Farm Machinery Demand to Rebound on Food, Indian Producer Saysby
Tractors & Farm Equipment: Asia, Africa to drive food growth
Higher labor costs will contribute to India's mechanization
The global farm-equipment market will rebound from its current slump because of the impact of the long-term growth in food demand, driven especially by Asia and Sub-Saharan Africa, according to the chief executive officer of the world’s third-largest tractor maker by volume.
Demand for grain used in food will rise to about 4.5 billion tons in 2050 from 3 billion tons in 2010, and meeting that higher figure will require productivity gains through increased mechanization, said Mallika Srinivasan of Chennai, India-based Tractors & Farm Equipment Ltd.
“If you look at the longer-term drivers of demand, they are very much in place,” Srinivasan said during an interview at Bloomberg News headquarters in New York on Monday.
That upbeat view comes amid what’s been a difficult year for the agricultural machinery industry. Lower prices for agricultural commodities from corn to sugar have curbed farmers’ spending power. In August, Deere & Co., the largest farm-equipment maker by sales, cut its profit forecast. Industrywide equipment sales will likely have another “dismal year in 2016,” Bloomberg Intelligence analysts Christopher Ciolino & Karen Ubelhart said in an Oct. 13 report.
The global market for tractors will slip to about 1.68 million in 2015 from 1.8 million last year but will recover and expand to 2.15 million in 2020, said Srinivasan, 55, who is also chairman of the family owned company. Total world farm equipment demand will increase about 5 percent annually, with a large portion of that growth in volume coming from emerging markets, she said.
Developing regions are key for Tractors & Farm Equipment, also known as TAFE. Srinivasan’s company is focused on the market for equipment of up to 120 horsepower. Founded in 1960, TAFE is now India’s largest exporter of tractors. Its machines are aimed at small- and medium-sized farmers -- many of whom cultivate just 2 hectares (4.9 acres) -- in South Asia, Southeast Asia, Africa and the Balkans.
Domestically, TAFE sees growing demand for mechanization beyond tillage, in areas such as harvesting, as labor becomes more expensive while the government pushes for improved domestic food security, Srinivasan said. While the country’s farm equipment market has been soft recently, due partly to lower crop prices and weak monsoon rains, it will recover during 2016 and 2017, she said.
Precision farming technology, which utilizes electronic sensors, wireless devices and data analytics to help improve yields, is a “good enabler” for increasing productivity as well, Srinivasan said. Manufacturers will have to be “pragmatic” in using the technology in India, as the needs of the country’s farmers are different from those in North America, whose farms are typically much larger, she said.
Despite its focus on lower-horsepower equipment in emerging markets, TAFE still keeps tabs on developed markets for bigger machinery. It’s the biggest shareholder in Duluth, Georgia-based Agco Corp., the world’s third-largest farm equipment manufacturer by sales. The two companies jointly manufacturer and distribute Massey Ferguson products. Agco also owns a stake in the closely held manufacturer.