Alastair has over 10 years’ experience leading research activities in scaled, high-growth industrial and technology markets. At Interact Analysis he is responsible for electric trucks and buses, autonomous trucks and off-highway electrification.
From a global perspective, the agricultural machinery market has had an uneven 2020, owing to significant regional variations in weather, climate, economic conditions and Covid-19 impact. Our latest report on off-highway machinery now includes heavy agricultural equipment in its remit. This report goes into detail highlighting those interesting and sometimes unexpected regional differences and gives us food for thought regarding electrification in the sector.
The agricultural machinery market: a Covid-19 survivor
Covid-19 has forced many agricultural machinery manufacturers to scale down or suspend production for a period of time. However, the demand for machinery was actually relatively strong in 2020. Food production and agriculture have been treated as essential so, whilst there have been restrictions, farmers have continued activities as normal. Good weather and strong crop production in some markets, coupled with the need to replace aging equipment, meant global machinery sales grew in 2020 and the longer-term forecast is expected to be positive, one specific driver being increased mechanization in China, India and other developing markets.
A glance at some key regional markets
In the USA, three major tractor manufacturers – AGCO Corporation, CNH Industrial, owners of New Holland and Kubota each reported increased sales in 2020. Growth in the sale of lower horsepower tractors was a significant factor, with CNH reporting a 24% increase in the third quarter of 2020 for tractors under 140hp compared with the same quarter in 2019. Sales of their tractors over 140hp increased by 8% for the same period, and combine harvesters by 16%. Growth drivers cited by these companies included competitive prices, market access, government support, favourable weather and the special demand caused by the Covid-induced stay-at-home lifestyle of many Americans. Although demand for replacement of larger machinery has been low, owing to the high investment involved in febrile economic conditions, Kubota has reported that its new medium-sized tractor has enjoyed popular demand.
Additionally, John Deere, obviously a massive supplier to the US tractor market, also reported improved market sentiment in 2020 which, they say, is driven by improved prices, market access, and government support.
In Brazil and South America, Agco reported increased tractor sales in the first 9 months of 2020, with Brazil and Argentina offsetting weaker demand in smaller South American markets. High crop yields and favourable exchange rates have been major drivers of the market, whilst farmers have responded to healthier economic and political environments by investing in new machinery, replacing their obsolete fleets. John Deere confirmed AGCO’s optimistic outlook, citing record soybean production and higher commodity prices as key drivers of a healthy market.
Meanwhile in Western Europe we found a different picture, with AGCO reporting an overall decrease in sales in the first 9 months of 2020, due primarily to Covid-19 production constraints. Market demand was weakest in the UK, France and Spain, though this was partially offset by growth in Germany, which was stimulated by tax incentives. On the farming front, the situation in the UK has been particularly difficult, with DEFRA reporting a 21% decrease in total farm income in 2020, compared to 2019. Extreme weather conditions – flooding in February, a dry spring, a hot summer and heavy rain in August combined to severely deplete harvests. All this came on top of the Covid effect which notably has caused decreased demand for dairy products and high quality meat products from cafes and restaurants. UK farmers have in the main not been in a strong position, where investment in new machinery is concerned.
Across the globe, in China, the government has continued its policy of subsidizing the scrappage and updating of agricultural machinery to improve the rate of mechanization. This policy has helped to stimulate the market and keep demand for new tractors high. Despite typhoon damage in early 2020, major crop output remained on a par with 2019.
To electrify or not to electrify?
That is the question, and it is not a question often asked as the drive for vehicle electrification continues apace, but in fact there are valid reasons for wondering whether widespread electrification for agricultural machinery makes sense. Farming is one of the largest contributors to global greenhouse emissions. Enteric fermentation – the digestive process through which methane is produced by farm animals – is by far the biggest factor in this pollution. The level of emissions from farming machinery is tiny by comparison, so, while policies or technologies that try to reduce the emissions produced by agricultural machinery will be helpful, they won’t have a significant impact on total emissions from the sector. Also, it could be argued that there is a strong case for not pushing for low- or zero-emission agricultural machinery. It would be more expensive than its ICE equivalent, and, given that most new tractors are sold to developing countries which are embracing mechanization in order to improve production, obliging food producers to purchase expensive electrified equipment may slow the drive to mechanization and increase food prices.
India: Fertile ground for electrified agricultural machinery?
Despite arguments against the electrification of agricultural vehicles, some manufacturers are pushing ahead with battery electric tractor production.
In Western Europe and North America, there is demand from sustainable farms for more environmentally friendly equipment. However, demand is likely to remain low since these farms remain relatively niche and the high price of electrified machinery will deter many buyers. India, however, could be one market that adopts electric tractors on a major scale. Sonalika and Escorts Limited, two leading Indian engineering companies, have introduced low horsepower electric models. They are aimed at the low end of the market, don’t cost much more than their diesel equivalents, and they offer several advantages. Firstly, like all electric vehicles, they have much lower running costs since they don’t require as much maintenance and electricity is cheaper than diesel. Secondly, the availability of fuel in rural India is limited. Farmers often have to travel quite far to obtain fuel. By being able to charge at home – potentially from renewable sources – they can save time and money.
To continue the conversation about agricultural machinery, contact Alastair Hayfield directly: Alastair.Hayfield@InteractAnalysis.com