cost of machinery and Ag tech is rising at 5 -7% per year when CPI and interest rates are low, is it just potentially creating a greater divide between small and large scale producers? Does this divide stifle environmentally sustainable farming practices in an era when social licence is the catch cry and the perception of how we farm is important to the wider community. And what does the end result look like for our industry?
Keen to hear your thoughts.
(photo from 20 years ago)
Agricultural Consultant
4 年I suspect it's 2 things. Scale in agriculture which represents around 3% of our economy is much lower than scale of something like cars or televisions which target 100% of the economy. Secondly, manufacturers of farm inputs price their products with opportunity in mind knowing agriculture is a very profitable sector for the top 15%? of the industry who can afford/justify large, high tech inputs.
Managing Director at Autonomous Ag
4 年I thought it Is all about clever marketing. Generally Aussie farmers have chosen to Support 2 brands Red and Green. So of course you will be ripped. Embrace competition. You don’t want to? Then don’t complain about the price you pay.
Owner, Fritz Statistical Consulting for Consumer, Sensory & Market Research
4 年In light of the high cost of new farm equipment, I have been wondering if there will be a movement among some farmers to go back to smaller/older equipment that doesn't have all of the technological advances of today's new equipment. Would it make sense for some mid-sized farm operators to have several "older but still good" tractors that cost less than $100K US and pay a hired hand to operate one of them rather than half as many $300-400K new tractors. When I see ads for new JD tractors or combines selling for $400-$500K US, I don't understand how any farmer can stay in business. Or, do the tax deductions for interest expense and depreciation of new equipment tilt the balance toward having the latest and greatest equipment? Educate me -- I am from a farming background but am longer directly involved in farming.
Self Employed at Nunya
4 年I have many thoughts on this topic, firstly Australia doesn't manufacture much ag machinery so repairing older machinery if equivalent in cost helps our economy not some other nation's. A lot of this technology wouldn't exist without the huge farm subsidies that exist in the countries of manufacture, therefore the cost and maintenance of high tech machinery will almost certainly be less viable in an unsubsidized farm sector like Australia. The distances, dealership and farm density are completely inverse to the northern hemisphere industry so we have very different challenges. Where we farm we get less regular crops, less dollars/ha. and have to cover much more area with the same ammount of labour than an EU or Nth American farm. I feel all that points to a more reliability weighted requirement than porformance biased machine. No one cares what the maximum through put off a combine is when the yields don't go over 3t/ha. no farmer benefits from all the weight that is compacting your field by a machine capable of double the throughput than it will ever see and no farmer benefits from the technology, r&d and expense that went into said high capacity machine. I am continually observing how much more reliable and cost effective our pre-electronic machinery is.
The TireGrabber Owner, and Inventor of new common sense solutions.
4 年Great thoughts- i think most farmers are thinking this globally. I think the best investment a farmer can make is a great workshop and hire a great mechanic to fix on your own farm. There are mechanics working in dealerships that would be happy to work full time on a farm and repair older machines. If you count depreciation/dealership repair bills/interest etc it makes sense to run machines a bit older but still great workhorses.