Western Canada’s farm machinery makers are closely watching how buyers in key export markets respond to a sluggish global economy and difficult credit conditions, particularly in Eastern Europe and Russia.
Jerry Engel, president of the Agricultural Manufacturers of Canada, said export sales of Canadian-made air tanks, seeders, tillage equipment and swathers have been steady.
Manufacturers are generally happy with the pace of sales, but economic conditions have dampened deals in some regions and most have adjusted expectations in key overseas markets.
Steady domestic sales have helped offset a reduction in exports, he added.
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“I think sales volumes have decreased slightly from last year but keep in mind that last year was an exceptional year for all agricultural manufacturers,” Engel said.
“Sales probably won’t be as high as they were last year but they should still be above average. Despite the economic troubles, everyone still has to eat. Grain prices aren’t too bad right now, so that’s encouraging. Steel prices seem to be stable again … and the value of the Canadian dollar is at a level (that’s conducive to export sales).”
Engel said farmers, at home and abroad, have deferred spending on new machinery but if grain prices hold steady and farmers bring home a good crop, spending will resume.
Despite a generally positive mood among farm implement manufacturers, conditions in some export markets have worsened.
Don Henry, chief operating officer with Morris Industries, said export sales of the company’s tillage and seeding machines had risen steadily in Eastern Europe but the onset of the global recession late last year took a bite out of the company’s expectations.
“Unfortunately, like a lot of manufacturers, we had a substantial number of orders from Eastern Europe that ended up being cancelled and these were orders with contracts and a very strong cash deposit,” he said.
“Basically, when it was time for us to ship our products, our distributers were saying, ‘don’t send it. We don’t have the finances to get it through the customs area.’ “
Henry said economic conditions, including high interest rates for borrowers, poor access to investment capital, protectionist trade policies and restrictions on government spending, have thrown a hurdle in front of the Canadian manufacturing sector.
In Russia, for example, the government has imposed a 15 percent import tax on combines and harvest machines, a move designed to protect domestic manufacturers.
Soyuzagromash, Russia’s largest farm implement manufacturer, told the Moscow Times newspaper recently that an expansion of the import duty to include tillage units, air seeders, grain handling equipment and other farm machines would boost output of domestically manufactured farm implements by 35 percent.
Bloomberg News has reported that Russia’s central bank is offering preferential interest rates to Russian farmers who buy domestic products.
Russian farmers bought about $5.5 billion worth of farm equipment in 2008, about 65 percent of which was manufactured abroad.
“The Eastern European market is down substantially from where it was last year,” Henry said.
“That’s unfortunate because the appetite in that part of the world for western Canadian made farm equipment is very strong. The end user customer there has a very strong desire for our products but unfortunately, at this time, they just don’t have the credit basis to be able to buy it.”
Henry said many Canadian manufacturers are still unclear on whether the Russian import duty is applied only to combines and swathers or to a wider range of implements.
“There seems to be a lot of confusion over the basis of those duties,” he said.
In Ukraine, another emerging market for Canadian manufacturers, government spending on agricultural programs is expected to be cut in half this year, according to a recent report filed by the U.S. agricultural attache in Kiev.
APK-Inform, a leading commodity analysis group in Ukraine, said tightening credit markets could have a significant impact on large purchases, including machinery.
Harry Harms, manager of international sales for Westeel, said export sales of corrugated steel bins and grain storage accessories into Ukraine, Russia and other parts of Eastern Europe are slower this year than the company expected.
Nonetheless, the Winnipeg based manufacturer still expects to match last year’s export numbers.
Harms said sales of smaller, farm-sized storage units, mostly to Australia and Europe, have not declined significantly.
“The area that we have definitely seen an impact on is the commercial market,” Harms said. “This would be things like (large storage units for) flour mills, feed mills, country elevator gathering points and very large farm enterprises (in) … places like Russia and Ukraine.”
“The amount of quoting that we have done for 2009 is still higher than 2008 so there is a lot of planning being done and there are a lot of projects on the go …. If the economic situation improves at all and credit becomes a little bit more available in these countries, then the second half of 2009 still has good potential.”
Harms said Westeel is also seeking clarification on Russia’s new import duties.
The Russian market holds considerable potential for Westeel, especially for sales of large, commercial-sized storage units that hold 2,000 tonnes or more.
Tim Marshall, a senior director with the Saskatchewan Trade and Export Partnership, said Canadian industry should have a clearer understanding of the Russian import duties after Canadian trade officials, led by federal international trade minister Stockwell Day, meet with Russian counterparts in Moscow June 22-23.
