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The Agricultural Machinery Market &
Industry in Europe:
European Agricultural Machinery Industry Association [email protected] www.cema-agri.org
An analysis of the most important structural trends &
why EU regulation of the sector needs to change
Dr Gilles Dryancour, October 2016
1
Executive Summary
This paper questions and challenges common concepts and assumptions used for
regulating the agricultural machinery market and industry in Europe by looking at some
of the most fundamental trends and drivers that have shaped the sector in recent years.
In so doing, the paper examines in particular the very different dynamics applying to the
automotive and farm machinery markets.
Based on this approach, the paper comes up with a number of forward-looking proposals
on how EU regulation should develop so as to better take these structural drivers into
account and provide a sound policy framework that effectively entices innovation, and
supports the productivity of the agricultural machinery industry and thus the sustainability
and competitiveness of European farming.
The paper concludes that, in order to enable European farm machinery manufacturers –
whether big or small – to continue to be innovative, competitive and commercially
successful in Europe and the world, we need a veritable U-turn in EU regulation and
industrial policy. More specifically, EU regulation for farm machines’ needs:
to recognize and understand the structural specificities & drivers of the sector;
to abandon the distorted and harmful logic of using an automotive-based
regulatory approach for tractors and farm machines;
to adopt a forward-looking regulatory approach that allows the European farm
machinery industry to define its own technical standards and move towards more
self-certification.
About the author:
Gilles Dryancour is Honorary President of CEMA, having served as
President of the Association from 2009 until 2014. He is also
Chairman of CEMA’s Public Policy Group (PPG).
European Agricultural Machinery Industry Association [email protected] www.cema-agri.org
2
Introduction Standard analyses of the agricultural machinery market and industry in Europe typically
fail to provide an in-depth analysis of the business, as they tend to ignore the principal
underlying structural trends and drivers which have shaped the market and its industry
during the past decades. However, developing such an in-depth analysis is indispensable
to succeed in two important tasks:
to develop plausible forward-looking scenarios on how Europe’s agricultural
machinery market and industry might evolve in the coming years;
to derive meaningful conclusions on how such future changes of the market and
the industry should best be reflected in EU regulation.
In all of this, it is of utmost importance to bear in mind that farmers – as the final customers
and ultimate users of agricultural equipment – are the most important factor determining
the future of the agricultural machinery market and the industry servicing it.
1. The cyclical nature of the farm machinery business is not a structural trend
The most well-known economic theory about the farm machinery business is that it is
cyclical like agriculture: when agricultural commodity prices go up, demand for farm
equipment tends to rise accordingly. This correlation is commonly acknowledged and
follows a well-known logic: since commodity prices determine farmers’ income, they – in
turn – decide how much farmers can eventually spend on investments into new
machinery.
Commodity prices can thus serve as a helpful indicator of the peaks and troughs in
demand for agricultural equipment. However, being cyclical and volatile, they do not
qualify as a fundamental underlying trend that is shaping the structure of the agricultural
machinery industry.1 For instance, they cannot explain major structural changes within the
industry such as, for instance, the fact that an entire range of famous tractor brands (such
as Lanz, FAR, Ford, Citroën, Röhr, BMB, Steel hoof, Merlin, Latil, SFV, Energique, to name
just a few) gradually disappeared in the 20th century from the industrial landscape.
1 Moreover, peaks in demand for agricultural machinery, as they can be observed for the years 1987-1989 and 2007-
2012, could seriously distort market analyses that focus merely on data from a short period of time.
“Trends in commodity prices cannot explain
long-term structural changes within the farm
machinery industry.”
3
From a broader perspective, the European agricultural machinery industry today is a
mature industry that has faced major challenges and changes since the post-World War
II period. Since then, it has essential re-adjusted itself over and over to new economic,
demographic, regulatory, societal, and technological realities. This paper will primarily
examine the demographic and regulatory changes and analyse their impact on the size
and structure of Europe’s agricultural machinery market.
2. Misleading analogies: tractors ≠ cars When analysts try to examine the market structure of the agricultural machinery industry
in Europe they usually do so by comparing it with the automotive industry. This is based on
the – misleading – assumption that both industries are structurally similar. The view of these
alleged similarities runs wide and deep, as can be seen from a recent French study which
claimed that:
“The agricultural machinery sector bears similarities to its neighbour, the automobile
industry: the chain from vehicle producer to the final consumer (farmer) via the dealer
network involves similar actors. As in the automotive sector, a reduced number of upstream
producers also seem to develop better control strategies of the downstream distribution
network leading to a growing use of exclusive supply”.2
Most importantly, the view of the alleged similarities between the agricultural machinery
industry and the automotive industry is also shared by the European Union (EU) – which,
today, acts as the primary regulator of the industry in Europe. Historically, the European
Commission has always compared tractors to cars, and both tractors and cars belong to
the same administrative unit inside the Commission. As a result, most of the EU’s
regulations on tractors have been derived from regulations that were originally designed
for the automotive sector.
The view of the alleged similarities between the agricultural machinery industry and the
automotive industry is based on the (false) presumption that certain analogies in terms of
industrial processes and distribution practices would also point towards the existence of
similar – or at least, comparable – market structures. Yet nothing could be farther from the
truth. As will be shown below, the fundamental customer-related demographic trends for
both markets reveal that the tractor and automotive sectors are, in effect, not at all
comparable. In fact, in terms of their structural realities, they follow opposite paths.
2 Effets des restrictions verticales et accès au réseau de distribution: Les pratiques d’exclusivité dans le secteur des machines agricoles
“The tractor and automotive sectors are
not comparable. In terms of their structural
set-ups and commercial realities, they
follow entirely opposite trends.”
4
3. Demography is destiny: urbanisation meant a shrinking customer base in the countryside
It is evident that Europe’s demographic evolution since World War II has structurally
favoured the passenger car market, while it has structurally disadvantaged the
agricultural machinery business. Looking at the three most populous countries of the EU,
we can see that their population grew since 1950 by 58% (France), 36% (UK), and 16%
(Germany) respectively (see also Figure 1 below).
Figure 1: Total population of France, UK & Germany, 1950-2016 (millions)
France UK Germany
1950 41 49 68
1985 55 55 78
2016 65 65 81
As a general rule, it is safe to say that the more the population grows the more potential
customers manufacturing industries can – in theory – cater for and win. However, the case
is inherently different for the agricultural machinery industry whose number of potential
customers has declined drastically after the First and Second World Wars. While farmers
represented about 50% of the European population in 1900, their share declined to 30%
in the 1950s. The below charts show the dramatic decline of farmers and farm-holdings in
France, the UK, and Germany.
In the EU, the long-term decline in the number of agricultural holdings is still continuing.
Between 2005 and 2013, the average rate of decline was 3.7% year-on-year. Accordingly,
the total number of farm holdings fell by 1.2 million. This has led to further consolidation
with the average farm-holding area rising from 14.4 to 16.1 hectares. During the same
period, the overall area of agricultural land in the EU fell by 0.7% due to urbanization and
growing forestry areas.
Figure 2: number of agricultural workers in France, 1955-1997 (in thousands)
Source: Sénat français, Projet de
loi 1999, Avis 68 (98-99), Tome 1 –
Commission des affaires
économiques
5
Figure 3: number of agricultural workers in the UK, 1925-2010 (in thousands)
Source: House of Commons, Briefing paper, Agriculture Historical Statistics, n° 03339, Jan. 2016
Figure 4: number of farm holdings in Germany, 1975-2014 (in thousands)
Source: Statista
The same phenomenon can be observed in all OECD countries, noticeably in the US,
where farmers represented 1% of the total population in 2012 (3.18 million of 314 million).3
Notably, the U.S. total population increased by 4% between 2007 and 2012, whereas the
farmers’ population decreased by 3%. These opposite trends prove that the rural flight is
still continuing in OECD countries. In other words, the share of urban populations is still
growing. In 2014, urban population represented 79% of the total population in France,
82% in Germany, 82% in the UK, with a maximum percentage in Netherlands at 90% and
Belgium at 98%.
The above figures clearly demonstrate that the European agricultural machinery industry
has had to deal for decades – and still has to deal – with the formidable challenge of a
dramatically declining customer base. By contrast, the customer base for cars has
followed the opposite trend and continues to grow until today.
3 USDA NASS Census (2012).
6
Figure 5: Active agricultural workforce in selected EU countries
Source: Statistiques Mondiales.com Population agricole active
4. Urban migration fuels the growth of the passenger cars’ market…
The graphs below show the correlation between rural flight, urbanization and the
booming of the passenger car market. This global trend started in the early 1950s and was
only temporarily slowed down by the financial crisis in 2008. The same steep curves can
be found in the three European reference countries: France, UK, and Germany.
Figure 6: World Passenger Car Fleet, 1950-2004
Country % age of
workforce
active in
agriculture
Year
Austria 5% 2012
Belgium 1.3% 2013
Bulgaria 6.7% 2013
Croatia 1.9% 2013
France 3% 2013
Germany 1.6% 2011
Greece 12.9% 2013
Ireland 5% 2011
Netherlands 3% 2009
United Kingdom 1.3% 2014
“Europe’s farm machinery industry has faced a sharply
declining customer base for decades. By contrast,
the customer base for cars has grown dramatically.”
7
Figure 7: number of cars in France, 1900-2010
Figure 8: number of cars in the UK, 1940-2010
8
Figure 9: number of cars in Germany, 1950-2014
The example of Germany is particularly striking. The car fleet expanded from a couple of
thousands units in 1950 to 47 million in 2008 – a factor of 40,000. Even if the market will not
expand at the same pace in the next decades, it went through an exponential growth
phase for well over six decades. The manufacturing capacities followed the same path
and grew by a factor of 6.
Figure 10: Annual passenger car production in Germany (in units), 1957-2013
9
5. …while tractor sales face a steady decline
By contrast, looking at the long-term trend (excluding cyclical peaks and troughs),
tractors sales in Europe have been, by and large, in a constant decline. The market in
Germany, for which available data goes back to 1951, shows that the annual sales of
tractors declined from 100,000 to 34,000 in 2013.
Figure 11: Annual tractor sales in Germany, 1951-2014
Source: VDMA statistics
The same trend can be observed in most of the other European countries. In Italy, for
instance, tractors sales decreased by a factor of 2.3 during the last 30 years (42,000
tractors sold in 1987, 18,000 in 2015). The evolution of the Italian tractor market is even
more striking than the German one, since it shows an acceleration of the downward trend
during the last decade. Effectively, tractor sales dropped by 44% between 2004 and 2015
and still continue to fall in 2016.
Figure 12: Annual tractor sales in Italy, 2004-2016
Tractors in 2013:
34611
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As outlined above, the continuous structural decline of the agricultural machinery’s
customer base and market in Europe has been fuelled by the rural exodus. On the
contrary, the European passenger car market has boomed thanks to urbanization.
Defenders of the alleged analogy with the automotive market tend to argue that the loss
in tractor units sold has been compensated by the correlating gain in engine power and
price increases per tractor that came with it. However, this reasoning is incorrect and
confuses cause and effect. If tractors became more powerful this was essentially due to
the fact that farm consolidation did not leave any other option. In other words, bigger
farms needed more powerful tractors. Otherwise, they could not be operated efficiently.
This trend has thus been clearly triggered by the demand-side and not by the structure of
the production.
Also, the assumption that the growth in horse power would have compensated for the
overall decline in sales numbers cannot be verified by the statistics. In fact, if we take the
German market as a reference and check how many kilowatts were sold in total from
1970 to 2001 (all tractor power categories taken together), we can find that this figure
also declined: in 1970, 65,000 tractors were sold in Germany representing a total amount
of 2.2 million kilowatts. In 2001, 24,000 tractors were sold representing a total amount of
1.8 million kilowatts.
In sum, during the last decades, the agricultural machinery industry had to deal with the
challenge of a declining customer base and has faced lower sales (even in terms of the
total engine power provided) which were supplied to an almost constant area of farm
land.
“Europe’s farm machinery industry has had to
deal with a dramatically declining customer
base and has continuously faced lower sales,
even in terms of total engine power sold.”
11
6. Customer density has a fundamental impact on the market structure
Though rarely analysed, the change in costumer density for a given territorial area has a
fundamental impact on the structure of a market. If we compare the tractor market for
the years 1950 and 2010, we can find that 7 new tractors were sold in 1950 in an area of
100 km² inhabited by 210 farmers. In 2010, these figures dropped to 3 new tractors being
sold per 100 km² which were inhibited by merely 34 farmers.
Figure 13: Number of tractors sold per year and per farmer per 100km2
What does this mean? From a manufacturers’ perspective, it means that all logistical
chains have become much longer and that all costs associated to distribution have
increased dramatically. By definition, competition between brands and their dealers in
such a scenario becomes far more intense. Only those able to invest into reaching ever
more-distant customers and satisfy their needs can remain in the market.
As shown above, owing to the rural exodus and the resulting demographic change in the
countryside and the world of farming, a certain structural concentration of the market
occurs naturally and automatically. When it comes to the structure of the agricultural
machinery market in Europe, the underlying demographic trend thus is, in effect, the
principal driver, not an alleged ‘’concentrative’’ strategy of the tractor manufacturers.
Again here, the French study quoted above claims wrongly that:
“From the production side, the agricultural machinery sector is led by a concentrative
dynamic reflecting the strategies implemented by the tractor manufacturers. The global
reconfiguration of production feeds a similar dynamic at the national level, linked to the
globalization of strategy of key-players”.4
4 Effets des restrictions verticales et accès au réseau de distribution: Les pratiques d’exclusivité dans le secteur des machines agricoles
12
Once again, this kind of reasoning is based on a falsely presumed analogy with the
automotive industry. Quite simply, it is impossible to compare two industries which show
inherently different dynamics and have vastly different volumes. The concentration of
manufacturers and dealers in a growing market is far more questionable than in a
declining market such as agricultural machinery.
Some figures can help to understand the differences between the two sectors. While the
automotive market grew by 9% in 2015 and could be growing again by 8.5% in 2016, the
agricultural market declined by 4% in 2015 (vs 2014) and is likely to decline by 3% in 2016.
In 2016, about 16 million passenger cars are likely to be sold in Europe (another record-
year after 2007),5 whereas the agricultural machinery industry might be able to sell
160,000-170,000 tractors in total.
In terms of overall size, the tractor market is approximatively 1% of the size of the
automotive market. As a matter of comparison, the agricultural machinery industry sells
almost four times less tractors in the whole EU 28 than the automotive industry sells cars in
Belgium - 602,867 in 2015 –, a country with a total area of 30,528 km².
These figures give us the density of sales for both industries in the EU (4,493,712 km²). The
automotive industry sells annually an amount of 3.5 new passenger cars for each km² of
the EU territory. By contrast, the agricultural equipment industry sales represent merely
about 0.03 tractors per km² EU territory.
A more in-depth research would show that the automotive sales are much denser if we
take into account the territory where cars are mostly sold (=urban areas). By contrast,
customers of agricultural equipment (i.e. farmers and contractors) are more and more
difficult to reach since the most profitable farm holdings are more and more dispersed.
The table on next page supports this analysis.
5 http://www.francesoir.fr/tendances-eco-monde/union-europeenne-les-ventes-de-voitures-neuves-continuent-de-progresser
“Europe’s farm machinery industry sells
four times less tractors in the entire EU than
the automotive industry sells cars in just
one single European country alone
(Belgium).”
13
Figure 14: Distribution of agricultural holdings by area (2013)
Area of holding Number of
holdings2
% of total
holdings
Utilised
Agricultural area
(ha)
% of Utilised
Agricultural
Area
<2 ha 4 706 370 44.1% 3 578 030 2.0%
2 – 4.9 ha 2 307 300 21.6% 7 313 240 4.2%
5 – 9.9 ha 1 277 230 12.0% 8 940 870 5.1%
10 – 19.9 ha 888 540 8.3% 12 442 190 7.1%
Sub-total <20 ha 9 179 440 86% 32 274 330 18%
20 – 29.9 ha 374 870 3.5% 9 134 540 5.2%
30 – 49.9 ha 387 730 3.6% 14 974 730 8.6%
50 – 99.9 ha 388 680 3.6% 27 264 410 15.6%
>100 ha 366 740 3.2% 90 965 810 52.1%
Sub-total 20 ha 1 488 020 14% 142 339 490 82%
Total 10 667 460 100.0% 174 613 820 100.0% Source: Eurostat [ef_kvaareg]
7. Tractor and automotive markets are structurally different & follow opposing trends
Despite the fundamental trends and developments analysed above, a number of
academics and the EU regulator (in form of the European Commission) still uphold their –
arguably distorted – view that the tractor market is structurally comparable and
essentially identical to the automotive market. This assumption is based on the single
structural commonality that both industries share: a supply chain and a distribution
network with a reduced number of upstream producers. Yet such an abstract
commonality is hardly a reliable basis for a serious comparison. Following such a logic,
many markets would fall into the same structural category as the automotive market,
such as the markets for smartphone shops, fast-food chains or even coffee-shops.
Production realities show that the passenger car market is characterized by high volumes,
and low diversity of different types/models. The typical annual production of one single
passenger car model is above 200,000 units. By contrast, for tractors, total annual EU-28
sales are currently around 170,000 units – that is less than sales of one single model of one
passenger car!
“The typical annual production of one
single car model in Europe is around
200,000 units – that is more than the total
annual European sales of tractors
combined (170,000)!”
14
By contrast, the farm machinery industry is a low-volume industry, characterized by a
great variety of different vehicle types and models. Also, tractors have a much higher
complexity than cars. They incorporate 1.5 up to 3 times more parts than a car. A
European mid-spec tractor has up 9,000 thousands different parts, versus 3,000 parts on a
typical passenger car, while the agricultural equipment industry is significantly
smaller. These are some of the main structural dissimilarities with the automotive industry.
This is a critical fact which influences competition in the farm machinery industry. For
instance, it explains how small manufacturers can successfully compete with major
players on some segments, i.e. in terms of power categories or specialty-tractors.
In this respect, the tractor industry is arguably far less concentrated in Europe than the
automotive industry is. Six major brands (John Deere, CNHi, AGCO, CLAAS, SDF, ARGO)
compete with many smaller, well-established manufacturers and new entrants (Kubota
and China Farm) for a small-volume market. For the car industry, 4-5 major players lead a
market on which a new car is sold every two seconds.6 In other words, the automotive
industry in Europe sells about as much cars in 3 days and a half, as our industry sales
tractors in a full calendar year.
In line with this, the agricultural machinery industry needs far more time to adapt the
internal vehicle architecture to new standards and protocols than the car industry. It takes
about 10 years for a partial change-over of a tractor. For a car, it takes less than 4 years
for a total change-over of the entire vehicle including all subsystems.
8. The EU’s shift towards an (automotive-based) approach for farm machinery has been harmful for the industry & farmers
Regarding regulation, the structure of the agricultural machinery market in Europe has
been shaped by two major pieces of EU legislation:
1) The competition framework known as the EU Block Exemption Regulation (amended
by Regulation 330/2010). This Regulation gives the farm machinery industry, amongst
others, the freedom to sell via exclusive single-brand dealers (“authorized dealers”).
Since its origin, this Regulation provided the manufacturers with legal certainty for
investing considerable capital assets into their respective dealership networks.
6 http://www.statista.com/statistics/198524/15-leading-passenger-car-manufacturers-worldwide/
15
2) The regulatory framework known as Directive 74/150/EEC.
Until 2003, this Directive conveyed considerable benefits to the farm machinery industry
and farmers in Europe. For the first time, it created the European internal market for
tractors, by establishing a single harmonized type-approval scheme. Notwithstanding the
fact that, between 1974 and 2003, growing product-related EU regulation resulted in a
gradual, steady increase in compliance and thus production costs, the agricultural
machinery industry was able to off-set such additional costs thanks to the benefits
created by the gradual unification of the European tractor market.
Throughout this period, tractors were recognized for what they are: capital goods for
agricultural work. And EU work focused primarily on technical harmonization. This was the
rationale behind the EU’s Working Group on Agricultural Tractors (WGAT). In addition, the
possibility of type-approving tractors nationally was maintained, which was a safeguard
mechanism to keep legislation focused on the specificities of tractors.
In 2005, a sudden paradigm shift in the EU’s regulatory approach towards the agricultural
machinery industry occurred: a switch to treat tractors as automobiles. Thus the idea was
born that EU automobile regulations should, by and large, also apply to tractors –
notwithstanding the fact that the use of the machines and the economies of scale in both
industries are entirely different.
The consequences of this new approach were unexpected and severe. As a result,
production costs have exploded in recent years. In light of strong concerns from the
industry, the European Commission proposed a “simplification” and offered to revise the
brand-new EU framework Directive for tractors (2003/37/EC), claiming that industry would
be the prime beneficiaries of such a reform. However, it quickly became apparent that
not only would all the obligations of Directive 2003/37/EC be retained in the new
framework Regulation (now Regulation 167/2013/EC), but new constraints would be
added above and beyond this.
“In 2005, a sudden paradigm shift in the EU’s
regulatory approach towards the agricultural
machinery industry occurred: a switch to treat
tractors as automobiles.”
“In recent years, EU regulatory compliance
costs have by far exceeded the benefits,
while the European market for
tractors has shrunk dramatically.”
16
As a result, in recent years, EU regulatory compliance costs have by far exceeded the
benefits (the % regulatory costs increase exceeded the productivity gains) and the
European market for tractors has shrunk dramatically. The failure to recognize the
specificities of tractors in the EU’s regulatory approach and the presumed similarities
between tractors and cars is putting Europe’s agricultural machinery industry at risk in the
wake of fiercer global competition (US, Brazil, China). By contrast, elsewhere in the world,
noticeably in the US, a specific regulatory approach for tractors with self-certification has
been maintained.
Many of the EU’s recent regulatory requirements for agricultural machinery industry which
are coming from the automotive industry (often in the form of copy-paste) cannot be
economically amortized in the agricultural machinery sector. Growing evidence is
showing that EU legislation has exerted adverse effects on the industry in many respects:
The transposition of EU rules applicable to the automotive sector without
adaptation to the agricultural machinery sector naturally produces most severe
effects (1/100 amortization capacity than the car sector).
Tractor business in Europe is very cyclical. During a downturn phase, like the present
one, the regulatory costs become unbearable.
In parallel to type approval regulation, related regulation on e.g. diesel engine
emissions has forced the industry to devote up to 80% of R&D investments during
the last 5 years to the reduction of PM and NOx emissions. This has shown to have
had a negative effect on new purchases, slowing down replacement rates and
triggering demand for second-hand equipment. The below graph clearly shows
the tremendous price impact of this Directive on tractors.
The most prominent example in the recent wave of EU regulation is Regulation
167/2013/EC and its Delegated Act 1322/2014 which contains an obligation to provide
non-discriminatory and standardized access to vehicle Repair and Maintenance
Information (RMI) to independent operators. This measure adopted through a technical
regulation – dedicated to type approval – will deeply alter the market’s structure. It will
impact the farm machinery’s dealership viability and the manufacturers’ spare parts
business.
“The EU’s failure to recognize the
specificities of tractors in its regulatory
approach is putting Europe’s
agricultural machinery industry at risk
in the wake of global competition.”
17
Figure 15: Regulatory cost & price increase for tractors in Spain, 2000-2014
Such a major disruption of the legal environment ruling the farm machinery market runs
directly against the spirit of the Block Exemption Regulation No 330/2010 which entitles
the industry, under European antitrust law, to deny supplying components and spare parts
with the respective vehicle repair and maintenance information to non-authorized
dealers or independent operators who do not have to meet qualitative criteria, like
trained sales staff, carrying a full product range, maintaining sufficient inventories and
guaranteeing high quality after-sales.
The RMI delegated act 1322-2014 replicates the regulatory competition framework which
applies to the automotive industry. Again, it is based on the – distorted – assumption that
the tractor dealership network is identical to the car dealership network. Some basic facts
can easily demonstrate the falsehood of this hypothesis:
If we take a look at the inventory turnover of an agricultural equipment dealership,
one will find that the EU average is about 2.5, while it’s somewhere between 5 and
6 for the automotive dealership meaning, in accounting and inventory terms, that
an agricultural machinery dealership is at least two times more expensive to
operate than a car dealership.
As already pointed out, the logistical chain to distribute spare parts and supply
them to farmers is much more complex and burdensome than the logistics chain
for the car industry. Considerably higher investments are needed to make it
function properly. For instance, in the spraying and harvesting seasons, farmers
expect a 24 hours a day maintenance support. Any delay in these operations
could compromise their harvest. Car users do not expect such a service and can
easily find alternative solutions if their vehicles need to be repaired.
Source: ANSEMAT
18
State-of-the-art tractors contain far more different technologies than cars
(Precision Agriculture features such as sensors, auto-steering...). As a result, farm
machinery dealers need to invest significant amount of money for training their
workforce and their customers.
Any EU regulation disrupting the dealers’ business model will necessarily lead to more of
them closing shop and will likely entail considerable quality losses of the services supplied
to farmers. This is one of the most concerning trends which could shape the future of the
farm machinery industry and which regulators need to take into account for future
initiatives that will impact the industry in the upcoming decade.
Conclusion & outlook: how Europe’s farm machinery market could evolve and what EU regulation needs to do to create a supportive, pro-competitive framework Structural trends are difficult to change. They tend to last until the exhaustion of the model
they transform. As shown above, the dramatic fall in the number of farmers in Europe,
their rising average age and the structural changes in farm holdings have had a huge
impact on the farm machinery business. According to the European Commission,
“Barely 6 % of EU-27 holdings are owned by farmers under 35 (around 5 % in the EU-15 and
7 % in the EU-12). Despite the limitations of the statistical information, the number of young
farmers seems to have declined steadily in all countries. Moreover, the prospects for the
future may be even bleaker’ (DGIP, 2012). Young people have become distanced form
the way that our food is produced and with more and more of our populations living in
urban centres finding new ways to attract young people into the agricultural sector is
becoming increasingly difficult”.7
Assuming that this trend will continue the farm machinery industry will have to supply to a
persistently shrinking market. In the next decade the active agricultural population will
significantly diminish in many European countries, especially in the Eastern part of the EU.
Is there any bottom line that the farmers’ population could reach? At this stage, it is
difficult to predict. But examples from the US, Germany and the UK show that it could hit
or fall below the 1% share of the total population. The one question we should ask
ourselves then is how many million farmers the EU will lose in the next decade? And what
will be the impact on the farm machinery market? In all of this, one thing is clear: more
advanced high-tech machines (some of them probably robotic) will be needed to keep
the younger generation in the business and help them to operate ever larger farms in
ever more sustainable and profitable ways.
7 The European Union Explained, 2014.
19
However, in the future, the agricultural machinery manufacturers and their dealers will
most likely be put under even greater economic pressures. Further consolidation is thus
likely to occur. The regulatory idea behind the European Commission’s Delegated Act on
RMI to help new ‘’independent’’ operators (dealers) to enter the market will thus not be
sustained by the highly adverse demographic and general dynamic in the industry. It is a
well-known fact the farm machinery business is a capital-intensive industry with low
margins (in the range 4-5%). In this context, the new RMI rules will at best support free-
riders to corner the most profitable segments of the farm machinery dealer business
threatening their economic equilibrium and accelerate their consolidation.
RMI will likely hit the SME manufacturers of the sector hardest. In their specific case, they
will have to set-up complex and costly IT systems for giving access to their Repair and
Maintenance Information to non-existing independent operators (some of these SMEs
manufacture sell merely a dozen of equipment per year). Those SMEs short of liquidities
will be an easy prey for Asian manufacturers who look for such opportunities to conquer
the EU market.
The acquisition in January 2016 of the Italian manufacturer Goldoni tractors by China
Farm tractors could be seen as a precedent of this new trend driven by the excessive
costs of EU regulatory compliance. In their home-markets, Asian manufacturers do not
have to comply with such strict regulations and are often protected by technical trade
barriers. They can also supply to a vast number of customers. A company like the Indian
tractor manufacturer Mahindra alone produces more tractors (226,000 in 2014) than
tractors being sold on the European market (170,000). Such kinds of companies are
therefore able to hold a great deal of cash but also to amortize the compliance costs of
the market they want to penetrate. In this sense, it will be no surprise if in one or two
decades from now, the EU market will be partly driven by Asian manufacturers who
acquired failed European companies.
To prevent free-riding spare part producers from undermining the delicate economic
equilibrium in the farm machinery dealership networks, to avoid excessive costs being put
on SME manufacturers by the new RMI rules, and to enable European farm machinery
manufacturers – whether small or big – to be commercially successful in Europe and the
world, we need a veritable U-turn in EU regulation and industrial policy.
“In the future, smart farm machines will be needed
to keep young farmers in the business and help
them operate farms in ever more sustainable
ways.”
“We need a veritable U-turn in terms of EU
regulation to ensure European manufacturers of
farm machinery – both big and small – can remain
successful in Europe and beyond.”
20
More specifically, we need EU regulation for farm machines:
to recognize and understand the structural specificities & drivers of the sector;
to abandon the distorted and harmful logic of using an automotive-based
regulatory approach for tractors and farm machines;
to adopt a forward-looking regulatory approach that allows the European farm
machinery industry to define its own technical standards and move towards more
self-certification.
As shown above, the time has come for a major change in the way the farm machinery
industry is being regulated by the EU. Perhaps the recent political events can help to raise
the level of awareness of the profound challenges the industry has to face in Europe. The
agronomic, environmental and societal case for more innovative advanced farm
machines is clearly there: farmers will need them to work their land in more productive,
sustainable and profitable ways and feed a growing world population. EU regulation
should do its best to support this transformative journey in farming and farm machinery in
the years ahead and turn it into a success story for Europe. The industry stands ready to
help in the process.
***
European Agricultural Machinery Industry Association [email protected] www.cema-agri.org
CEMA - the voice of the European Agricultural Machinery Industry
CEMA - www.cema-agri.org - is the European association representing the
agricultural machinery industry. The industry represented by CEMA includes 4,500
manufacturers of agricultural equipment employing directly 135,000 persons and
indirectly in the distribution and service network another 125,000 persons. The
companies are mainly small and medium-sized manufacturers according to the EU
definition and in 2014 had a total turnover of 26 billion euro.
European Agricultural Machinery Industry Association
Boulevard Auguste Reyers, 80 1030 – Brussels BELGIUM [email protected] Tel. +32 2 706 81 73 www.cema-agri.org
