Effect of lower farmgate prices
The recent downgrade in dairy prospects and the subsequent income reduction for Australia’s dairy farmers have a knock on-effect throughout the communities and business that service these markets.
As farmers lament the reduction in their incomes, there is also a devastating effect on the businesses relying on these farmers to make a living.
Farm machinery dealerships in the dairy areas of Australia are bracing themselves for a downturn in sales and activity in their businesses, but these companies are often forgotten in the headlines.
Spare a thought for the local clothing store or ag supplier in towns severely affected by a drop in milk prices at farm gate. These businesses receive little to no support from the Government and their voices are rarely heard in dispatches from farmer lobby groups or local politicians.
An average farm machinery dealer employs 10-20 highly skilled people, needs in excess of $1 million in inventory or loans to cover its stock, and has working capital requirements in excess of $300,000 a month just to keep the doors open.
Contrary to popular belief, machinery dealers run on very tight margins, and their cost of staff have grown over the past few years as skilled workers have bolted for the greener pastures of the mining boom.
When their customers are doing it tough, so are they.
The machinery sector is a highly competitive market and often tractor sales are lost over a few dollars, so the pressure to survive is very high – in fact so high that today we have fewer than 700 dealers across the country, when 20 years ago there were over 2000.
Being a dealer is not for the faint hearted.
In more positive news, the tractor market across the country is holding up thanks predominantly to new tractor sales in New South Wales, Queensland and Western Australia.
The horsepower demand remains high in the above 100hp market, with 14 per cent growth in this segment of the market, compared to the lifestyle market (under 40hp), which is down 16 per cent.
The 40-100hp market is remaining steady, although with the recent news we expect a drop in this segment.
As farmers are looking to reduce input costs such as feed inputs, we are hoping for an uptick in hay equipment during the second half of the year, with farmers seeking to grow as much of their own feed as they can.
The seasonal conditions have taken a turn for the better across the country, which will hopefully help some prospects and keep sales rolling along at a steady pace.
The rain has certainly helped the out-front mower market, which has risen 12 per cent so far this year, and helped offset the lifestyle market for these dealers.
“We are in this together,” is our message. More than ever, local dealers and businesses need as much support from their districts as possible.
Let’s not forget that lower farm gate prices have an effect on the wider community
RICHARD LEWIS is executive director of the Tractor and Machinery Association of Australia. He can be contacted on 0421 847 872 or via email at firstname.lastname@example.org