9 September 2015, 16:25
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“Pause in growth along classic lines”
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German production sales of nearly 7 billion euros expected for 2015
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Low point seems to have been reached
The European agricultural technology industry asserts itself in difficult market environment. “After being on a roll for several years, the international agricultural machinery markets have slowed down substantially”, said VDMA Managing Director Dr. Bernd Scherer at the advance press conference for the world’s largest agricultural technology fair Agritechnica, which will be taking place from 8 to 14 November 2015 in Hanover.
Barriers to trade cause braking marks
Across the industry there is talk of a “pause in growth along classic lines”, which is said to be primarily due to “normal saturation effects, but also to the rather weak revenue situation of farmers”. “In some countries, political instability and a definite lack of reliable financing options are also a worry”, so Scherer. Even clearer braking marks have been left behind by tariff and non-tariff barriers to trade, “as we have been familiar with from Russia for several years, with all their negative consequences”. For 2015 the industry association is forecasting sales from German production of just under 7 billion euro which corresponds to a decline of 10 percent.
Primary production growing continually
The “long-term development in demand” may, however, remain “hardly touched”, so Scherer. After all, he says, primary production, the high yields of which are extremely closely linked to modern agricultural technology, has been showing substantial rates of growth for years thanks to the globally increasing demand for protein-rich nourishment and renewable energy.
“Assuming stable prices, global crop production has increased in value by 56 percent within the last three decades and the slaughter rate by 106 percent”, emphasised Scherer.
Looking towards the future, he said that further significant growth can be expected in the next few years in view of the immense demand in the emerging nations.
Top managers cautiously optimistic
The mood in the industry appears accordingly cautiously optimistic. Although it can be seen from the CEMA Business Barometer, a monthly survey of the umbrella association of the European agricultural technology industry, that the majority of the top managers interviewed are talking about a persistent recession phase, confidence has, however, recently been growing noticeably. The bottom of the recession now seems to have been reached. For example, more than half of those asked scored the current business situation with the school grades “good” or “very good”. Expectations for the next 6 months are also similarly positive. Whereas a third is talking about a stabilisation of the status quo, 28 percent nevertheless see potential for growth. On the other hand, however, 39 percent continue to expect a further fall.
Economic slowdown grips global production
“Seen geographically, the current economic slowdown has gripped virtually the entire global production of agricultural machinery and tractors since last year. We are assuming that the production value for 2015 will fall from 100 to 91 billion euro”, said Scherer. Particularly severe decreases can be seen in North and South America, where production has shrunk in value by around 17 percent. At the other end of the scale, with substantially smaller decreases in production, are the Asian sites, especially China, which overall appears to be stable to slightly declining. Despite an acutely weakening national economy, the country’s agricultural potential continues to remain high. The European production plants for agricultural technology − which continue to form the heavyweight of global production in terms of value − are currently moving in the middle of the scale. An average value of minus 10 percent is being forecast for the European Union this year. Germany, which is roughly at this level is, however, still in an outstanding position in a global comparison. “Anyone who would like to quantify the importance of Germany as an agricultural technology site should bear in mind that we deliver to a good 150 countries, and that the factories here between Marktoberdorf and Buxtehude account for around 8 percent of the global and 25 percent of the European production value”, commented Scherer.
Industry adapts capacities
In a global market environment in which production decreases stabilise over a certain period of time, “strict cost-orientation is virtually inevitably necessary”, continues Scherer. Corresponding adjustments in capacity, including in personnel, had been unavoidable in many places during the past few months, he said. Personnel capacities have been reduced primarily in the area of temporary workers, which currently account for around 7 to 8 percent of the workforce in the agricultural technology industry. “The companies are to a large extent holding onto their core workforces, as after all they and their expertise will be essential for value creation, quality and successful innovation in the next upturn phase.”
Global market development remains mixed
According to Scherer, the economic situation on the global key markets for agricultural technology continues to be mixed. Whereas in the USA a large oversupply of used machinery has built up which, combined with massively falling agricultural revenues, has, he said, become “a downright brake on investment”, China is now operating as “the third most important agricultural technology market in the world” with only slight reductions in comparison with the previous year and a market share of 15 percent. In the CIS states, on the other hand, the talk is of a persistent downwards movement, “although we are seeing a fall of 25 percent for this year”, said Scherer.
As the “global market leader”, he said, the European Union, will on the other hand be able to claim its share of the “international agricultural technology cake” this year as well. Among the large markets in Western Europe it is the United Kingdom that has registered the biggest percentage decrease, particularly as it had still grown in 2014 with an increase of 5 percent. France on the other hand, as the largest European agricultural market and still the most important market country for exports of the German agricultural technology industry, seems to have already crossed the trough, which is why “a slight recovery can be expected this year” emphasised Scherer. In Central Europe, especially in Poland and the Czech Republic, an unusually stable market trend can be observed, which is being fostered by state grants, especially in Poland. The VDMA currently sees a great need for catching up in some Mediterranean countries – most clearly in Italy, where a considerable investment bottleneck built up in the preceding years. In Germany, however, things are continuing to proceed carefully and slowly – planned investment is around 15 percent below the previous year, although this dimension, said Bernd Scherer, “must always be seen in relation to the very high levels of the previous years“.
Source: VDMAConstruction Equipment and Plant Engineering