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A lifetime ago, Deere & Co. (DE) was leading the revolution in American farming as its iron machines replaced man and animal in the field. Today, concedes Deere Chief Executive Robert W. Lane, the 170-year-old company is often dismissed as "a museum piece." In a pattern familiar in so many sectors of the industrial economy, low-cost competitors in India and other developing nations have turned many farm machines into low-priced commodities, seizing business around the globe from the $22.1 billion company.
But while its new rivals can undercut the Moline (Ill.) manufacturer on price, they cannot match it in innovation. In a move emblematic of how U.S. manufacturers must adapt to remain competitive, Lane says Deere is bringing about a second farming revolution. The CEO has chosen an unmistakably mid-20th century implement with which to do it: the cotton picker. The machine—a high-tech, intelligent factory on wheels that was a decade in the making—is the biggest advance in harvesting since Deere introduced its first self-propelled cotton picker in 1949. "It's a great leap forward," says Von D. Kimball, president of Bigham Brothers Inc., a farm-equipment maker in Lubbock, Texas. "Saves labor, saves fuel—that's the name of the game in agriculture."
The new picker shares some basics with the original. Cotton fibers are plucked from bolls by hundreds of finger-like spindles and vacuumed up into a huge bin behind the operator's cab. Today's models, however, must pause every 10 to 15 minutes to empty the bin into a wagon. Deere's multitasking cotton picker can harvest nonstop until its 300-gallon fuel tank is almost sucked dry after 12 hours. Whereas a cotton grower in a developed farm economy like the U.S. needs four to six pieces of support equipment, four to six seasonal laborers, and a $425,000-plus machine to bring in his crop, Deere's new two-story-tall machine enables the grower to harvest even more acres virtually by himself.
Thus far, wealthy farmers in developed countries have shown a willingness to pay premium prices for high-tech machines. And while the textile industry has moved overseas, the U.S. remains a huge cotton grower, ranking No. 3 after China and India. Although Deere hasn't published its exact price yet, Ann Duignan, a heavy-equipment analyst at Bear, Stearns & Co. (BSC), says that in the U.S. the harvester may well be worth its mid-six-figure cost, since farmers are confronting rising numbers of overseas rivals who not only have lower labor costs but gain an edge by being closer to textile mills.
Against such competition, Lane's vision of a second revolution in farming had best be on the money. If Deere's technology can't help U.S. farmers combat their low-cost rivals overseas, its traditionally hefty profit margin risks becoming an industrial relic.
By Michael Arndt