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The Final Frontier

While Canada’s farmers rub their hands dreaming about all those potential sales of beef and pork to Asia’s booming middle class, farm equipment makers are positively drooling at the prospect of selling tractors to Chinese and Indian farmers. It turns out the economic power of many farmers in those countries is growing at least as fast as the economy as a whole.

The majors are now in the early stages of a titanic battle to win the hearts and minds of millions of farmers who will soon be buying farm machinery for the first time in their lives.

Getting in early and establishing a strong brand presence in these new markets will be critical to driving future sales numbers in Asia. In turn, sales results there will be critical for global sales for the manufactureres, and for hitting their revenue numbers.

“We will focus on increasing our growth and profitability rates while placing more emphasis on global expansion,” Samuel Allen, president and chief executive officer of John Deere said in a speech last year at that company’s production facility in Saran, France.

His comparison put the market in perspective. “When John Deere moved into France 50 years ago, our reasons were similar to the opportunities we face today in other parts of the world,” Allen said.

John Deere and its major competitors are fast learning about regions of the world that until now held out no hope of profit for them. They’re the so-called BRIC countries — Brazil, Russia, India and China — and Allen isn’t the only one talking publicly about his company’s intention to boldly go where no major farm machinery manufacturer has gone before.

“China is one of the world’s largest farm equipment markets and offers tremendous growth opportunities for AGCO,” said Hubertus Mhlhuser, a senior vice-president, in a recent press release announcing the opening of that company’s third major production facility in China, this time in Daqing in Heilongjiang province. “We will increase production capacity and degree of localization over the next years in line with market demand,” Mhlhuser said. “Our plans foresee this site to become a key production hub for the region.”

That facility adds to AGCO’s Genset operations in Shanghai as well as planned engine and low-to-mid horsepower tractor production in Changzhou.

Adding even more impetus to their marketing plan in China, AGCO was recently awarded a major contract for tractors by a provincial government there. The new tractors will be part of a state program aimed at expanding agricultural technology and productivity. AGCO says it has already delivered more than 1,000 Valtra high-horsepower tractors in the country.

As part of John Deere’s plan to build its global presence, it has staked its claim on the Indian tractor market. In January it announced it has committed $100 million to expand an existing plant in Pune and to break ground on another in a location yet to be determined. So far, Deere has been using its existing Indian plants primarily to produce tractors for export to about 70 other countries.

Deere’s latest announcement follows closely on the heels of breaking ground last September for a combine harvester plant in the same country.

“We have been successful in growing our tractor market share in India and will invest to continue that success,” said Allen in a press release.

To further that cause, Deere will work with the local government in the state of Gujarat, India on a public-private partnership it says will benefit marginalized tribal farmers over the next five years. A company press release says the program could benefit approximately 50,000 farm families who will learn skills to help mechanize their farms and increase crop yields, all while using John Deere equipment.

The plan calls for Deere to open small agricultural implement resource centres across Gujarat, making more than 500 tractors available for use by local farmers and letting them use a set of 13 different implements for various operations. Each centre will include a trained operator and maintenance staff. Farmer groups that use the equipment for crop cultivation will pay only for operating and maintenance costs and not for the actual tractor.

Deere will also establish a small army of technicians with experience working on green equipment by training approximately 1,000 locals as tractor operators and another 500 as tractor mechanics.

An added benefit for Deere is that the plan puts green and yellow tractors into the hands of future buyers long before they have the means to buy one. This has the potential be a very effective brand marketing strategy for the company.

To understand just how effective it could be, think back to the day the first tractor arrived on granddad’s farm in the early part of the last century. In many cases granddad, father and grandson have stuck to the same brand of machinery since then. If things follow that same model in other countries, ensuring their brand of tractor arrives on the farm first might mean millions of dollars in subsequent sales — if these peasant farmers evolve into middle-class producers.

So Deere will begin turning out a pair of small tractors designed specifically to meet the needs of local Indian farmers. Two new 5C Series models, one with 35 horsepower and the other with 41 will make up their tractor line up in that country. “We will be challenged to design and deliver the kind of products that provide value to these customers,” added Allen during that speech in France. The 5C tractors are meant to do exactly that.

Not to be outdone, CNH is ramping up its efforts in India too. Last September, it celebrated the 150,000th tractor to roll off the New Holland assembly line at a plant near New Delhi. “Keeping in line with our commitment to the Indian market, we are pleased to announce that our expansion plans for India are well on track,” said Stefano Pampalone, managing director, New Holland Fiat, India. “We are committed to contributing substantially to the mechanization of agriculture in this country, and over the next two years we will invest in doubling this facility’s production, expanding our product offering and strengthening our dealer network.”

In Russia and the new Commonwealth of Independent States, things look similar. In March CNH signed a deal to build an assembly facility in a joint-ownership venture with KAMAZ, a born-and-bred Russian truck manufacturer. Establishing a production facility within Russia is key for any foreign manufacturer selling into that market, allowing them to sidestep the punishing import duties the government put in place in 2008.

The tariff was designed to protect domestic Russian manufacturers from outside competition, and it cut deeply into machinery imports from Germany. Russia had been that country’s main export market for farm equipment.

In a joint public-private venture similar to Deere’s effort in India, CNH just made a major contribution to the new Agricultural Institute in the northern city of Dashoguz, Turkmenistan, providing training tools, trainers and technicians.

The new institute will offer advanced training in a modern classroom environment provided by CNH, equipped with computers for all students. The company also supplied training aids for agricultural mechanization courses and two remote combine operator rigs to help train operators.

CNH’s efforts here also seem likely to create a strong brand preference for potential first-time buyers.

But setting up shop in these emerging countries — with their own unique development problems — means growth in sales numbers may be fraught with problems, at least for a while. For example, markets in Eastern Europe are still hampered by access to credit. And political instability and interference will keep other markets a little fluid.

Behind those challenges, however, is the growing awareness that the BRIC countries may decide the shape of the world’s ag equipment industry for decades to come. As consumer demand for farm machinery continues to evolve, these countries are the final frontier.CG

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“ When John Deere moved into France 50 years ago, our reasons were similar.” — Samuel Allen

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