ND ag equipment maker feeling sting of trade war
FARGO, N.D. — It's complicated.
That's the trade situation for a family that makes agricultural equipment for the U.S. and the world.
Howard Dahl is the chief executive officer of Amity Technology in Fargo. The company makes and markets sugar beet harvesting equipment they sell throughout North America and in many other countries, with a focus on former Soviet Union countries including Russia and Ukraine.
Amity has a joint venture with AGCO Corp., making air seeding and tillage equipment under the Amity, Wil-Rich and Wishek brand names at Amity's Wahpeton production plant.
Amity sells grain seeding equipment in Russia, a country that has more than double the wheat acres as the U.S. Amity has a sugar beet project in inner Mongolia in China with hopes to increase sales there, competing strictly against German companies.
"In the short-term, it's very painful," Howard says."Steel prices are up 26 percent for us. Castings, shanks are up 10 percent. Tires and wheels are up 8 percent. Tremendous cost." Some categories from Canada are up 40 percent.
Brian Dahl, Howard's brother, is a co-founder at Amity and remains a partner. The two represent fourth-generation leaders in ag machinery manufacturing, with storied leadership in the Melroe Bobcat, Steiger, Concord and Amity brands.
Brian says steel accounts for roughly 40 percent of the cost of producing Amity's products. Steel prices are at modern-day highs, mostly due to trade disruptions.
New prices for exports to Kazakhstan farm customers have had to be significantly higher than last year because of steel price increases. Currency valuations don't come into play. "We bill everything in U.S. dollars, so there's really no off-set," Brian says.
Prices on certain steel items are more sensitive to the supply-demand on the import side. From January to August, they're up about 61 percent in their costs on that. The specification is used in heavier connection points in almost every product, Brian says.
Howard notes that Amity's main competitors are either German or Canadian. They're not taking the same hit, he says. "An already competitive market becomes much more difficult for us."
Overall, Amity needs to raise their prices about 8 percent to maintain existing margins, whether in the U.S. or abroad. "We're not sure we can," Howard says. This is the start of "real inflationary pressure" in the economy, if everyone follows suit.
Amity's export business is normally between $15 million and $20 million a year in gross sales. Exports range from 20 percent to 40 percent of the company's annual sales. "If you go back to 2007, about 50 percent were exports," Howard says.
Amity employs roughly 100 workers in their Fargo headquarters and about 120 are in Wahpeton. The company has reduced to about half of peak levels in 2013, but no further cuts are planned.
The latest trade disruptions come in the midst of a four-year slide in agricultural commodity prices.
"We're running about as lean as we can, hoping it'll turn around in the next year or two," Brian says.
Meanwhile, German competitors are setting up assembly operations in Russia. Russia is giving low-interest financing for a "Made in Russia" status, and is offering direct subsidies for products made there.
Amity was close to doing some manufacturing in Russia in 2008, but the financial crisis hit and the partner they were working with backed out. They shifted their focus to Kazakhstan, right next-door.
Howard acknowledges that Amity has looked at doing some production in Kazakhstan, which is part of a trade agreement with Russia. "Where there are subsidies and incentives to produce in a certain country and penalties if you don't produce there, it really forces you to do things you might otherwise not do," he said.
Howard also acknowledges that there are many trade inequities between the U.S. and the rest of the world. One glaring example is German automobiles coming to the U.S. with a small tariff and U.S. cars going to Germany with higher tariffs. He understands why President Donald Trump and Commerce Secretary Wilbur Ross — a former steel executive — want to "throw a hand grenade in there and disrupt things and put it back together."
"But the reality is that U.S. consumers are buying cheaper clothing, electronics and other goods from China than if they were produced in the U.S.," Howard said.
Possible tragedy for farm country
China has made big investments in Brazil and the country appears to be China's "partner of choice" for supplying soybeans, Howard says. At the same time, China is quickly establishing with new port and/or rail service connections with Ukraine, Poland and Kazakhstan. "The New Silk Road is a very real thing for China in their future," Howard says.
For now, Howard hopes for an agreement between the U.S. and the countries in dispute. "Ideally, no tariffs, anywhere in the world," Howard says, as an ideal goal, adding, "If it ends up where barriers are greater than before this fight, we would have been better off without the fight. If it were three to five years, that would be a tragedy for farm country."