Agricultural Machinery Manufacturing
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Industry Overview
The US agricultural machinery manufacturing industry includes about 1,100 companies with combined annual revenue of about $24 billion. Major companies include Deere, AGCO, Alamo Group, and Great Plains Manufacturing. The industry is highly concentrated: the 50 largest companies generate more than 80 percent of revenue.
Worldwide, the agricultural machinery manufacturing industry generates about $100 billion in revenue, according to Freedonia Group. Europe, the US, and China are the largest markets. Major agricultural equipment manufacturers based outside the US include CNH Global (the Netherlands); Kubota (Japan); Claas KGaA (Germany); and YTO Group and Shifeng Group (China).
Competitive Landscape
Demand for agricultural machinery is driven by farm income and crop production projections for the next season and can vary highly year to year. The profitability of individual companies depends on the volume of products sold, since many manufacturing costs are fixed. Big companies have large economies of scale, especially in manufacturing tractors and combines. Small companies can be successful by making specialized equipment, especially tractor attachments. The industry is capital-intensive: annual revenue per employee is about $420,000.
Imports of agricultural equipment, primarily from countries such as Japan, Canada, China, Germany, and Mexico, make up about 30 percent of the US market. Exports account for about 30 percent of US production. Major export markets include Canada, Mexico, and Australia.
Products, Operations & Technology
Major products are tractors, self-propelled harvesting combines, tractor attachments, and other equipment used for crop production and farm animal management.
Large companies, such as Deere, AGCO, and CNH, produce a full array of products, while smaller companies generally make a single product line. Production of diesel engines is the major separator between large and small companies, because of the large amounts of capital and expertise required. Large companies have highly automated production lines and make products that can be mass-produced. Manufacturing at the low end consists of assembling parts, bolting, welding, and painting.
Steel is a major raw material in production, and steel prices can influence end product prices. Weight is not a major concern in tractor and implement design. In fact, weights are commonly placed on the front end of tractors to balance equipment on three point hitches on the rear. Because of the ruggedness requirements of farm implements, plastics aren't used extensively. Field maintainability requirements generally preclude use of aluminum, which also requires specialized equipment and expertise for welding.
Expertise in diesel engine technology is critical to manufacturers as products evolve to meet new environmental requirements for off-road diesels. Machinery innovations and integration of advanced technology based on GPS technology enable farmers to better control costs and improve yields. Newer tractors, sprayers, and combines are equipped with systems that allow automated steering under computer control using GPS. New technology allows multiple machines to be operated simultaneously from a single control and monitoring station. To achieve the extreme accuracy required for strip-till fertilizing and seeding, agribusinesses and equipment distributors are collaborating to construct tower networks using real-time kinematic (RTK) technology. The systems are so accurate that repeated planting, spraying, and harvesting is possible in tracks that vary only by centimeters.
