Machinery and Equipment, Agricultural
SIC 3523
NAICS 333111
The farm machinery industry manufactures a wide variety of products for planting, maintaining, and harvesting crops, as well as for performing other agricultural activities. Common kinds of farm equipment include tractors, combines, sprayers, planters, and harvesters.
Despite difficulty in the early 2000s, the agricultural machinery and equipment industry rebounded during the middle part of the decade. U.S. sales of two-wheel drive tractors increased 7 percent from 2003 to 2004, and four-wheel drive tractor sales increased more than 100 percent. Self-propelled combines also surged in demand, with a 75 percent increase in sales from 2003 to 2004, followed by an 18.1 percent increase in sales from first quarter 2004 to 2005, as reported in the Association of Equipment Manufacturers' (AEM) March 2005 Flash Report. Both farm wheel tractors and self-propelled combines were projected to grow substantially into 2005. In its 2004 State of the Ag Industry report, the AEM found that the factors most influencing new equipment sales projections for 2006 were farm debt and credit availability, grain exports, and beef and hog prices.
Agricultural equipment sales also increased in developing markets. South Africa showed growth of 118 units, or 35.8 percent in tractor sales, according to the SA Agricultural Machinery Association. Combine harvester sales in June 2004 were almost double those of June 2003, rising from 15 units to 29, and baler sales showed a small increase (3 units) over the previous year as well. The Association expected tractor sales in South Africa would continue to increase. Indian tractor manufacturer Mahindra & Mahindra Ltd. (M&M) sold 15,066 tractors during the first quarter of 2004, compared to 10,049 for the same period a year earlier. The company has sold more than $100 million of equipment to the United States, and was working in late 2004 on a joint venture with Jiangling Tractor Company in China.
In the mid-2000s, several new innovations in agricultural machinery were joining the market. Tier III engines, tractor auto-steering capabilities, and site-specific GPS application equipment were just a few of the technologies to watch as of 2005. Such developments were aimed at improving the markets of industrialized economies. Agricultural machinery was a mature industry and primarily a replacement market, since sales depended mostly on replacement equipment and parts. The trend toward farm consolidation in developed countries hastened this transformation. Agricultural equipment manufacturers continued to discover new markets, particularly in developing countries such as Uruguay, Paraguay, Brazil, and Argentina. The United States exported $405.1 million of farm equipment to South America in 2004, an increase of 43 percent from 2003, according to the AEM. Exports to Australia/Oceania reached $673 million, a 64 percent increase.
Although the agricultural machinery industry claims myriad products, the production of tractors and combines has accounted for the largest portion of the farm machinery and equipment market for many years. The scale of economy required to produce tractors and combines helped a few large multinational companies, referred to as full-line companies, dominate world markets. Nevertheless, more specialized products associated with the industry enabled many smaller companies to compete and profit as well.
The farm machinery industry serves large, medium, and small farms. Large farms prevail in the United States, Canada, Australia, Brazil, Argentina, and to an increasing extent in Europe. These operations require larger, more expensive machines and thus are capital intensive. The high cost of producing such machinery has effectively restricted participation in world markets to large multinational companies, many headquartered in the United States. Medium-sized farms, found mainly in Europe and supplied by European firms, diminished in number during the 1990s. During the 1980s, Japanese producers penetrated the medium-sized farm market and serviced the small-scale farm market in developed nations as well. Certain developing nations also produced machinery for small farms.
Differences in tractor size help describe how farms' needs vary according to the size of operations. According to the U.S. Department of Commerce, two-wheel drive tractors under 40 horsepower were built mostly in Japan, where farms are generally small. In the late 1990s, Japan's market for small tractors was 3.5 times the size of the market for small tractors in the United States. Two-wheel drive tractors between 40 and 100 horsepower were supplied by Japan and Europe. Europe's high share of medium-sized farms made European demand for such tractors three times that of the United States. Finally, two-wheel drive tractors with horsepower above 100 were mostly produced in the United States, where farms are typically large, though since the mid-1980s Japanese and European firms competed in this market as well.
Franchised dealers, who specialize mainly in one manufacturer's products, sell the majority of the world's farm machinery and equipment. Dealers may distribute more than one manufacturer's products if those products do not directly compete. Manufacturers generally support dealers by financing inventories, training staff, and advertising. Demand for farm machinery fluctuates seasonally, and farm machinery has a long life span. For example, tractors sold in the United States could last nineteen years. In the past, manufacturers were obliged to maintain large inventories of whole parts and replacement parts to meet supply demands with short notice. As the industry moved toward a build-to-order approach to manufacturing, however, dealers began consolidating inventories to sell to larger areas while servicing customers through closer satellite offices. The service end of this industry became increasingly important in the 1990s.
As the industry entered the twenty-first century, product standardization and international trade became paramount issues. Europe's economic unification spurred firms to seek cross-national standards that would allow them to compete throughout the common market. In addition, the General Agreement on Tariffs and Trade (GATT) signed in 1994 pledged a gradual reduction of trade barriers among participating countries, thereby leveling the competitive playing field for certain products in some markets. Among its other stipulations, the 1994 GATT eliminated farm machinery tariffs between the United States, the European Union, Japan, Canada, and other industrialized nations. The World Trade Organization (WTO), which was created on January 1, 1995, replaced the GATT as the formal institutional mechanism for regulating international commerce, but carried on GATT rules in expanded and revised form. As of April 2005, some 148 nations belonged to the WTO.
In addition, the North American Free Trade Agreement (NAFTA) promised to gradually eliminate tariffs and other trade barriers among the North American countries. Signed in 1994, NAFTA ultimately phased out tariffs on farm equipment. In its implementation, NAFTA initially established trade quotas to prevent price dumping and other disruptive trade practices. The majority of protective tariffs and quotas expired in 2004, with the rest eliminated by 2005.
In most cases, working farmers were not responsible for the innovation and design of modern farm machinery. Most of the development of new farm equipment came from designs by various tradesmen, according to historian Reynold M. Wik in Agricultural History. Wik noted that some of the inventors of the plow, including John Deere, were blacksmiths, as were the inventors of the thresher, John and Hiram Pitt. One inventor of a reaper was a draftsman, and other inventors included machinists and practical engineers. Less surprising, Wik also found that most mechanical innovations came from the largest societies, with fewer contributions coming from inventors in less-developed regions.
One of the most significant innovations in modern farming was the gasoline-powered tractor. In the late nineteenth and early twentieth centuries, power for farm machines was transferred from steam traction engines to gasoline traction engines. John Froelich built one of the first machines with a gasoline traction engine in 1892. This machine became a forerunner to the John Deere tractor line. In 1907 C.W. Hart and C.H. Parr, two Iowans who had started the first tractor manufacturing business in 1906, coined...
To continue reading
Request your trial