Farm equipment sales will continue to fall in 2024

The agricultural machinery market in the Russian Federation fell by about 20% in 2023, and Russian machine manufacturers significantly slowed down the growth rate of shipments in monetary terms. The industry notes a large overstocking of warehouses, including imported equipment, with low profitability for farmers and high cost of loans. The situation will not improve in 2024: the market may shrink by up to 10%.

Sales of domestic agricultural machinery in 2023 increased by 2.3%, to 240.9 billion rubles, as calculated by Rosspetsmash. Output increased by 8.2% (RUB 271.1 billion). But the growth rate has slowed significantly compared to 2022 (see “Kommersant” dated February 1, 2023).

In addition, in units, most segments, according to Rosspetsmash, also decreased. For example, the production and shipments of tractors fell by 6.5% and 13.3%, to 5.8 thousand and 4.6 thousand units, respectively. Combine production rose from a relatively low base after falling in 2022. The situation among Russian players was influenced by the limited funding of the “1432 program”, under which farmers can receive discounts on equipment.

But basically, as the association points out, the reduction in output was caused by the low profitability of farmers, “whose financial situation worsened due to low prices for agricultural products and export duties on grain.” As a result, a situation arose when the supply of agricultural machinery significantly exceeded demand: “At first, the agricultural business allocated funds for fertilizers, fuels and lubricants, seeds, loan servicing and other expense items. Agricultural machines were purchased on a residual basis.” “Farmers should have the opportunity to earn money,” believe Rosspetsmash, calling, among other things, to lift restrictions on the sale of agricultural products on foreign markets, guarantee minimum prices for agricultural products in the Russian Federation and increase the volume of preferential transportation of agricultural products by rail.

Chairman of the Board of the Association of Agricultural Equipment Dealers ASHOD Alexander Altynov says that we can tentatively expect that the market in 2023 in terms of money will shrink by about 12-15%. Sales will continue to decline in 2024. “Neither Rosagroleasing nor the Ministry of Agriculture promises growth, and in the absence of new incentives, the market could lose up to 10% more in money. Drivers in the agro-industrial complex economy are not yet visible; equipment will become more expensive again,” he concludes.

Dmitry Babansky from SBS Consulting agrees that in 2024 the market in monetary terms may decline by another 5–10%. Among the main reasons, he names the high cost of borrowed funds, the rise in price of necessary materials, as well as the expected decrease in the cost of agricultural products, disruptions in logistics, etc.

The fall in output of Russian tractor manufacturers confirms the rather low demand, says the head of Optitech Agro, Tatyana Fadeeva. She estimates overall demand and retail sales are down about 20% to 25% in 2023. She points to the high overstocking of the dealer network: “Imports, mainly from China, remained at extremely high levels, but 82% of imports from China were made in the first half of the year.” “Then there was a serious drop, associated primarily with an increase in the recycling fee, when importers tried to import equipment before the increase, and a significant drop in demand, which began to manifest itself in May 2023,” explains Ms. Fadeeva. According to her, of the 6.3 thousand tractors that were imported to the Russian Federation, more than 50% are in dealer warehouses.

“In general, 2023 turned out to be a difficult year for all players due to the main reasons – a record harvest, export restrictions, low prices for grain and milk, which affected the purchasing power of customers,” says Rinat Amirov, commercial director of Zoomlion Heavy Industry Rus for agricultural machinery. As a result, the market drawdown averaged 25–40%.” Zoomlion expects 2024 to show an even greater decline. “There are concerns about increasing the recycling fee,” notes Mr. Amirov. Against this background, the company is “working on the localization of production.” He points out that increased competition and recycling issues are among the determining factors.

Tatyana Fadeeva believes that the market continues to be influenced by the high cost of lending against the backdrop of low margins for farmers, and does not expect sales growth in 2024. “Rather, we expect continued pressure on demand and a fall in the market,” she says. “Agricultural producers are extremely careful in their investments in equipment; their main efforts are focused on maintaining the current fleet in working condition.”

Rosspetsmash also points out that the low profitability of farmers and the high cost of lending will become the main difficulties for domestic players. But they also talk about rising production costs, calling for “protecting the domestic market from aggressive imports” and providing grants for the production of components.

On the other hand, as Ivan Korovnikov, sales director of Europlan LC, notes, many clients have postponed updating their equipment in 2023. At the same time, “agricultural enterprises cannot always find the equipment they need in the Russian Federation,” he concludes.

Olga Nikitina