How increasing labor costs is paving way for the Agricultural Equipment Market to flourish in Australia by 2026?

The Australian agricultural equipment market is expected to grow at a steady rate during 2021 and 2026. The agricultural equipment industry in Australia is currently driven by the drastic decline in the population involved in farming and agriculture and increasing labor costs. This has led to an increase in mechanization across the agricultural industry, which in turn is anticipated to generate lucrative opportunities for sector growth by 2026.
Here is an overview of how increasing labor costs is paving way for the Agricultural Equipment Market to flourish in Australia in the coming years.

1. Australia is a self-sustainable country in food production with 239,000 workers employed in agriculture in 2021.

Major Parameters of Australia Agricultural Sectors¹

Parameters	Description (2021)
Total Workforce in Agriculture	239,000 workers
Total Area under Irrigation	427 Mn hectares
Livestock Population	24.4 Mn
Total Power Availability for Production	243 Bn/kWh
Average Daily Wage of Australian Farmers	AUD 47.1

Agricultural Production in Australia (% of GDP), 2017-2021²

Major Agricultural Production in Australia (In Mn Tons), 2021³

Key Takeaways

• Agriculture remains a vital contributor to Australia’s economy, generating enough produce for 80 Mn people, allowing them to provide 93% of the domestic food supply in the country in 2021.⁴
• Sugar cane and wheat are Australia’s primary crops, both for Australian consumption and for export. Australia typically contributes about 10 - 15 % of the world’s wheat exports.⁵

Source: Interviews with Industry Experts, Industry Articles and Ken Research Analysis 1- Australian Bureau of Statistics, 2021, DAFF 2021 2- World Bank 3- FAOstat 4- Grad Australia website 5- Britannica website
Note: 1 USD= 1.47 AUD

2. Due to increasing labor costs in Australia, farmers and farm owners are looking for alternative options which are mechanization and automation in the production process

A recent shift in Australian Agriculture from labor intensive to capital intensive is noticed owing to the various challenges faced by shortage of labor.

Challenges faced by Labor Intensive Agriculture in Australia

• High production costs and low productivity
• Internal and External business risks
• Maintain business performance and quality control
• Threat from emerging economies with significantly larger and cheaper labor
• Various risks in managing work health and safety.

• In Australia, the labor costs represent ~30% of total farm costs across the agricultural sector as many tasks rely on manual labor.¹
• Owing to increasing labor costs in Australia, farmers and farm owners tend to look for alternative options which is mechanization and automation in production process.

Benefits of Mechanization in Australian Agriculture Sector

Increased efficiency:

• Farm machinery helps in increasing the efficiency of farm labor and reducing drudgery and workloads.
• Farm mechanization can help reduce time by ~15-20%⁴

Deals with increasing labor cost:

• Reduction and saving of costs through machinery substitution
• Reduction in usage of manpower per hectare of land
• Allows long term returns from savings

Increase in crop yield and productivity:

• For every 1% increase in the level of mechanization, the yields of all crops, grain crops and cash crops increase by 1.2%, 1.5% and 0.4%, respectively.²

Societal Advantages:

• Decrease in workload on women who constitute 34% of employees and are estimated to provide one third of all on-farm income and 84% of off-farm income.³
• Improvement in the safety of farm practices and helps in encouraging the youth to join farming

Source: Interviews with Industry Experts, Industry Articles and Ken Research Analysis 1- CMAC website 2021 2- Frontiers article on mechanization 3- Blue notes Australia website 2021 4- Agri farming article

3. High cost of purchase and Warranty and Repair related concerns are the major challenges in the Australia Agriculture Equipment industry

Climate inconsistency

• Most profitable years for farmers tend to be those with high rainfall and favorable prices, such as 2017, while the least profitable tend to be drought years with unfavorable prices, such as 2007.¹
• Climate inconsistency leads to fall in prices of goods produced and farmers tend to be reluctant to purchase machinery.

High Cost of machinery

• Agricultural equipment are expensive to purchase as they are mostly imported from other countries.
• High cost of insurance and interest rate charged for loans associated with the machine is a major challenge to the farmers.

Concerns about warranty and repairs

• In Australia, consumer guarantees do not apply to machinery purchases as they are of high value.
• Major issues with warranties are unfair contract terms or warranty clauses and short length of warranties.³

Source: Interviews with Industry Experts, Industry Articles and Ken Research Analysis
1- ABARES website 2021 2- ABS Government website 2021 3- ACCC Research Paper on Agricultural Machinery Australia 2021
Note: Harvest of the region's winter crops can stretch from September through to December. Similarly, the summer crops are planted from September through to February with harvest spanning the February to May period.

4. To curb the issues, the Australian Government provides concessions and credit loans to farmers to assist them in the purchase and maintenance of agricultural equipment in Australia

Regional Investment Corporation(RIC) administers concessional loans on behalf of the Australian Government for farm businesses, drought-affected small businesses and other eligible businesses.

Agri Starter Loans

• Farmer loans assist farmers to purchase, establish or develop a farm business or machinery.
• It also includes succession loans to assist farmers in further business requirements.

Rural Research and Development Corporation(RDC) invest around AUD 1,176 Mn each year in agricultural innovation, with more than $300 million of funding coming from the Australian Government.²

Agricultural Innovation Goal

• RDC focuses on investing in digital agriculture and mechanization to deliver new trade and market access for producers, create jobs and reduce red tape.
• They also focus on reduced food waste, more efficient use of resources, greater sustainability and improve supply chain tracking.

Taxation Measures¹

• Government has extended the temporary full expensing incentive in 2021.
• It provides businesses and farmers with additional time to access the incentive that will support new investment and increase business cash flows.
• For Businesses with an aggregated annual turnover or total income less than AUD 7.3 Bn:
  • will be able to deduct the full cost of eligible depreciable assets of any value in the year they are first installed by 2023.

Source: Interviews with Industry Experts, Industry Articles and Ken Research Analysis
1- Australian Government Department of Agriculture website 2- Digital Foundations for Agricultural Strategy Note: 1 USD= 1.47 AUD

5. Also, the rise of online physical-digital channels of purchase and increasing mechanization will intact the growth story of the Australian equipment industry in the coming years.

Rise of Online Physical-digital channels of Purchase

• Growing population and Demand for higher yield- Australia's population is projected to reach 30 Mn people in 20291 which will increase the need for more food production and agricultural equipment.
• Rise of Online Physical-digital channels of Purchase – Online Physical digital channels will improve the distribution process for agriculture equipment. It will also help the consumers avail easy after sales services.

Precision Agriculture technology

• Precision Agronomics Australia (PAA) has developed a unique product in the i4M technology and is leading the next wave of precision agriculture.
• Innovative machine control technologies, sensor networks and mobile devices are deployed to improve farming efficiency which will further drive the growth of the market in the coming years.

Rising Preference for Farm Mechanization

• Ag2030 mission aims to generate AUD 100 Bn in agricultural production by 2030.² Industry expects to achieve high-quality produce through significant increase in productivity and diversification through mechanization.
• Ratio of agricultural labor to overall workforce will continue to decline. This inherently will drive the need for mechanization.

Source: News Articles and other secondary sources, Ken Research Analysis |1- CSPB website |2-Tractor and Machinery Association of Australia | NGIS website