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Equipment Suppliers Feel Recession

After a buoyant 2008, farm equipment dealers are feeling the effects of the recession this year as farmers hold off purchases due to credit and market concerns, the Commons agriculture committee has been told.

Strong commodity prices sparked a boom in equipment sales in 2008, John Schmeiser, vice-president of Canadian government affairs for the North American Equipment Dealers Association. There were 28,722 new tractors sold in Canada last year, up 20 per cent from 2007. Combine sales did even better, rising 33 per cent to 2,206 new combines.

Sales prospects are decidedly lower this year. “For the first four months of the year we are seeing year-to-date tractor sales down 20 per cent over 2008. We look toward the rest of the year with cautious optimism and are hopeful that commodity prices will rise and the weather will co-operate.”

Howard Mains, a representative for the Association of Equipment Manufacturers (AEM), which includes MacDon Industries of Winnipeg, said sales of tractors and combines during the last 20 years have risen slowly. “Simply put, there are fewer farmers using fewer machines to cover the same amount of ground. However, this is also a good measure of how Canadian farmers are becoming more efficient and remaining competitive on a global basis.”

Tractor sales are expected to be from 10 per cent to 20 per cent lower this year while combine sales will likely taper off during the year, he added.

Two key issues facing the industry are the supply of credit and depreciation rates, Schmeiser said. The United States has increased depreciation rates on farm equipment as part of its stimulus package putting Canadian farmers at a big disadvantage because Ottawa hasn’t kept up. Farmers want to trade in old equipment to benefit from more environmentally friendly products but Canadian policy discourages that, he said.

The government also needs to encourage farmers to trade in or improve older diesel engines to help cut greenhouse gas emissions from the agriculture sector just as the United States gas. California is pushing its farmers into adopting Tier 4 engines and Canada needs to respond to that measure, he continued.

Mains said equipment manufacturers are facing a sudden rise in discriminatory tariffs from the Russian Federation, which is an expanding market for farm machinery. “The Russian government has increasingly resorted to industrial policies that limit market access by non-Russian origin goods and further create barriers to trade particularly in the area of agricultural equipment. Today, agriculture equipment trade with Russia is progressively less transparent and is now affecting Canadian exports.

“For example, Russia recently placed temporary import duties on combine harvesters and self-propelled forage harvesters of up to 15 per cent and this action will not be reviewed until November 2009,” he said. “While limited to only two types of equipment today, there are growing concerns that these tariffs will expand to include all agricultural equipment in other sectors, such as the equipment made and Canada by AEM member companies.”

The Russian Agricultural Bank gives Russian farmers a 20 per cent discount on loans if they buy domestically made machines, he added. Canadian companies have seen a significant decrease in exports in their first quarter of 2009.

Schmeiser said farm dealerships are in transition. Manufacturers want to consolidate the dealer network and many have merged to improve their efficiencies. “From our perspective, farm equipment and agriculture in general is in a North America-wide market. Farm policy on both sides of the border has an impact on our business.”

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