Supply chain disruptions, inflation and labour shortages plague ag sector this spring

By Sheri Monk

Outside of trained economists, most people had never heard of the term “supply chain disruption” before the Covid-19 pandemic. Now it’s become part of the “new normal” – just ask any farmer or rancher looking for replacement parts, a decent used baler or God forbid, a new combine.

“There’s been price increases every quarter it seems. Something is always going up,” said Devrey Sweitzer, co-owner of Owens and Sweitzer, an agricultural equipment dealer in Eston. “We are doing more no-trade deals than trade deals because guys are keeping their machines and they’re confident they could sell them themselves and get good money because there just isn’t anything out there.”

Operations already accustomed to working under the less-is-more philosophy may have been somewhat insulated from the fall-out, but nobody has remained immune. Home appliances can take several months before they’re shipped out and for a large part of 2021 and 2022, car lots were largely empty. Let’s not forget the infamous toilet paper shortage of 2020, or the six-day blockage of the Suez Canal in 2021. But how did it all happen, and why?

There’s no single answer. As funny in retrospect as the toilet paper shortage is, it offers a glimpse into the massive ripple effect in the markets caused by the pandemic. First, there was sudden and unprecedented demand. Early in the pandemic, before it had really gripped North America, consumers were advised to stock up… and boy, did we ever! Once stock started to get low, people noticed. And then the media noticed. And then more people noticed. The stampede effect had wiped out the rest of the toilet paper.

Demand rose intensely and suppliers could not keep up, panic ensued and people hoarded what remained. That’s easy enough. But a big part of the picture wasn’t quite as intuitive and had more to do with an unaccounted for shift in the consumer base. Were people suddenly pooping far more often, thus needing forests of tooshie tissue? No, but all around the world, people were pooping at home instead of work and that’s really what destabilized the supply. Think about the commercial toilet paper rolls at malls and office buildings. It’s completely different in size, packaging and weight compared to the home format.

Once there is a product deficit, it can be increasingly difficult to keep up, as anyone who has become behind on bills can testify to. The rolling economic shut-downs didn’t just create a temporary pause in certain sectors – it completely shuffled them. Workers in the restaurant, hospitality and personal service industries were laid off and many of them simply never came back. Some went back to school, others found new industries to work in, and many who were close to retirement age just peaced out entirely, even from industries unaffected by lay-offs. Workers in older demographics were most at risk for serious outcomes from Covid-19 and many people no longer thought working was worth the potential risk.

In 2022, there were some indications the disruptions were getting better, but so far 2023 remains as challenging.

“I wouldn’t say things have gotten better. The companies are better at predicting how long things are going to be now. When this all started we had no idea when anything was going to come and neither did the manufacturers. Now they give us dates and the dates are realistic – they’re just not what we want to see,” said Sweitzer.

Last year, Canada’s economy lost $13 billion thanks to the labour and skill shortage in the manufacturing sector alone. That’s a staggering figure, but it doesn’t come close to addressing the entirety of the complex problem. And nowhere is the problem more complex than in rural Canada, which has long struggled to attract and retain workers across all disciplines. It is estimated Canada is currently short 60,000 agri-business workers, and this number is projected to grow to more than 120,000 by 2025 unless foreign labour policy changes.

“That’s always a struggle, it always is a struggle especially in a town like Eston – it’s hard to get people interested in coming out here. We’re lucky, we have a really good crew out here right now, knock on wood. That’s always been a battle but especially now. Any dealer you talk to is short guys. It’s a pretty technical job now to be an equipment technician and those people are few and far between,” Sweitzer explained.

Increasing interest rates and inflationary pressures created even more uncertainty. Who wants to commit to buying a combine that may not show up for a year when interest rates are only projected to rise? Who wants to trade in their old combine or sell it when they have no idea if they’ll be able to replace it later? People started keeping everything as back-up, resulting in a massive deficit within the used marketplace too. “Interest rates haven’t helped us. When interest rates were going up so fast and machines were so far out we couldn’t guarantee anything. It’s a big risk for a guy to buy a tractor that’s a million dollars and not know what he’s going to pay for interest rates,” said Sweitzer.

“Everything new is so far out that dealers can’t sell their trades until the new stuff comes. There’s just not much available right now so the price is reflecting that too. The price of new went up, but so did the price of used equipment and it’s hard to come by,” he said. “It’s amazing how the customers have adapted. Guys are planning a lot farther ahead than they ever had to for their machinery.”

The auto sales industry has experienced a massive shift. During the vehicle shortage, sales people left because there was nothing to sell, but there was a shortage of mechanics as people started investing more in their used vehicles. Inventory is starting to be available, but much of the production is earmarked for filling the backlog with dealers serving more as a middleman for factory orders.

The benefit and fun of shopping at a dealer is being able to see, touch and feel the products. With a dearth of display equipment and inventory to compare, customers are coming to town to merely flip through catalogues instead. Some industry insiders worry that this new dynamic will see the industry transition into an online model similar to Amazon, but for agriculture.

“That’s what’s scary right now. The manufacturers are starting to allocate machines so you can no longer hope to have a really good run and sell a bunch of stuff. You’re limited and you know exactly what you’re going to get.”

But if there is anything the Covid-19 pandemic taught us, it’s that relationships and community are precious. If that lesson is remembered, dealerships will persevere into the future.