Focus: Fewer U.S. tractor dealerships raise costs for farmers as sector consolidates
01/09/2022 16:04
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By Bianca Flowers
CHICAGO, Sept 1 (Reuters) - More farm equipment dealers are
going out of business, leaving a handful of companies with
control of a large swathe of the market and greater ability to
set prices for selling and repairing equipment, according to
interviews with farmers, equipment dealers and analysts.
Buyouts of local mom-and-pop dealers have reduced farmers'
options for purchasing machinery and repairing aging equipment.
In Montana, a state the size of Germany, only three Deere &
Co. DE.N dealerships remain compared to around 30 two decades
ago, according to the state Farmers Union. Local barley farmer
Erik Somerfeld said one dealer network dominates all sales and
repairs for rival equipment maker CNH Industrial CNHI.N .
Somerfeld has had to travel out of state to get parts for
his equipment when they aren't in stock at his local dealership
25 miles (40 km) from his home.
"The dealership that's 110 miles away normally has anything
I want at a lower price," Somerfeld said.
Just two dealer groups, Ag-Pro and Titan Machinery TITN.O ,
own the bulk of stores in North America selling farm equipment
made by Deere -- the largest U.S. farm equipment maker -- and
CNH Industrial, according to Ag-Pro and Titan Machinery
websites.
Larger dealers' pursuit of regional dominance began in the
1980s. Merger momentum increased during the COVID-19 pandemic,
when supply chain snarls limited parts and labor available and
smaller dealers were unable to compete with larger rivals, said
John Schmeiser, chief operating officer of the North American
Equipment Dealers Association, a trade group. urn:newsml:reuters.com:*:nL1N2R02J1
Fewer dealers to service millions of acres of farmland means
U.S. farmers are paying more for equipment and gas at a time
they also face higher costs https://www.reuters.com/markets/commodities/off-charts-chemical-shortages-hit-us-farms-2022-06-27/
of seeds, fertilizer, and other crop care chemicals. Increased
costs are threatening their profits and ability to expand
plantings next season at a time of growing concern over global
food security. urn:newsml:reuters.com:*:nL1N2Y32OU
Roughly 65% of farmers in the United States have access to
fewer equipment dealerships than they did five years ago,
according to a survey https://uspirg.org/feature/usp/deere-headlights-ii
conducted in late 2021 by the U.S. Public Interest Research
Group (PIRG) and the National Farmers Union, based on interviews
with 74 farmers.
For Deere, more than 80% of authorized dealer locations are
now part of larger chains, defined as owning seven or more
stores, according to the survey and dealership location data
analyzed by Reuters. CNH and AGCO Corp AGCO.N have a smaller
percentage of their dealerships owned by larger chains -- at 37%
for CNH's Case IH brand and 22% for AGCO as of December 2021.
Deere, best-known for its green tractors that have been the
workhorse of agriculture for decades, CNH, and AGCO declined to
comment on dealership consolidation.
Ag-Pro, Deere's largest privately owned dealer chain, added
59 dealerships to its portfolio through 20 acquisitions since
2017, according to data from the company's website.
Ag-Pro and Titan Machinery also declined to comment.
Farmers say the scarcity of local dealers, on the other
hand, has cost them time and money hauling in machinery.
An oil pressure issue with Tony Lourey's 20-year-old tractor
put him out of commission at the beginning of hay bailing season
last July.
With the only independent repair shop near him estimating a
three-week wait to get the tractor up and running, the Duluth,
Minnesota, farmer ended up driving over 150 miles to a
Wisconsin-based AGCO dealer to purchase a brand-new $75,000
tractor. The delivery fee added another $1,200 to the bill.
After getting the new machine onto his field, the
high-horsepower tractor malfunctioned minutes after he put it
into gear.
"At this point, I'm pulling my hair out," Lourey said.
RIGHT TO REPAIR
At the same time farmers lack bargaining power to get better
purchase prices on equipment due to fewer dealers, they are also
facing higher prices to repair equipment. As the industry
accelerates its adoption of technology, high-tech machinery has
made it nearly impossible for them to fix their own equipment,
or go to independent technicians.
U.S. President Joe Biden's administration has tried to
address the so-called right-to-repair with machinery-makers
through a sweeping executive order signed last summer aimed at
promoting more competition in the economy amid rising inflation,
and manufacturers have made some concessions in response to
lawsuits from consumers.
Until recently, Deere only gave authorized dealers the
gateway to access the complex computerized systems of their
tractors and other machinery. This has translated into a solid
bottom line for its parts and services business. Financial
filings from the Moline-based company showed that annual sales
of parts have increased from $4.5 billion in 2011 to $6.8
billion in 2020.
In March, the company announced that it would make a
diagnostics software tool available to farmers and independent
repair shops that could be purchased online.
Other machinery makers are also raising prices for repairs
after consolidating dealership ownership in an effort to boost
sales, mechanics and farmers said.
An independent technician, who declined to be named and used
to work at a dealership that was bought by Titan Machinery, the
largest dealer chain for CNH Industrial, said he often gets
calls from customers he believes are being overcharged.
For example, he said changing gear fluids on a quadtrac
tractor, a machine used for planting and harvesting in muddy
conditions, should cost around $2,000.
"I would get calls from farmers telling me that Titan has
billed them $12,000," he said.
Titan Machinery did not respond to request for comment.
The pressure from machinery makers for dealers to grow their
market share has increased, meaning further consolidation in the
industry is likely, said Ken Wagner, president of Kansas-based
Heritage Tractor Inc, which sells Deere equipment.
"Deere demands performance from their dealers - it's all
about size and scope now," he said.
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Deere cashes in on parts https://tmsnrt.rs/3B1GqfD
Large farm dealerships dominate https://tmsnrt.rs/3CTW4e6
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(Reporting by Bianca Flowers; Editing by Caroline Stauffer and
Nick Zieminski)
((Bianca.Flowers@thomsonreuters.com;))