Following the cheering news of an increase in sales of tractors in Ireland last month, the story from across the ocean is not quite so uplifting.

The latest figures released by the Association of Equipment Manufactures (AEM), a trade organisation in the United States, which covers both the agricultural and construction industries, sales of farm tractors declined by 12.8% in comparison with the previous September.

Small tractors suffer most

The decline was most marked in the lower horsepower (hp) category of less than 40hp which recorded a 16.3% drop, while the 41-100hp bracket fared little better, being 10.2% down.

Small tractors sales
Tractors of less than 40hp account for 62% of the U.S market according to the AEM

Bigger tractors of over 100hp, however, enjoyed a very satisfactory increase of 9.6% which may well signify larger farms investing the returns from this year’s higher commodity prices back into machinery, while the smaller farmers kept it in the bank, or spent it elsewhere.

Yet, we must not get too excited by this figure, because 100hp+ tractors accounted for only 9% of total sales in a land we think of as home for massive machines. For comparison, 85% of tractors sold in Ireland in September were above 100hp.

European sales down

Looking at Europe as a whole, tractor sales for the first six months of 2022 were 8% down on last year, and once again it was the larger tractors which fared least badly, those of 130hp or more, only dropping by 2%.

This general decline in tractor sales in 2022 is most frequently blamed on bottlenecks in the supply chain, particularly microchips restricting supply, but does this stand up to scrutiny?

Chips tractors electronics
Chip shortages are often cited as causing delays in production, but the situation is starting to ease

It is generally agreed that the chip shortage is easing and growth forecasts are being revised downwards in the industry. Intel, for instance, has put a freeze on hiring while investments are being drastically cut by some Asian manufacturers.

Unfortunately, the recovery in supply is not universal across the board and it is those items that are used in the automotive and allied industries which remain the most tightly constrained.

This obviously has an effect on tractor manufacturers who are in direct competition with car makers for engine management chips as well as those used to run a vehicle’s internal systems.

Electronics boost profits

Make no mistake about it, chips are a significant part of a vehicle’s manufacturing costs. It is estimated that electronics may account for up to 40% of a car’s value as it leaves the production line and there may be 1,400 separate processors involved.

Electronics chips decrease
Electronics may account for up to 40% of a car’s manufacturing cost and it is likely to be the same for tractors

The figure for tractors is not immediately available so we can only assume that most mainstream models are on a par with cars and trucks, especially if they have sophisticated transmissions, GPS, active suspension, ISOBUS etc.

Add to this, the enthusiasm with which manufacturers inform their shareholders of the profitability of digital technology when installed in tractors, including their optimistic forecasts for its increasing value over the coming years, and the reason why mid range tractors generally cost over €100,000 becomes clear.

Chip shortage is not the culprit

Blaming microchip scarcity for a decline in tractor sales is certainly convenient, yet it does not take into account the decline in sales of smaller tractors, which are less likely to use them in any quantity.

There are not many sub 40hp tractors equipped with ISOBUS and GPS, yet it is that sector which took the biggest hit in the US in September, making it unlikely that it was a chip shortage that reduced availability and led to the sales slump.

Tractors large America
Smaller tractors tend not to be full of electronics, so chip shortage cannot account for the reduced sales of lower horsepower models globally

Classic economic theory still suggests that it is the price which drives the demand for goods and it is unlikely that this basic law of open markets has been eliminated.

We have seen terrific increases in machinery prices over the last year with 20% being touted as an average figure for tractors, yet we never see this factor being blamed for the growing reluctance to buy new, especially in the lower power sectors.

This should come as no surprise for it is tantamount to admitting that goods are overpriced, and no supplier is going to do that.

Farmers still want to buy new tractors, but it does not automatically follow that they are willing to pay unjustifiable sums to do so.

Lower priced tractors

Manufacturers now find themselves in something of a bind. They have successfully put up the prices of tractors and increased their profits in doing so, yet they are currently experiencing a decline in sales, especially in the lower power segments. Whatever magic they used is now wearing off.

However, they have learned to survive and will be casting round for ways to improve their situation and the obvious solution is to reduce the price of new machines.

Price value September Tomosan
Basically equipped Tumosans with a boldly stated price attracted a lot of interest at Ploughing 2022

There are alternatives to the main brands which offer tractors at far more attractive prices, although it will be argued that the specification is much reduced which reduces their desirability, utility and used sales value.

This may well be the case, but with a differential of 50% or more between Turkish or Indian brands, and the major names, there will always be a number of farmers willing to sacrifice a little comfort and efficiency for such a saving.

CNH sees the light

Part of the reason why these tractors are set at a lower price is the lack of electronic sophistication and the need for microchips throughout their structure.

Case price value brands
Case has just launched two new Farmalls which offer simplicity as a major feature

Engine management systems and the radio will require chips, but not much else, which has the added benefit of increasing availability as production is not held up while the purchasing department hunts down specific components from around the world.

The recent launch by CNH of two basic models of 90hp and 100hp respectively, price as yet unconfirmed, could well be a harbinger of a change in emphasis from the main players.

Effectiveness can be expensive

For the past decade at least, there has been a tremendous push for operator aids and automation in the advertised belief that they promote efficiency, an argument which will resonate with many, but not all customers.

When confronted with a six figure quote for an everyday tractor, albeit well equipped, that belief will start to be questioned and purchasing decisions will be delayed, which is the point we are at now according to those with cheaper tractors to sell.

Brand expensive larger
Premium brands offer larger tractors and sales are holding up in the higher power brackets

Removing the electronics will take a lot of the cost out of a new tractor and simplify production, easing delivery times in doing so.

Manufacturers will be aware of the market reception for electronics as most offer machines of varying specification, which will give some insight as to the popularity and demand for particular systems.

Older chip designs for tractors

The recovery in chip supply may also accelerate with prices dropping as it does so. Just how this situation will be influenced by the latest silicon war between the U.S and China has yet to become clear.

Presently it is affecting only the more advanced items and it could be in China’s interest to try and flood the market with older and cheaper designs that are still perfectly adequate for much of what is required.

power tractors Asian
A fuss-free approach may be the way to go for larger tractors as well

The apparent paradox of larger, well specified tractors selling relatively well while smaller, cheaper units are not, suggests that it is the businesses that are best able to manage financing machines which influence the market as much as price alone.

Tractors that can get by with fewer electronics have been creating a lot of interest lately, this will not have gone unnoticed, and in a bid to preserve market share, we may yet see AGCO and John Deere follow CNH’s lead in offering more basic tractors, certainly at the power levels associated with less intensive use.