Italian agricultural machinery market: reasons behind the crisis

Over the past five years the Italian agricultural machinery market has been subjected to a decline of 30% and is still a cause for worry when compared to sales trends in such countries as Germany and France where gains are reported. A survey conducted by Nomisma for FederUnacoma based on past data and interviews carried out on a sample of 800 agricultural enterprises has drawn a focus on the reasons behind this trend. Uncertainty on the future of farms, increasing recourse to contractors and the retrofitting of machinery already in farm inventories are among the factors putting the brake on the acquisition of new machinery.

The fact that the Italian agricultural machinery market has been suffering for a number of years is certainly not new. Though the country ranks as the third most important market for tractor sales in Europe, the distinguishing trend runs counter to those in Germany and France, the two countries reporting the largest registrations of agricultural machinery in the European Union. While the decline in Italy has taken on worrisome features which are almost structural, seen in the 30% drop in registrations over the past five years, on the other hand Germany and France have shown recovery in the wake of reductions they shared in 2010.

Tracing the decline to factors which are purely economic and due to the crisis underway is certainly simplistic as well as misleading. For this reason, Nomisma, named by FederUnacoma, the federation of agricultural machinery manufacturers, has completed a study aimed at pinpointing the reasons behind this market plunge.

Research was carried out on two fronts: on one hand, desk analyses of data taken in a census of farming enterprises including changes in production structures and recourse to contractors over the past ten years and, on the other, field analyses of a direct investigation conducted on a sample of some 800 farming enterprises to gain an understanding the reasons for the drop in registrations and, at the same time, learn intentions regarding purchases in future.

The results above all painted a picture of the strong evolution of the production structures of Italian agriculture in which the steep decrease in the number of small farms has been flanked by an increase in the use of contractors involving not only smaller farms but those on larger scales. In general, more than one-third of Italian farms call in contractors for a number of days averaging out at 7.5 compared to 3.8 ten years ago.

A breakdown of this commitment according to the sales category of the farm, measured as Standard Output, shows that the greatest variations are among the biggest farms with sales of more than 100,000 euro. For this category, recourse to contractors came to an average of 19.5 days compared to 11.3 days in 2000 for an increase of 73% whereas the variation for small farms with up to 25,000 euro in sales came to an increase of 67%.

In other words, these few but complete data pointed to the trend of farmers to make great use of contractors as a practice which, unlike in the past, involves not only small farms for which the purchase of agricultural machinery is not economic in relation to the size of cropland and the real need for work operations but also the increasing sector of medium and big farms.

Though these numbers provide the first plausible but complete response to the shrinking sales of agricultural machinery in Italy it becomes equally timely to more thoroughly investigate the willingness of these enterprises to come to terms with acquisitions over the past five years, in the depth of the crisis, as well as in the future, in the coming three years.

For this purpose, Nomisma conducted a survey on a reasonable sample of nearly 800 farms, representative and spread out over national territory. The first response which confirmed the current market trend came from the number of farms declaring their purchases of agricultural machine over the past five years. This percentage came to only 28%. In relation to financing, 56% of the acquisitions came from the farm's own funds, for another 17% banks were turned to and the European Union Regional Rural Development Programs were tapped for 16% of the purchases.

On the other hand, those not making purchases, the remaining 72% of the farms interviewed, declared they had avoided doing so by extending the life of machinery through repairs made, 65% of them, or by using their machinery in more efficient ways, 50.2%, or by calling in contractors, 49.9%. This approach is fully in line with the problems some national agricultural sectors have been forced to face in these recent times.

In fact, in response to the question of what drove farms to reduce spending on agricultural machinery, many, 28% of them, said they did not have the financial resources required for making the investment.

Savings, yes, but at what price? One result of this parsimonious behaviour is the obsolescence of the Italian agricultural machinery inventory and thus less efficiency and safety. Though difficult to evaluate, one indication brought to light by the survey is that only 23% of the machines in the inventories of the farms interviewed were less than ten years of age.

Unfortunately the outlook for the future does not include hopes for an exit from the current crisis. Only 13% of these enterprises showed intentions to purchase new agricultural machinery and most of these confirmed their desire to do so through the support from the EU Rural Development Programs which, with the coming 2014-2020 round, will provide resources greater than those in the current programs by plus 1.4% coming to a total overall of 10.4 billion euro.

These intentions look like one of the positive signals for betting on the recovery of the Italian agricultural machinery market. In fact, though Italy can count on an increase under Pillar II, Italian producers will have to take a complete revolution into account as regards the allocations of direct payments accompanied by a reduction in the national total.

In other words, thanks to the convergence of assistance per hectare by 2019 many farmers will have to revise their budgets according to direct payments which are sharply reduced, cut in half for some production chains like those for rice, olives, industrial tomatoes and beef cattle. This change will carry the risk of further worsening the likelihood of Italian farmers purchasing agricultural machinery.