By Dusty Weis, Association of Equipment Manufacturers

 

Equipment purchasing decisions will be driven more by the bottom line than by brand loyalty, tractors and harvesters will look more like computers, and data will drive productivity more than ever before.

These are just a few of the realities that equipment manufacturers will have to contend with over the next 25 years, according to an AEM research report written by the Context Network.

"We launched this research project in order to examine the broader trends with which our members will have to contend, and to help them better prepare to compete in the marketplace of the future," says Curt Blades, AEM's senior vice president of agriculture services. "It would be to every manufacturer's benefit to sit up and take note of these industry-shaping trends."

The research project synthesized original research and expert interviews to explore the impact of several major trends that are impacting agriculture, and mapped out the challenges and opportunities that manufacturers will face in building the next generation of farm equipment.

“AEM leadership recognizes there are macro trends today across the global marketplace and, in fact, all of society, that will impact its member companies in the future,” says Doug Griffin, principal at the Context Network.

AEM members can SIGN UP for a free webinar on Thursday, July 19 which will explore the first of these trends and its impacts in depth, as well as recommend steps that manufacturers can take to prepare.

According to the AEM and Context report, these three trends will have a significant impact on agriculture over the next 25 years:

 

Changing Farm Structure and Retiring Farmers Selling Land

Over the next 25 years, a massive shift in farm ownership is expected to change the face of American agriculture—and it will be driven in part by the aging demographics of today’s farmers.

“Economics is the primary driver of farm structure change,” Griffin says. “Just as with most other industries, scale drives improvement in margin. Therefore, farms continue to evolve into large operations with improved efficiencies and lower cost.”

But in addition, there are more than two farmers over the age of 65 for every farmer under the age of 45 in the industry today. The average age of farm operators is 58—higher than it’s ever been—and many of these farmers’ children have already gone on to establish their own careers off the farm.

According to Context’s research, the agriculture world is primed for a shift in operation and ownership, as these farmers begin to retire and eventually pass the land on to their children. With little interest in working the land themselves and their own retirements to plan, many of these children will choose to sell their families’ land, leading to a mass increase in corporate farm ownership.

When it comes to equipment purchasing decisions, this means a shift toward bottom line-oriented decision making and less emphasis on brand loyalty. Decisions will be made in a hierarchical organizational structure instead of the owner-operator model manufacturers are used to at this point in time.

As growers continue to increase in size, they will have greater buying power and increased leverage over the equipment manufacturer. Traditional channels will be challenged, and owners will seek out solutions that may cross the lines we see today that separate various segments of the market.

 

 

The Accelerating Adoption of Precision Agriculture Technologies

While precision agriculture technologies are already coming into wide use today, the next 25 years in the industry will determine who the dominant players will be—and the competition is expected to be fierce.

“Not unlike the transition from using horses to using tractors, this latest wave of technology will provide substantial improvements in farming practices,” Griffin says. “Equipment manufacturers will be forced to either innovate and change with the times or become irrelevant in the market. The environment will create opportunities for new players to enter the market and for shifts in positioning to occur among the current players.”

Today’s farmers already have access to software tools that can provide them with real-time field scouting and conditions reports. Sensors and soil sampling enable them to make on-the-spot decisions tied to their bottom line, and a variety of farm information management systems exist that make inputting operational and financial data easy.

Griffin says more than 80 percent of farm operators surveyed by Context are using yield monitors, GPS and soil sampling technologies.

But while AEM’s research with Context finds that farm operators are excited by the gains in productivity precision ag is able to provide them, it also shows they’re frustrated by the multiple sources of information and the inability of different brands of equipment to interface with one another. Ultimately, operators will want a single platform that ties together all aspects of their operation.

Thus, the race is on to create and implement such a platform, with equipment manufacturers competing with one another—and outside disruptors—to be first to market with such a technology. In 2017, an estimated $2 billion was invested in agriculture technology.

As time goes on, Context forecasts that operators will become increasingly dependent on autonomous power units and artificial intelligence. Growers will gravitate toward the versatility offered by smaller machines, and technology in general will have a much shorter half-life than the actual equipment, as growers become more comfortable adapting to the new products and services at their disposal.

 

The Service-Based Economy: a New Sort of Trusted Advisor

With more large, industrial-style farms utilizing a growing array of technological advances to maximize productivity, farmers will have a greater need than ever before for sound advice from a trusted advisor, and equipment manufacturers have a generational opportunity to fill that role.

That’s because the most valued service providers are able to interpret information and provide recommendations with a total enterprise profitability perspective of the operation. Ultimately, the role of “trusted advisor” will reside with whomever the grower shares their data and helps to manage and interpret that data.

“Today’s definition of ‘service’ usually refers to repairs and maintenance of equipment,” Griffin says. “In the future, service will relate to providing complete solutions to customers.”

Smarter, more technologically-advanced equipment in farm fields will position manufacturers to offer the best advice, if they are able to expand their service offerings into the realm of providing complete solutions to agricultural operations. But this will require manufacturers to surmount a new and evolving set of technological hurdles as well.

As technology in agriculture equipment advances in complexity and reliance on software, operators will likely be less capable of servicing and repairing it. They will be looking for flexibility and agility from their equipment suppliers, and fast repairs during high-demand time periods will be absolutely critical.

Additionally, Context’s discussions with agriculture thought leaders revealed a generally-accepted belief that an outside disruptor from the virtual retail sector will attempt to gain a foothold in the agriculture equipment industry, similar to the way that Farmers’ Business Network (FBN) has disrupted the farm inputs business.

Established in 2014, FBN offers farmers an outlet to pool their own knowledge and data about farm practices and performance, and manufacturer-direct pricing on farm inputs. FBN’s sales have grown by leaps and bounds, from $30 million in 2016 to more than $300 million in 2018.

Capitalizing on online price transparency, an FBN-like company could attempt to enter the ag equipment industry with a “price first, service second” business proposition. But if OEMs and dealers are able to incorporate indispensably valuable service into their business models, they will run less risk of losing market share by being priced out by agile, online enterprises.

 

To learn how Context’s report recommends manufacturers should prepare for these disruptive trends, AEM members can SIGN UP for a free webinar on Thursday, July 19 at 12:00 p.m. CT.

Members can also request a copy of the final report by emailing AEM Director of Market Intelligence Benjamin Duyck at bduyck@AEM.org.

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