Country Guide - We sit down with Leah Olson, president of Agricultural Manufacturers of Canada, to take the pulse of today's Canadian short-line equipment manufacturers

In past years, as the calendar began leading up to summer, my email inbox would fill with press releases from short-line ag equipment manufacturers hungry to show off their their new models and boost sales.

This year, however, was quiet. There just weren't as many announcements as I'd come to expect.

Yes, there have been a few new products, but with a couple of quite notable exceptions, most of them are best described as minor tweaks to existing machines.

It's an R&D slowdown that seems due in large part to today's relatively soft equipment market.

So it seemed like a good time to sit down with Leah Olson, president of the Agricultural Manufacturers of Canada (AMC), to discuss how the organization's member companies (who make up the bulk of those short-line brands) see the current state of the industry.

Olson says today's market reality holds both good and bad news for Canadian short-line manufacturers. In 2015, Ontario's ag equipment manufacturers alone racked up record exports amounting to well north of $700 million.

Since then, however, that number has since tapered off pretty significantly.

“When it comes to selling agricultural equipment, the biggest factor is what commodity prices are doing,” Olson says. “From that perspective for the U.S. market, things are really tight there. There's not a lot of optimism in terms of U.S. sales.”

To say the U.S. is an important export market for Canadian short-liners may be an understatement. But increasingly, it isn't the only one on the minds of executives.

“When we look at the Canadian exports for agricultural equipment, we're pretty consistent around that $1.8 to $2 billion in sales annually. The diversity of those markets is 150-plus countries. Where a lot of members are looking — outside of the United States — is Australia, which is looking very strong, and Eastern Europe is still very, very strong.”

Ironically, although the Trump administration often claims that U.S. manufacturers face unfair competition, in this case it's Canada's manufacturers who are suffering because they don't get as much government help given as their American competitors.

“(Canadian manufacturers) are challenged in Eastern Europe for financing, so many of our members are looking at ways to continue to do business there. Without our Canadian credit agency (Export Development Canada) operating there, for a variety of appropriate reasons, it puts our members at a disadvantage, because the U.S. credit agency is there. The German credit agency is also there. So those manufacturers have an easier means of securing business.”

Here at home, though, the Canadian market is looking stronger this year.

“Most of our members are reporting the first quarter of this year was better than last year,” Olson says. “To put that into context, last year was not a great year. So thankfully that is looking stronger.”

The reality today is that the global short-line ag equipment marketplace is a relatively crowded one, and it is critical for companies to at least keep up with the pack on technology and innovation if they want to retain market share. And that requires continued investment in R&D.

“The amount of R&D going into continuous improvement of farm machinery, for me, is very encouraging,” Olson says. “What may have worked in terms of R&D 20 years ago, our members are saying won't work any more. They can't just go out to local farms and test. Our members are reaching out to places like West Test and PAMI, and some of the local polytechnic colleges are getting involved in testing as well. My hope on that is we continue to see interest from our members and post-secondary institutions on testing.”

Funding all that research, however, requires that sales staff keep assembly lines busy to generate revenue, so it isn't surprising that soft demand and an uncertain political situation in the U.S. have manufacturers exploring their options, looking for opportunities much farther afield.

“You can't base your business on political unknowns, so I think that is motivating our members to continue to pursue other international opportunities,” Olson says. “My overview on that is this is probably not the worst time to have a bit of political uncertainty (in the U.S.), because the agriculture industry is at a bit of a low in the U.S.”

That said, the U.S. is likely to remain one of the most important export customers for Canadian short-liners in the foreseeable future.

“When our members go into a market, the biggest thing they need is a dealer network, and the (U.S.) dealer network is strong,” Olson says.“That's not going to change. The suggestion from the new U.S. administration is it might get a little more difficult to cross that border. If they put on new taxes, that will pose a challenge. But I think the bigger (future) opportunities are in markets like China and continuing to maximize things in Australia and Latin America.”

Emerging economies like China have for years now been seen as important new markets, especially for the full-line manufacturers, and Olson thinks Canadian short-liners could and should consider how to adapt their equipment offerings to suit those up-and-coming markets as well.

“They (the Chinese government) are pouring billions of dollars into agriculture,” she notes. “And in their efforts to become food independent, Canada can and should be playing a role.”

Exports are essential, she says. “When it comes to agriculture equipment manufacturers in Canada, yes, there is an opportunity, but you can't assume what is done and done well here in Canada, the type of equipment and how it's used, that you can take that and place it into any other international market. As exporters, our members understand that well, so I expect there would be some adaptation.”

But at the moment there are still impediments for Canadian brands that want to get a serious foothold in a country like China.

“We surveyed our members to see what they look at when going into a new market, and the biggest factor is market size,” Olson says. “The dealership network is one of the top five also. Identifying who the big buyers are and who they're connected with is how our members can have a bit of confidence as they go in.

“So when it comes to going into China, the availability of that network is the holdup there, being able to sell and service the product. But it's developing. It's in its early stages right now.”

Being typical entrepreneurs, most short-line executives aren't looking for governments to play a larger role in their industry, but Olson thinks government assistance can play a big part in opening up those new overseas markets.

“The role of government in our industry has been quite limited,” she continues. “In terms of government support for us in other markets, the trade commissioners are well positioned, and most of our members have good communications with them. So we'd want to see the investments into that infrastructure continue. They do get some good intel. For them to speak directly with our members is important.”

And just like a large percentage of farmers, many entrepreneurs who were responsible for the proliferation of short-line brands that evolved out of on-farm innovations in previous decades are facing an inevitable decision. Who takes the company through into the next generation?

It's those same succession-planning process that the baby-boomer generation of farmers faces. And just like the situation on some farms, there may be no next generation available or interested in taking up the reins, so selling out is the only option.

“We'll continue to see acquisitions within the short-line industry,” Olson says. “Those innovators from 30 years ago, they've been there, done that, and equipment is changing. We're seeing new players come into the industry, but we're also seeing quite a few acquisitions. There is a lot of high-quality intellectual property out there.”