Development Opportunity Phase of Second-hand Agricultural Machinery Market Comes Quietly

In the gold mining industry, many people concentrate on extracting gold from the high-grade ores. But the high-grade ores are few than gold, so some people carry out the second-time extraction from the tailings having been mined and “waste rocks” having been refined. Due to usage of the latest extraction technologies, wastes can be changed into treasures frequently, thus making some people line their pockets.

The situation of domestic second-hand equipment market of agricultural machinery is exactly equivalent to tailings of the gold mining industry. Some people “abandon the second-hand agricultural machinery as the waste shoes”. However, there are also some people seeing the huge commercial opportunity from the second-hand agricultural machinery market and they are setting about excavating treasures from the second-hand agricultural machinery market.

The author thinks that the commercial opportunity phase of the large-scale deals of second-hand agricultural machinery has come in China.

The second-hand agricultural machinery source, which is large in quantity and is supplemented constantly

It shall be analyzed from two aspects, namely, “quantity” and “quality”.

From the perspective of “quantity”, after ten years’ allowance policy for purchasing agricultural machinery from 2004 to 2015, domestic volume of trade of agricultural machinery of 2004 is only 50 billion yuan, while, that of 2015 has approached 450 billion yuan. China has become the first largest agricultural machinery manufacturing and trading country. With the constant increase of the output value and the volume of trade, domestic inventory of agricultural machinery also increases correspondingly. According to the statistics, large and middle-sized tractors, combine harvesters, middle and small-sized tractors on active service are respectively more than 7.5 million sets, 3.2 million sets and 25 million sets and the rice transplanters on service are 1.2 million sets at home at present. And there are also a large amount of small classes of agricultural machinery products. Thus, from the perspective of quantity, there are sufficient supply quantities in domestic market of the second-hand agricultural machinery.

In terms of “quality”, from the perspective of automobile and engineering machinery industries, any machine can circulate and be traded in the second-hand market in theory. But, only the second-hand agricultural machinery with famous brands and good public praise can circulate and be traded in the second-hand market in fact, such as full-series products of Volkswagen, Caterpillar excavator and Komatsu excavator etc. 

At present, in domestic existing agricultural machinery products, about 10% of large-sized equipment is products of international famous brand purely imported, including John Deere, CASE IH NEW HOLLAND, CLAAS, Agco etc. and about 35% of large and middle-sized products is products manufactured in China by such enterprises including domestic YTO, FOTON Heavy Industry, John Deere, Kubota etc.

Most of these agricultural machinery products have the short service time, good machinery conditions, cheap prices and good recirculation value. In addition, due to the bargain mentality, many users of the cooperative association buy many agricultural machinery products even though they do not need these agricultural machinery products in order to enjoy the allowance policy. But most of these products are not be used, thus the domestic market does not lack the high-quality second-hand equipment.

Besides the existing products, the continuous supplies of goods are also necessary for the second-hand machinery. The existing huge agricultural machinery inventory is the basic condition for the trading of the second-hand agricultural machinery. However, if a market wants a long-term development, it also needs the continuous supplies of goods, which also can be achieved easily in domestic agricultural machinery market.

There are two channels to obtain the new supply of the second-hand machinery. The first one is the domestic supply channel. From the perspective of the current demands, 0.3 million sets of large and middle tractor products, 0.15 million sets of combine harvesters and about 0.45 million sets of large and middle-sized high-efficiency compound agricultural machinery products are needed at home per year. These new marketing products will become the potential supplies of the second-hand machinery after completion of the first sale.

The second-hand machinery owners have the selling willingness

At home, there are two kinds of users buying the agricultural machinery. One kind of users is the agricultural machinery specialized households or the agricultural machinery operation cooperative association. This kind of users mainly aims to make the agricultural machinery used in the operating activities and thereby acquire incomes; the other kind of users buys agricultural machinery for their own use. This kind of users can be divided into the individual small farmers and the users of the organized cooperative association.

According to the actual situation, these two kinds of users are willing to sell the second-hand agricultural machinery. The first kind of users needs to buy higher-efficiency agricultural machinery constantly in order to acquire higher and more incomes. Of course, they will sell old agricultural machinery of them.

For the second kind of users, the users of the organized cooperative association frequently have the agricultural machinery products with the huge value. For the cooperative associations which we have come into contact with, the cooperative associations with 3000 mu of lands possess the agricultural machinery products with the value of 3 million yuan. In Heilongjiang, more than 500 cooperative associations have the agricultural machinery funds with the value of 10 million yuan.

But, from the perspective of the use ratio of the agricultural machinery, more than a half of agricultural machinery products in the cooperative associations are in ordinary. In the past few years, the national allowance policy for purchasing agricultural machinery has the strict rules on subsidized products’ appearing on the market and recirculation. But this kind of rules is cancelled in some places, thus, for the cooperative associations with the huge agricultural machinery funds in the later period, they are also willing to sell their products having been in ordinary for a long time if some users are in demand.

There are the large consumer groups

Seller and buyer are the foundation for forming of a market. Buyers exist in China’s agricultural machinery market naturally.

From the perspective of several folk large-sized second-hand machinery trading markets in Shandong, Henan and northeast China, the users who would like to buy the second-hand machinery are mainly divided into three kinds. The first kind is the users who are in demand but have the limited purchasing capacity, which is the most. The second kind is users who know the business and are rational. The third kind is the bargain-hunting users. 

According to data showed by National Bureau of Statistics, net income per peasant was just over 10 thousand yuan in the whole country in 2015. Although there is a larger increase extent of the net income per peasant every year, the increase extent of the net income per peasant is far away from that of the price of the industrial products. Thus, comparatively speaking, the level of the peasant’s purchasing capacity is very low; under the condition of incomplete policies such as rural financial credit policy etc., it is a kind of rational consuming behavior if the users with the low purchasing capacity select the second-hand agriculture machinery with cheaper price.

In terms of the several large folk markets, the price of the second-hand agricultural machinery with the 70% of new degree is only a half of that of the new machine. However, using the old agricultural machinery cannot have large influence on the operation performance, thus, it is no doubt that using money for a new machine to buy two old machines and earn double money is very attractive to users with low purchasing capacity.

There are rich trading channels

From the perspective of existing selling channels for the second-hand agricultural machinery, there are three main channels that are trading between acquaintances, folk markets forming spontaneously and reselling of the subsidized agricultural machinery products.

Trading between acquaintances

There is not a mature trading market for second-hand agricultural machinery at home. So the second-hand agricultural machinery products are mainly circulated between acquaintances at present. Under the condition of the unsound market mechanism, trading between acquaintances can reduce the trading costs, and also can effectively reduce the economic disputes after trading.

Folk markets forming spontaneously: 

Several large trading markets for second-hand agricultural machinery have formed spontaneously at present, such as the second-hand agricultural machinery markets in Xinxiang and Zhumadian of Henan Province, and second-hand agricultural machinery markets in Qingzhou and Weifang of Shandong Province etc. And what is more, there are also many second-hand agricultural machinery markets with different scales in many Provinces with the sufficient agricultural machinery products.

Reselling of the subsidized agricultural machinery products

Profit-seeking is the essence of the business. And the basic condition for forming of the goods circulation is difference in price. In China, the primary cause of reselling the subsidized agricultural machinery products is the difference in price of the agricultural machinery products resulted from the different allowance proportion in various regions and the sufficient and insufficient allowance funds.

During the ten years from 2004 to 2015, many climaxes of the reselling of the subsidized agricultural machinery products occur in China. The typical climaxes are reselling tractors and harvesters and other large-sized agricultural machinery products from Jilin and Liaoning to Heilongjiang in 2011, and reselling rice harvesters and rice transplanters etc. from accumulative subsidies areas including Jiangsu and Zhejiang etc. and northeast China regions continuously lasting for 5 or 6 years from 2009.

With the constant increase of the allowance funds and gradual cancel of accumulative allowances in various regions, scale of this kind of cross-area and cross-province reselling of agricultural machinery products reduces correspondingly, but this trend cannot stop and also cannot completely eradicate in short time. In recent two years, the large second-hand agricultural machinery in the northeast China have flowed into inlands, such as a large amount of large second-hand stockbreeding machines in northeast China have started to enter northern inland markets such as Shaanxi, Ningxia etc. since last year, which impacted local sales of the new machines seriously.

According to reckoning, trading volume of reselling of subsidized agricultural machinery products is nearly more than 50 billion yuan per year at present and the reselling market of the subsidized agricultural machinery products is a huge potential trading market.

There is the natural demand echelon

Demands between these markets are upgrading upwards and the time difference is about three to five years, that is, agricultural machinery products popular in northeast China and Xinjiang etc. will be popular in the middle-level markets in Central Plains and East China etc. after three to five years. The demand echelon and time difference provide sufficient condition for trading time and spaces of the second-hand agricultural machinery.

The commercial opportunity is flowing all the time like water. Only talents with the highly sensitive business acumen can take the preemptive opportunity. According to foreign authoritative organization’s long-term tracking and research on the world’s top 500 enterprises, the profitability of enterprises with the first prophet is above 30% higher than that of the follower enterprises in average.

While, in the current information society, technologies and products are upgrading at the accelerated speed. The enterprises with the dull business acumen not only cannot make profits, but also will be eliminated rapidly. In that way, confronted with coming of the commercial opportunity for the second-hand agricultural machinery, what do you want, taking a share of the spoils or letting the opportunity get away from you?