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Diesel Engine Prices Will Jump

As of January 2011, diesel engines over 175 horsepower installed in new farm equipment destined for the U. S. market must comply with the Environmental Protection Agency’s (EPA’s) Interim Tier 4 emissions standards, which is the next step in further reducing exhaust pollutants in off-road vehicles. Tractors arriving on dealers’ lots in Canada will be equipped the same way.

Producers in the market for a new tractor or self-propelled farm machine may want to make their purchase before that deadline if they hope to beat the associated price increases. Implementing the technology used by these new engines may cause one of the largest single-year spikes in equipment prices seen in decades.

“What the industry seems to be expecting is about a 10 to 12 per cent increase because of Interim Tier 4,” says Adam Reid, Buhler Industries’ marketing manager for the Versatile tractor brand. “We haven’t announced our final pricing yet, but it sounds like that number could be well in line. We’re still going through the numbers to see what the additional technology from Cummins is costing us.”

Versatile uses engines supplied by Columbus, Indianabased Cummins Inc.

PRICE SPIKE

Speaking in an interview in July, Claas of America’s president, Russ Green, said some of the speculation in the industry at that time pegged the potential cost increases even higher. He had heard estimates ranging as high as 22 per cent when applied to combines. But like Versatile, Claas has yet to decide on its pricing for Interim Tier 4-compliant machines. In fact, at the time of writing this article, no major manufacturer has yet released its 2011 retail prices.

An executive at another of the major manufacturers – speaking informally – hinted his company may absorb part of those higher costs during the initial phase-in year to soften the financial blow to farmers, which could leave competitors holding off on price announcements as long as possible to see who commits first.

The U. S. isn’t alone in requiring off-road diesel engines meet new emissions standards next year. The EPA Interim Tier 4 regulation is harmonized with the European Union’s Stage IIIB equivalent. Until now, Canada has so far mandated compliance with the previous Tiers 2 and 3 – which involved much smaller leaps in engine technology – through the Canadian Environmental Protection Act. But going forward, it has not yet implemented updated regulations, despite the looming deadline in other OECD countries. It is widely expected, however, that it will adopt the same U. S.- E. U. standards.

CANADA LAGGING

“We’re working on updating our regulations to come into line with the U. S.,” says Josée Lavergne, manager of Air Pollutant Regulatory Development, Transportation Division at Environment Canada. “We’ve had a policy of alignment with the U. S.” And she expects that to continue.

The process of implementing parallel Canadian regulations is in the early stages. After initial publication in theCanada Gazette,the proposed law will need to be followed by a period of public consultation before it is enacted. That could take several months. Lavergne says there has already been an informal period of consultation. “Everyone seems to be supporting full alignment (with the U. S.),” she says.

Standardization at most North American assembly plants means Interim Tier 4-compliant tractors will likely arrive in Canada even before any new federal regulations are enacted.

However, manufacturers won’t have to contend with the same increasingly tough emissions standards everywhere. Countries such as Russia and the Commonwealth of Independent States in eastern Europe will continue to accept tractors equipped with Tier 3 engines.

SURGE IN DEMAND

Back on this continent, the prospect of significantly higher prices has already prompted a surge in demand for high-horsepower tractors and combines in the U. S. Many farmers there have been stepping up purchasing plans to beat the deadline.

According to the Association of Equipment Manufacturers (AEM), August sales numbers were up substantially across the U. S. Rigid-frame tractors above 100 horsepower saw an incredible 48.8 per cent rise over the same month in 2009. Articulated, four-wheel drive tractors jumped 9.5 per cent, while combine sales climbed 9.9 per cent. September numbers showed similar increases.

But the story is different in Canada. Although AEM reports year-to-date sales are up over 2009, the numbers lag well behind U. S. figures. “The U. S. has been talking about this – these upcoming rules – and what it means to the farmers for a year and a half,” says Reid. “I think we’re a little bit behind in terms of spreading the word in Canada, but I do expect there’ll be a run on new Tier 3 tractors.”

Manufacturers will still be able to sell any existing inventories of Tier 3-equipped tractors on hand even after the 2011 implementation date; and the U. S. EPA gave them some options to slowly phase in Interim Tier 4 engine production, even after the deadline. But farmers who want a new machine without paying for the new technology will certainly face increasingly limited choices over the next few months.

The last EPA mandated emissions reduction deadline, called Tier 4 Final, will be implemented in 2015.

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