Industry insight The agricultural machinery industry in 2019
At the moment, forecasting the future economic situation in the Polish sector of ag-ricultural technology resembles reading tea leaves. The only thing which is certain is that within this industry there is no certainty regarding the volume of orders for subsequent quarters and legal and financial conditions for carrying out business activities. This had a clear impact upon the entrepreneurs’ moods, observed by the Polish Chamber of Commerce for Agricultural Machinery and Devices (PIGMIUR) in the final months of 2018.
Farmers are more likely to invest in the mechanization of agricultural works when there are more favourable relationships between the prices of agricultural produce and slaughter animals and the purchase costs of agricultural production products (machinery and tools, fertilizers, pesticides, mediums of energy, building materials). However, as it emerges from the data of the Institute of Agricultural Economics and Food Economy (IERiGŻ), the change of prices, which took place in that regard during the first nine months of 2018, were clearly un-favourable for agricultural producers. Prices of the so-called ‘purchase basket’ (including grains, potatoes, pork and beef livestock, poultry and milk) grew by 1.2 % within that period, whilst the prices of agricultural production products increased, on average, by 3.4 %. Conse-quently, the cumulated price scissors indicator in agriculture was 97.9 points in September 2018; hence it significantly worsened compared to the previous year when it was 103.5 points.
Demand for agricultural technology is also dependent on the volume of previous purchases of machinery and devices. Despite the fact that since 2012 the number of tractors registered each year has been systematically decreasing, falling from the record level of 19.3 thousand tractors to 10.7 thousand in 2017, during that period, the total number of such machines which ended up in the Polish countryside was 80 thousand (including 19.7 thousand manufactured domestically). According to some assessments, investments carried out over the last 5-6 years, to a large extent financed with the use of EU funds (Rural Development Programme – RDP) more or less fulfilled the needs of our farmers for the agriculture mechanization products, especially given the fact that in Poland machinery is usually utilized for long periods, often for over 20 years.
In the Polish conditions, a very important factor influencing farmers’ decisions concerning the purchase of machinery and devices, are the opportunities for financing their investments, especially access to EU funds. However, the start-up of RDP 2014-2020 lasted very long and as a consequence of that, after 4 years of the programme’s implementation, farmers received the total of PLN 12 billion, compared to the previous edition of RDP (2007-2013), the payments which covered a similar period were much greater and totalled PLN 20 billion. A slower flow of EU support means that some farmers – due to financial barriers – prefer to delay large purchases of machinery. As a rule, in situations of periodic difficulties with access to RDP funds, there is also an increased interest in purchasing second-hand machinery originating from the West.
No fundamental change
All of the above factors impact the domestic demand for agricultural production machinery and devices. It is true that in 2017 the market managed to partially recover following the decrease in 2016 and in case of some kinds of agricultural machinery (field seeders, aerators and cultivators, ploughs) a growth in production was recorded, quite significant in some cases. However, this does not change the fundamental fact that manufacturers of agricultural machinery do not fully utilize their production generating capacity, simply finding it difficult to sell their produce. This, for example, applies to tractors, the domestic production of which during the first ten months of 2018 fell compared to the same period the year before by as much as 35 %. And that was in the situation when the number of new registered tractors grew by 6 % over the same period.
Export maintains positive
A factor which mitigates the consequences of low domestic demand for agricultural technology in relation to the production generating capacity is the export of agricultural, gar-den and forest machinery which has remained at good level for the last few years (approx. EUR 800 million). In this type of exchange, Poland maintains a positive balance. Even though it turned out not to be so big within the period from 2015 to 2016 (EUR 58-74 million), after the first nine months of 2017 it amounted to EUR 206 million. As the agricultural machinery manufactured in Poland is very positively received on many non-European markets, further export opportunities do exist. The scale of advantages in the international exchange shall also be dependent upon the extent to which it is possible to improve the relationships of transac-tion prices in import and export which display certain deficiencies concerning the competi-tiveness of the Polish offer.