Tractors Manufacturers Sees Opportunity for Growth in China
In a rare opportunity for growth in China, the world’s largest manufacturer of tractors and combines sees an increase in the demand of big farm machines as rural labor force is decreasing and plot sizes growing. Manufacturers such as US based AGCO and Deere & Co. along with Italy’s CNH Industrial the demand for big machines in China help offset the weakness in North America and Europe where farms revenues are slowly declining along with global commodity prices. The trend contrasts with stalling sales in construction equipment that has also been hit by the slow economy.
To push the binge, more powerful equipment the farm larger farms is a combination of labor migration to cities, land reforms and government subsidies that promoted consolidation of the vast but small landholdings. According to the head of China Industrial research of the investment bank CLSA Alexious Lee that people are getting ready as they move towards bigger or larger farms. In 2013 the average farm in China is smaller than a football field and with 900,000 family farms with each having an average size of 13.3 hectares. These family plots are less than a tenth of an average US farm and further expansions in sixe is already expected as the government is promoting a more efficient agriculture by reforming land rights.
State and cooperative farms that have 3,500 hectares are also in need of larger and bigger tractors to cultivate and harvest their agribusiness size plots. The total sales of 100 to 129 horsepower tractors in China also increased by 38 percent in 2015 compared to the same period in 2014 and overall farm equipment sales of AGCO wee flat during the first half of the year but long term prospects looks bright. The Asia Pacific region accounts is 5 percent of AGCO US$ 9.7 billion in revenues last year and the company recently opened its fifth factory in China that is targeting US$ 1 billion in sales before hitting 2020 and is expecting the business in China of quadruple.
CNH are selling 140 -230 horsepower tractors in China is just starting producing combines and with 5,000 coop farms in China the company predicts a growth of 15 to 20 percent each year. Giving out subsidies can cover 30 to 40 percent of a cost of a tractor or giving out incentives for deep ploughing also encouraged rapid gains in mechanization in a sector that is dominated by lower horsepower tractors that are used on smaller farms.