SIC 3523
FARM MACHINERY AND EQUIPMENT



This category covers establishments primarily manufacturing farm machinery and equipment, including wheel tractors, for use in the preparation and maintenance of the soil; planting and harvesting of the crop; preparing crops for market on the farm; or for use in performing other farm operations and processes. Included in this industry are establishments primarily engaged in manufacturing commercial mowing and other turf and grounds care equipment. Establishments primarily engaged in manufacturing farm handtools are classified as the Cutlery, Handtools, and General Hardware industries; and those manufacturing garden tractors, lawnmowers, and other lawn and garden equipment are classified in SIC 3524: Lawn and Garden Tractors and Home Lawn and Garden Equipment.

NAICS Code(s)

333111 (Farm Machinery and Equipment Manufacturing)

332323 (Ornamental and Architectural Metal Work Manufacturing)

332212 (Hand and Edge Tool Manufacturing)

333922 (Conveyor and Conveying Equipment Manufacturing)

Industry Snapshot

In 2001 factory shipments of farm equipment (not including sales of consumer lawn mowers) from original equipment manufacturers totaled $6.2 billion. Of that total, harvest machinery and parts accounted for $2.1 billion; planting, seeding, and fertilizing machinery, $986.2 million; haying machinery, $804.8 million; farm dairy machines, sprayers, dusters, elevators, and farm blowers, $787.9 million; and plows, harrows, rollers, pulverizers, cultivators, and weeders, $515.9 million. Commercial equipment for grounds and turf care generated $2.0 billion.

After suffering through ups and downs in the market during the 1990s, the new decade brought its own set of challenges for the industry. Factors affecting the U.S. economy generally also play a significant role in the organization of this industry. Globalization and consolidation have allowed industry leaders to maintain growth or minimize losses in a poor domestic market. Other factors important to the stability of this industry include government subsidies of U.S. farms, relationships with equipment dealers, changing environmental emissions regulations, and the availability of raw materials.

Background and Development

The major expansion period for U.S. agriculture came during the late nineteenth century. A total of 408 million acres had been farmed prior to 1870, and in the next 30 years an additional 431 million acres were newly cultivated. As the scale of U.S. agriculture dramatically increased, so did its complexity, with locally oriented farmers later engaged in an international system of storing, shipping, and selling, engendered by increased mechanization, cash crops, and stock trading in commodities.

At the onset of these developments, the most significant role was played by the largest farming enterprises. Heralding increased mechanization, greater crop specialization, and a trend toward farming on a large scale, the 40,000-acre or more farms were run with military efficiency. The pace of mechanization was so rapid and extended into so many areas of farming technology that in 1860 alone, the U.S. Patent Office issued new patents for corn shellers, corn huskers, corn cultivators, cornshock binders, cornstalk shocking machines, cornstalk cutters, corn cleaners, corn and cob crushers, seed drills, corn harvesters, rotary harrows, corn and cob mills, smut machines, and hundreds of corn planters.

The types of plows used since the earliest development of agriculture proved to be unsuitable in dense, heavy prairie, so new designs were essential. A first step came in the form of an adaptation of Jethro Wood's 1814 iron plow, a "prairie breaker" that was very heavy, clogged easily, and moved slowly, even when pulled by a team of oxen. In 1837, a blacksmith in Grand Detour, Illinois, developed the first "singing plow" by combining a wrought iron moldboard with a steel share scavenged from a broken band saw, enabling a far more thorough and clog-free scouring of the prairie. By the 1850s, this blacksmith was manufacturing approximately 10,000 examples of his invention annually at his mass-production plant in Moline, Illinois.

But better plows alone were not sufficient for all the needs of American farmers during the rapid escalation of agriculture in the late nineteenth century. Other key developments included design improvements for tractors, harrows, corn planters, and combine harvesters.

Though Hart and Parr Charles were responsible for pioneering the gasoline tractor in 1901, most American farmers were unable to afford the new machine until the advent of Henry Ford's Fordson tractor in 1917, priced at $397. A critical new development came seven years later with International Harvester's Farmall tractor, a highly versatile machine due to its innovative addition of removable attachments.

During the nineteenth century, harrows rapidly became stronger and more complex. Before the introduction of the tractor, these had to be dragged by animals. The first designs of hoes and brush harrows were outmoded in the 1840s by the Geddes, a hinged triangular construction of wood with teeth made of iron, which, in turn, was outmoded several decades later by an all iron and steel model. This design was later outmoded by a harrow called the Nishwitz rotary disk harrow, which through rollers or clod-crushers, sifted and tamped down the soil.

The planting of corn was both time-consuming and inaccurate until technological advances permitted the mechanization of the planting and the measuring involved as well. In Galesburg, Illinois in the 1850s, George W. Brown pioneered a semi-mechanized method of corn planting with a horse-drawn vehicle that dropped seed by hand. Next, shoes or "furrow openers" were added to the front of the vehicle for better preparation of the soil, and the seed-dropping mechanism was refined, permitting vehicle operators to divide the tasks of driving and navigating. The latter improvement enabled operators to pay closer attention to where the corn was being dropped.

Developments in combine harvesting technology took a slower and more interrupted course than did those of the other forms of farming equipment. The steam-driven reaping and threshing machines introduced in the 1880s were replaced by the versatility of the Farmall tractor. The Second World War delayed the full implementation of the technological advances marked by Allis Chalmers' All-Crop Harvester of 1936, a gleaner equipped with a special corn-head attachment. With the resumption of peace, the versatile and efficient but expensive combines initially took a back seat to the much cheaper picker-sheller machinery. Only with the proliferation of silos and their efficient storage of vast quantities did the diesel-driven combines' capacity for mass harvesting give them an unbeatable advantage.

Based on the improving health of the farm sector of the U.S. economy, the farm equipment industry also experienced a turnaround in the 1990s. Value of shipments in 1992 bottomed out at $7.2 billion before climbing to $14.0 billion in 1997, with continued increases expected. Between 1996 and 1997, value of shipments increased by 7.5 percent. Tractor sales for the first three quarters of 1998 were 13 percent higher than the same period in 1997; increases in combine sales were particularly dramatic—41 percent between the first five months of 1998 and the same period in 1997.

The industry turned another corner in 1999, as sales of farm equipment appeared to have reached a maximum. According to a 1999 survey by the Equipment Manufacturers Institute (EMI), sales of most farm implements were down in early 1999 after the 1998 highs, and were expected to remain depressed in the year 2000. A striking example of the saturated market was reflected in the sales of self-propelled combines, which were expected to fall by at least 36 percent in 1999 and an additional 1.8 percent in 2000. Sales of tractors were expected to be down 5 percent compared to 1998, and sales of rectangular balers, forage harvesters, grinder mixers, manure spreaders, windrowers/swathers, field cultivators, chisel plows, and disk harrows were also expected to be soft in 1999 and 2000. EMI predicted positive numbers for farm loaders, with a 0.7 percent increase in 1999 and 5.4 percent increase in 2000, and for dairy mechanization equipment and milking machines, with an increase of 10 percent for 1999. Reports from major manufacturers Deere and Co. and Case Corporation forecasted a 35 percent drop in North American demand for large-scale agricultural equipment for 1999, and an 8 to 10 percent drop globally. According to Implement and Tractor , "Initial forecasts for [2000] indicate that retail demand for farm machinery could be 5 to 10 percent lower than in 1999."

A study released in 1999 by the Food and Agricultural Policy Research Institute and reported in Implement and Tractor suggested that while the next three years would reflect decreasing demand and increased supply for farm products, the overall outlook for the first decade of the twenty-first century was positive.

At the same time, while the number of farms has been decreasing for several years, the size of those farms has been increasing, further pushing the market for farm machinery. In 1999, 80 percent of farms had fewer than 500 acres, but those farms produced only 20 percent of total U.S. output, making larger corporate farm businesses the most important market for makers of farm equipment. The Farm Bureau predicted that without federal aid, as many as 30 percent of small farmers in some states would be forced to shut down. In order to save family farms, the Farm Bureau in 1999 lobbied Congress to pass its AgRecovery Action Plan, which called for $9 billion in aid. The aid package included $4 billion for direct assistance, $2 billion for export initiatives, and $2 billion for reform and expansion of the federally supported risk management safety net. The bureau also requested $5 billion to help farmers with the cost of complying with federal regulations. The plan would help reverse the effects of the 1996 Freedom to Farm Act, which cut federal farm subsidies through the year 2002.

Forecasting to 2005, the U.S. Department of Labor saw positive signs for the agricultural equipment industry, noting that farmers had generally recovered from the losses and excessive debts incurred during the 1980s. Farmers were expected to replace machinery that they had been unable to replace when times were hardest, and to invest in new machinery, taking advantage of improvements brought about by advanced technology. Indicative of this trend was 1997's 4 percent first quarter increase in non-real estate loans. In addition, farm inputs, equipment, and machinery accounted for 50 percent of the increase in farm loan value in 1996, which rose to $2.3 billion, up 3.2 percent from 1995.

During the late 1990s, federal legislation continued to play a key role in the farm and farm equipment industry. A major development occurred with the passage of the Federal Agriculture Improvement and Reform Act of 1996. The act ended the federal requirement that farmers leave idle a portion of their land in order to receive government income support, meaning that farmers became free to plant on additional land without losing an important source of income—both positive indicators for farm equipment manufacturers.

In 1999, farm equipment manufacturers filed suit to protest a law regulating producers' relationships with dealers. The Business Journal-Milwaukee reported that "the law makes it harder for manufacturers to terminate a dealership contract if the dealer changes ownership or management. In addition, it prevents manufacturers from canceling a contract if the dealer refuses pay for national advertising initiatives or refuses to accept delivery of certain equipment." Emmett Barker, president of the Equipment Manufacturers Institute, said that such laws likely resulted from the efforts of farm equipment makers to reduce the number of dealers representing them, another cost-cutting measure in a soft market.

Other government restrictions on the farm equipment industry came from the Environmental Protection Agency (EPA). The EPA standards concerning exhaust emissions were designed to take effect for engines of over 750 horsepower in the year 2000, for those of 50 to 100 horsepower in 1998, for those of 100 to 175 horsepower in 1997, and for those of 175 to 750 horsepower in 1996. According to Implement and Tractor , clean air legislation creating new diesel fuel standards was seen as making viable an otherwise too expensive diesel blend containing soy oil, and leading to a decline in carbon monoxide and hydrocarbon emissions. From the point of view of farmers, this cleaner fuel was not believed to have consequences for torque output, even if it did lead to small reductions in horsepower.

Current Conditions

According to the Association of Equipment Manufacturers (AEM) U.S. retail sales of farm tractors and self-propelled combines are forecast to grow during 2003. Whereas sales of milking machines are expected to decline by 2.6 percent during 2003, sales of parts for farmstead-type equipment should rise slightly, by less than 1 percent. Overall the industry remained flat during the first years of the 2000s due to the generally weak economic conditions of farming. The beginning signs of recovery are anticipated for late 2003 and into 2004. Emmet Barker, co-president of the AEM, told Implement and Tractor in 2002: "Our membership polls of industry conditions show that while these are still very challenging times for equipment manufacturers, there is a growing feeling that we have about reached bottom and will start to see some improvement later in the year." Although the economy did not rebound during 2002 as anticipated, the industry is expected to benefit from a gradual uptrend in the economy during 2004.

Industry Leaders

This industry is highly consolidated, with four to five companies manufacturing most of the products. In fiscal 2002, Deere and Co. of Moline, Illinois had sales of over $13.9 billion, with 43,000 employees. Not only did Deere lead the farm machinery industry in the United States, but it also led worldwide. With factories in nine countries, Deere distributed its products to about 120 countries around the world.

Deere has been the industry leader for years, but the company has faced some perilous challenges in the last decade. Deere posted a net loss of $902 million in 1993, but turned the business around within a year to record its most profitable fiscal year ever. Acquisitions were a part of Deere's growth strategy. In late 1999, for example, Deere bought up 49 percent of Cameco Industries, a farm equipment manufacturer with sales of $100 million the previous year. The year before, Deere rolled out a program aimed at maintaining a steady supply of steel, whatever the market conditions. The company hoped to convince its parts suppliers to rely on only two distributors for their steel needs: Earle M. Jorgensen Co. and Olympic Steel Inc. Although company spokesmen projected the program would take several years to be implemented, its benefits would include cost reductions for both parts suppliers and for Deere, as well as consistent quality and availability of the industry's most important raw material.

Deere was hard hit by the downturn of the market in 1999, posting an operating loss of $8 million for the third quarter of its fiscal year, compared with a $282 million operating profit for the same period in 1998. Reacting to declines in demand, Deere's agricultural equipment division began production shutdowns and a voluntary earlyretirement program. In fiscal 2002 net income totaled $319 million.

The second major company in the industry was CNH Global (formerly New Holland). Although the company is based in The Netherlands, it has significant business investments in the United States, including 13 production plants. CNH's prominence resulted in part from its purchase of former industry leader Case Corp. In 1998, Case Corp. of Racine, Wisconsin, ranked as North America's second largest farm machinery operation and as the world's largest small-and medium-size construction equipment manufacturer. The company posted 1998 sales of $6.1 billion, with 17,700 employees. In second-quarter 1999, however, Case announced a 71 percent drop in net income, the result of "weak demand for big agricultural equipment and unfavorable foreign currency exchange rates," according to Implement and Tractor.

The negative numbers also reflected Case's planned merger. CNH did not suffer as much from the downturn in the market, posting second quarter net revenues of $1.6 billion, compared to $1.7 billion for the same period in 1998. Although CNH shut down its Nebraska plant and cut production of some equipment by up to 17 percent, it also spent aggressively toward future growth, with a $13 million plant renovation project, and acquisitions of Case and Orenstein & Koppel. As of October 1999, stock prices for both companies remained strong and growing. The merger was complete November 12, 1999, although a press release issued by Case confirmed that "the multiple brands and corresponding distribution networks of both the Case and New Holland organizations will be maintained in the marketplace." CNH reported a net loss of $426 million on revenues of $9.3 billion in 2002.

AGCO Corp., based in Duluth, Georgia, ranked third in the industry in 2002 with $2.9 billion in sales. AGCO marketed its diversified agricultural products worldwide and employed 11,000 people. Under the guidance and leadership of CEO Robert J. Ratliff, AGCO became the Cinderella of the farm machinery industry. Implement and Tractor noted that Ratliff transformed a relatively small and unprofitable $200 million company into a $2 billion industry leader. Ratliff launched the changeover by expanding the company's narrow product line, thereby increasing its worldwide tractor market share to 20 percent. In fact, by 1994 AGCO dominated the tractor market outside the United States. To help build and reinforce the AGCO empire, Ratliff purchased the domestic and international operations of Massey-Ferguson in 1993 and 1994, respectively.

To cope with the disappointment of the market's late 1998 downturn, AGCO implemented extensive costcutting measures. The firm cut 1,400 jobs in the United States and laid off hundreds more workers, closing plants in Missouri, Ohio, Texas, and Minnesota. Only the Hesston, Kansas, production facility was slated to remain open and functioning. The company released a statement saying it expected 1999 earnings to reflect a 75 percent decrease from 1998 earnings, and a buy-out of the company was rumored in the stock market. As of late 1999, AGCO's stock was climbing rapidly, doubling from $6 per share to $12 per share between March and August.

America and the World

Throughout the 1990s, exports of farm machinery and equipment have out-valued imports every year except 1994. The value of exports increased over 21 percent between 1996 and 1997, and although it decreased 5 percent the next year, between 1998 and 1999 that value was expected to rebound, making the 1999 value of exports almost 20 percent higher than in 1996. Growth of exports between 1992 and 1996 was 15 percent, while imports increased by just over 10 percent in that period.

According to the WEFA Industry Monitor , the following countries were the top export markets for this industry: Canada, with a 25 to 30 percent share; Mexico, with 8 to 10 percent; Australia, with 6 to 7 percent; Germany, with 5 percent; France, with 3 to 5 percent; and the United Kingdom, with 3 to 5 percent. Countries leading imports into the United States included Canada, Germany, Japan, and the United Kingdom.

Seeking new markets was a crucial strategy in increasing exports. According to the U.S. Department of Agriculture, members of the Commonwealth of Independent States, such as Ukraine, could provide U.S. manufacturers with a new market for their farm machinery. The country's slow transition to a market economy and the privatization of agriculture has forced Ukrainians to seek farm equipment and other agricultural products elsewhere. In 1996, Ukraine purchased Deere combines for $187 million, the company's largest sale ever. Furthermore, Pakistan reported that it would increase its importation of U.S. tractors from 22,000 to 25,000 from 1995 to 1998. The Pakistani government drove this increase by urging the cultivation of more of the country's 79 million acres of arable land to meet agricultural consumption requirements. As of 1996, Pakistan cultivated only 50 million acres of its arable land.

Industry leaders sought to increase their footprint abroad through acquisitions, joint ventures, and contract manufacturing. AGCO purchased Xaver Fendt GmbH & Co., the German manufacturer of the Fendt tractor, making AGCO number one in Germany and number two in France, when ranked by market share. Deere held contracts with companies in Italy, Spain, France, and the Czech Republic, enabling them to reach markets in Latin America, Australia, the Pacific Rim, South Africa, and South America. In late 1999, Deere announced a joint venture with the Hattat Group of Turkey for the production of tractors. Case bought its way into a majority stake in Austrian equipment manufacturer Steyr, providing the company entry into Eastern European markets.

As in many sectors of the U.S. manufacturing industry, the Asian economic crisis of the late 1990s hit the export market hard. Half of the United States' agricultural exports went to Pacific Rim countries before the impact of the crisis, including 40 percent of U.S. crops. The depreciation of foreign currency was another factor in the fall of Asian economies. For example, the depreciation of the Japanese yen had the effect of increasing the price of U.S.-made products by 20 percent. Results of a 1999 survey reported in Implement and Tractor showed almost 75 percent of farm equipment dealers reporting a downturn in business, and among those the amount of the decrease averaged close to 20 percent. The slump in Asia was expected to last until the year 2000 or even 2003.

Research and Technology

The industry has made some technological breakthroughs that can substantially reduce producers' dependence on manual laborers. In 1995, Automated Harvesting Systems developed a pepper picker for harvesting delicate pepper varieties without damaging the vegetables. This diesel-powered harvester includes a liquid-cooled diesel engine and rated 86.9 horsepower at 2200 rpm, according to Diesel Progress Engines and Drives. The pepper picker has the potential of harvesting as much as 150 manual pickers, which would save farmers considerable labor costs. In addition, The Robotics Consortium is developing a robotic harvester that uses imaging sensors and intelligent motion control, according to Design News. The machine has been tested on alfalfa fields with success, marking a new frontier in farm machine design.

Further Reading

"AEM Reports Mixed Growth for Agricultural Equipment Sales." Feedstuffs , 17 February 2003, 19.

"Agricultural Machinery Exports Rise but Tractors Fall." Arable Farming , 25 March 2003, 34.

"Asian Crisis Has Hurt Dealers." Implement and Tractor , March 1999.

"Case Corporation and New Holland Complete Merger," Case Corporation Web Site , 12 November, 1999. Available from http://www.casecorp.com .

"Deere Enters Tractor Joint Venture in Turkey." Diesel Progress North American Edition , October 1999.

"FAPRI: Despite Bleak Spots Ahead, 10 Year Outlook is Bright." Implement and Tractor , May 1999.

"Farm Bureau Seeks Emergency Farm Relief." Implement and Tractor , July 1999.

"Farm Machinery Sales in 2003." The Kiplinger Agricultural Letter , 9 August 2002.

Gallun, Alby. "Case, Farm Equipment Makers Sue Over South Dakota Law." The Business Journal-Milwaukee , 27 August 1999.

"Machinery." Institutional Investor , October 1999.

McGrath, Courtney, and Kathy Jones. "Harvesting a Nice Niche." Kiplinger's Personal Finance Magazine , October 2001, 68.

"More 'Adjustments' to Poor Farm Economy." Implement and Tractor , July 1999.

"North American Mid-Year Sales Review and Outlook." Implement and Tractor , July 1999.

Slania, John T. "New Emissions Rules Elicit Gasps." Crain's Chicago Business , 28 April 2003, 4.

"There is Plenty of Agricultural Equipment for Sale Since Demand Continues to be 'Stubbornly Weak."' Purchasing , 6 March 2003, 8.

U.S. Census Bureau. "Farm Machinery and Lawn and Garden Equipment: 2001." Current Industrial Reports , October 2002. Available from http://www.census.gov .

Van Voorhis, Bob, Jr. "The Sun Will Come Out Tomorrow … Or the Next Day." Implement and Tractor , March 2002, 14-15.

Walter, John, Betsy Freese, and Lisa Foust Prater. "Tools That Rule." Successful Farming , February 2003, 27-34.



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