Equipment makers take steps to solidify supply chain

Agricultural machinery companies around the world are reducing their supply chain risk by finding multiple suppliers for key components and bringing some of their manufacturing back to their home countries.

Agrievolution Alliance, a coalition of 13 agricultural machinery trade associations, presented an update on the global market at Agritechnica, the global farm machinery show recently held in Hannover, Germany.

Why it matters: Equipment manufacturers had difficulty acquiring parts and inventory during the COVID-19 pandemic and have learned some lessons from that experience.

Alliance secretary general Charlie O’Brien said that 83 per cent of respondents to a recent survey said they were finding multiple suppliers, especially for key components.

Disruptions of global supply chains for agriculture equipment during the COVID-19 pandemic had some farmers waiting weeks or months to get parts and the manufacturing of equipment slowed. In some case, manufacturing stopped because of a lack of critical parts.

“Instead of one key supplier for one component, we may have multiple ones, especially if it is a key component overall,” says O’Brien.

The need to secure more supply also means that more inventory is being kept in-house by the equipment makers.

“There’s a hybrid now. Instead of having just-in-time manufacturing, now it’s changing to instead of just in time, just in case. So just in case, we’re going to have a little more inventory in our factories overall,” says O’Brien.

Just-in-time management of manufacturing means a supplier delivered the parts shortly before they were needed in the manufacturing process, so that manufacturers didn’t need to invest in as much inventory or places to store that inventory. For key components, companies will not have more on hand.

Equipment companies are also bringing more offshore agriculture manufacturing closer to home.

An Agrievolution survey showed that 67 per cent of companies were actively moving some of their operations back to their home countries. That action too is a result of the COVID-19 pandemic and supply chain challenges.

All of these trends will build more cost into the system for manufacturers and those costs will be passed downstream to retailers and farmers.

On the positive side, O’Brien says there should be less downtime for manufacturers. That should create a more reliable supply for farmers.

Global trends

Global demand for agriculture machinery varies, driven by local geopolitical challenges as well as weather.

“The agricultural machinery market in key global markets is facing numerous challenges, including high input costs, extreme weather events and economic uncertainty,” says Agrievolution Alliance chair Ignacio Ruiz.

The Russian invasion of Ukraine, which involves two large commodity exporters, is challenging global food and equipment flows and demand.

Tractor manufacturing in Russia decreased by 3.5 per cent in the January to August period from 2022 to 2023. Combine manufacturing, however, rose 59 per cent.

In North America, high input costs and an expected decline in the price of commodity crops will weigh on net farm income. In the United States, low water levels in the Mississippi River because of drought will affect the ability to move crops and the lack of a Farm Bill will create uncertainty.