Who is John Deere making equipment for?

Mcintosh
Matt Mcintosh Correspondent North America
The John Deere 8R fully autonomous tractor is displayed ahead of the Consumer Electronics Show (CES) on January 4, 2022 in Las Vegas, Nevada. - Photo: Patrick T. Fallon / AFP
The John Deere 8R fully autonomous tractor is displayed ahead of the Consumer Electronics Show (CES) on January 4, 2022 in Las Vegas, Nevada. - Photo: Patrick T. Fallon / AFP

The rhetoric of futurists, large equipment companies, governments and others seems completely out of step with what many can actually afford to spend and risk.

From word processing software to Netflix to the iPhone – it’s hard for anyone to avoid subscription-based services and proprietary item design. John Deere’s focus on a combination of highly advanced equipment and pay-for-play software technologies is certainly not new, nor is the company’s vocal emphasis on that particular business model. It does, however, run in the face of consistent calls for greater flexibility in equipment and data management.

Right to adapt, rather than repair?

An article published by Reuters on May 27 highlighted how John Deere is increasingly “tearing a page from the technology world’s playbook – combining cutting-edge hardware with software and subscription models to drive revenue growth.”

So, if you buy a green tractor, you buy the green software. This is a given. It also means you pay the company regularly to keep running the green software. If it pencils, then sure, it makes business sense to do so. But what if it stops working, even temporarily? What if there’s a better option, or service for other products in your respective area makes John Deere a lesser option? Set aside “right to repair” – what’s the vulnerability associated with not having a right to adapt?

If short term ownership and quick resale of a machine is an option, I guess these questions are kind of irrelevant. Just a reminder, though – not every farmer can do that, let alone acquire financing for new technologies without putting themselves in an overly vulnerable financial position.

You make payments, but build no equity

Getting trapped in a perpetual equipment rental cycle is a not uncommon criticism of equipment leasing. You make payments, but build no equity. Could a similar criticism be applied to investing in a machine which incurs repeated subscription costs, in addition to the original price tag, but also brings brand use exclusivity?

The Reuters article also highlights Julian Sanchez, director of emerging technology for John Deere, telling reporters the company is developing more technology to allow farmers to get productivity out of their land without having to spend so much money on fertilizer and inputs.

It’s hard to disagree with the fundamentals of Sanchez’s statement, particularly given the absurd cost of fertilizers being experienced worldwide. But let’s not kid ourselves here – John Deere and its large equipment competitors would not be driving towards a subscription-based revenue model if it didn’t make a lot of cash.

John Deere autonomous 8R tractor

New equipment is enormously expensive. John Deere’s autonomous 8R tractor, for example, is described as being $ 500,000 USD (around $ 630,000 Canadian dollars for this contributing writer), and that’s not including recurring subscription payments for the associated software.

Even the used equipment market is horrendously expensive. Prices are so high that equipment and the revolutionizing technologies housed within is, to be frank, completely out of reach for a huge portion of growers. The rhetoric of futurists, large equipment companies, governments and others seems completely out of step with what many can actually afford to spend and risk.

A self-perpetuating process?

Efficiency does not have to mean huge machines on huge acreage, yet that seems to be the going mantra. One presumes because that’s where the real profits lie.

Are smaller growers being left behind by large equipment manufacturers? I’d hazard to say this has indeed been the case, and not necessarily because smaller crop producers are themselves choosing to stick to older-school analogue methods of production (although there is something to be said about pre-digital systems).

I can’t help but wonder whether the decades-long drive for greater and greater efficiency by many of the large equipment manufacturers has played a major role in accelerating and accentuating the process of farm consolidation.

I’m sure historically low interest rates and ever-more leverageable assets have not helped reduce the rate of consolidation either, but that’s a conversation for another time.

It would be much easier to stomach the significant costs of new technology if it came with the assurance of flexibility

Bigger machines, more advanced systems, more pay-for-play services and non-interchangeable bells and whistles – I just can’t buy into it, not at the listed price anyway. It would be much easier to stomach the significant costs of new technology if it came with the assurance of flexibility. That goes for smaller growers as well as those working large acreages. At least for now, I imagine the aspirations of many operators for data-driven decisions, autonomy, and operational efficiency are much more likely to be met by other companies.

I suppose that highlights a fundamental question – do large equipment manufacturers even need smaller or medium sized farms? I hope the answer is yes, if only because of the perpetual need for a used market. Development trends and the rhetoric from large equipment manufacturers, however, certainly don’t add to my confidence.

 




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