Unearth Green Cost Reduction Lessons from Agriculture Equipment

As the agricultural equipment market continues to experience a significant cyclical downturn, reducing net operating costs has become more important than ever for industry leaders. According to data from the Association of Equipment Manufacturers (AEM) , U.S. agricultural equipment sales are expected to remain relatively flat in 2024, with unit sales projected between 320,000 and 330,000. This follows two consecutive years of decline, signaling the ongoing challenges within the market.?

Midterm Growth Prospects Remain Promising?

Looking ahead, midterm growth prospects are more optimistic. Analysts from Statista predict a potential return to growth, with industry sales forecasted to rise to 439,600 units—a 37.3% increase over 2023 sales. However, the exact timing of this recovery is still uncertain, as market performance through the remainder of 2024 continues to unfold.?

Key Market Segments Show Decline?

Market research from Glass Management Group, highlighted in Farm Equipment magazine , reveals that key segments, such as the under-40 HP tractor category, are particularly feeling the impact of the downturn. This segment represented 62.2% of all tractors sold in 2023, accounting for 156,220 units. After peaking in April 2021 with a twelve-month rolling average of 219,547 units, the under-40 HP category has seen a sharp 36.6% decline, with a rolling average of 139,289 units in August 2024.?

Similarly, the 40 to 100 HP tractor category, which peaked in November 2021 at 75,154 units, experienced a 22.6% decline by August 2024, dropping to 58,147 units.?

Global Manufacturers Adjust to Changing Market Dynamics?

The top four global agricultural equipment manufacturers—John Deere, Case New Holland, Kubota, and AGCO—continue to dominate the U.S. market, together representing about 60% of total sales . While the U.S. remains the largest consumer of agricultural tractors and combines, sales in other countries have increasingly contributed to these companies' overall sales.?

This broader market contraction has hit U.S. tractor manufacturers hard, particularly in the core of their product lines. In response, many companies are implementing strategies to reduce production costs at key manufacturing facilities. These actions, which often make headlines, reflect the broader industry challenges at play.?

Kubota's Approach to Cost Savings and Sustainability?

One such strategy is Kubota’s focus on optimizing energy consumption by shifting energy-intensive manufacturing operations to off-peak hours. This adjustment results in significant savings on energy bills and aligns with broader sustainability goals.?

Project: Adjusting operational schedules to shift energy-intensive tasks to off-peak hours, when electricity rates are lower.?

Savings: This change reduces energy costs by taking advantage of lower electricity rates during non-peak hours, with no major capital investment required. Additionally, this shift reduces strain on the energy grid and supports sustainability efforts.?

For tractor manufacturers, reduced production volume can lead to opportunities for new manufacturing strategies that not only lower costs but also contribute to sustainability targets. These strategies are applicable not only to original equipment manufacturers (OEMs) like Kubota but also to their suppliers, creating potential for Scope 1, 2, and 3 emissions reductions.?

Shifting Energy Loads: A Key to Cost Reduction?

Shifting energy loads to non-peak hours can reduce costs by 5-30% according to utility Constellation , depending on the time-of-use (TOU) electricity rates. During non-peak hours, cleaner energy sources like wind, nuclear, or natural gas are often used, leading to an emissions reduction of 10-40%. While the amount of energy consumed doesn’t change significantly, the timing of usage does, resulting in lower operational costs and a more sustainable energy footprint.?

Key Steps to Achieve Energy Load Shifting Success?

• Audit Utility Bills: Identify peak demand charges and energy use patterns.?
• Collaborate with Utilities: Pinpoint location-specific peak and non-peak hours.?
• Map Equipment Energy Use: Understand which operations consume the most energy.?
• Test Operational Shifts: Experiment with shifting schedules to validate potential savings.?

By shifting operations to non-peak hours, leaders can reduce their company’s energy costs, ease grid strain, and advance sustainability efforts—all without requiring major investments.?

The Bottom Line: Potential Project Benefits?

For agriculture equipment plants, shifting energy loads to non-peak hours can lead to an estimated average reduction of up to 4K metric tons of emissions, and a savings of up to $840K per manufacturing facility. These benefits align with the industry's broader goals of reducing operational costs and enhancing environmental sustainability.?

As leaders navigate a challenging period for the agricultural equipment market, implementing cost-saving measures such as energy load shifting offers manufacturing teams a powerful tool for staying competitive while advancing sustainability objectives.?

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