Does a weaker dollar impact machinery pricing?Posted by Marlo Dutton, 30th October 2014
Whenever there is a downward movement in the exchange rate, most primary producers are cheering from the paddocks. Exported produce becomes more competitive and prices generally improve at farm gate. Recent downward movements on the Aussie Dollar generally lead to questions of how this will impact the pricing of farm machinery. As over 90% of the new farm machinery available on the Australian market is imported from a variety of countries, a downward movement in the exchange rate will naturally put pressure on prices. However, the reality of a global market available to all consumers through the internet, means that companies cannot simply put up prices because of exchange rate movements – customers simply won’t pay. Years ago pricing was very different around the world based on what the market would pay, and Australia was seen as a price island where equipment was relatively expensive compared to other parts of the world. Today, companies are pricing equipment very similarly around the globe based on what end users will pay – in other words market based pricing. Therefore to push pricing up at a time of falling exchange rates will mean sales will fall and the companies cannot afford for that to happen. The US market is in free fall at present in the farm machinery sector so in order to keep the factories going, these companies will look to markets like Australia to keep the equipment moving through the production line. Rather than pushing up pricing, the companies and dealers will have pressure on their profits and margins in order to maintain the sales volumes.
The other point to remember is that imported equipment has a 3-6 month timeframe to get to Australia, so most of the equipment on the ground today will be priced at exchange rates higher than today. Even if there is a sustained devaluation in the Aussie dollar, it will take some time to filter through to a price hike at the dealers yard. The other good news is that in a falling dollar environment, local manufacturers become more competitive which is good for industry and jobs. Our local manufacturers have done it tough over the past few years with a high dollar, some this downward pressure on the dollar will be very welcome news for our local companies.
The short answer to the question above is that in the short term – no, equipment won’t go up in price. However if the dollar maintains a sustained period of lower pricing, imported equipment will eventually creep up in price. If you are considering a new machinery purchase in the coming months, our advice would be to get prices now and keep an eye on the dollar – equipment today is about as cheap as it has been for 10 or so years relatively, and with markets like the US heading south, companies and dealers will be keen to move stock and keep the factories productive.