Tractor manufacturers to seize sales opportunity in China

The world’s largest makers of tractors and combines are finding a rare opportunity for growth in China, despite a slowdown in the world’s No 2 economy, with big farm machines in demand as the rural labour force shrinks and plot sizes grow.

For manufacturers like US-based AGCO and Deere & Co and Italy’s CNH, Chinese demand for big machines could help to offset weakness in the US and EU, where farm incomes are declining with global commodity prices.

The trend also contrasts with stalling sales in construction equipment and passenger cars, which have been hit by the slowing Chinese economy.

Driving this binge on bigger, more powerful equipment to till larger farms is a mix of labour migration to the cities, land reforms and government subsidies that is spurring consolidation of the country’s vast small landholdings.

“People are just getting ready,” said Alexious Lee, head of China industrial research at investment bank CLSA, citing a general move to larger farms. “Whether from the dealers or the financing side, everyone is skewing towards this angle.”

The average farm in China was smaller than a football field in 2012, but still nearly 900,000 “family farms” had an average size of 13.3 hectares (33 acres), according to data from China’s agriculture ministry.

While these family plots were still less than one 10th of the average US farm, further expansions in size are expected as Beijing urges more efficient agriculture and takes steps towards reforming land rights.

Several thousand state and co-op farms of about 3,500ha each also need bigger tractors and combines to cultivate and harvest their agribusiness-size plots.

Total sales of 100-129 horsepower tractors in China increased 38% in the first half of 2015 compared with the same period last year, according to AGCO, owner of the Massey Ferguson brand.

And while overall farm equipment sales for AGCO and others in China were flat through the first half of the year, long-term prospects look brighter.

Asia-Pacific accounted for only 5% of AGCO’s €8.6bn in revenues last year, but the company, which recently opened its fifth factory in China, is targeting $1bn (€891m) in sales from the overall region before 2020 and expects its China business to quadruple by then.

The slowdown in agricultural sales in the US and other markets is probably too big for China to counter alone, although CNH International expects “significant acceleration” in the country overall, said Luca Mainardi, head of agriculture construction operations in China for CNH International.

“The main growth is from coops, which have been growing rapidly in number the last five years, thanks to Chinese government support,” Mainardi said.

Foreign manufacturers now account for an estimated 80% of the high-horsepower market, but they can expect greater competition from local counterparts in the future.


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