Emerging Agri-Niche: Africa’s First-Time Tractor Buyers

Emerging Agri-Niche: Africa’s First-Time Tractor Buyers

U.S. tractor makers are rushing to sell farm equipment to first-time buyers in Africa – part of an emerging agricultural class increasingly courted by foreign manufacturers, according to a Bloomberg report.

Mechanization in African farming is still very low. Kenya had 25 tractors per 100 square kilometers (39-square-miles) of arable land in 2009 while Nigeria had almost seven, according to the most recent data from World Bank. That compares with an average of 271 machines in the U.S., the report said.

Dealers for Deere & Co., the largest farm-machinery maker, are opening new African sites to sell equipment such as the 5503 tractor, its most popular. The $24,000 price tag cost one tenth of some of its machines selling in the U.S.

Fiat Industrial SpA’s CNH Global NV unit says African sales are growing by as much as 20 percent year on year, boosted by farmers making their first purchase.

Companies “are all racing to get there for the next growth wave,” said Larry De Maria, a New York-based analyst for William Blair & Co. “It could be a lucrative situation for the equipment makers and solve the potential food shortages in Africa.”

Illinois-based Deere entered Africa through apartheid-era South Africa. Greater political and economic stability and a push by some nations for food self-sufficiency have made the continent more attractive, said Ganesh Jayaram, Deere’s vice president of agriculture for Africa.

Africa’s food market may triple to $1 trillion by 2030 on population growth and urbanization, the World Bank estimates. African machinery demand is expected to rise accordingly.

Africa’s farm-equipment market will be about 24,000 to 30,000 machines in 2013, according to Duluth, Ga.-based tractor maker Agco Corp. By comparison, U.S. industry-wide tractor sales were 137,776 this year through August, according to the Association of Equipment Manufacturers.

Sub-Saharan Africa has the biggest gap between actual and potential yields, according to the World Bank, the report said.

In Nigeria, the continent’s most populous country, just 40 percent of arable land is cultivated. Nigeria plans to stop importing rice by 2015. Agriculture is Nigeria’s “new frontier for growth,” President Goodluck Jonathan said in July.

African farmers work small lots, limiting their access to financing. Farming technology is costly and under-utilized, the U.S. Department of Agriculture said in a September 2012 report.

To address those issues, Agco opened a 150-hectare learning center and farm near Lusaka, the Zambian capital, to train local farmers and dealers in modern farming technology. According to Agco, 65 percent of African farmers work manually. Deere and CNH also help with training.

The demand for technology and higher horsepower is growing, said Nuradin Osman, Agco’s director of operations for Africa and the Middle East.

Agco, the third-largest farm equipment maker, has 150 to 200 dealer outlets in Africa. It opened a parts distribution center in Johannesburg and is assembling Massey Ferguson tractors in a joint venture in Algeria.

In 2014, the company plans to introduce 15 new products for the African market including planters, harvesters and storage units.

Deere had 30 dealer locations in East, West and Central Africa in 2010, and the number will double this year. It also has a parts distribution center in South Africa serving the whole continent and tripled its parts inventory in Africa in the last few years.

Dealers for CNH, the second-largest farm equipment maker, added 20 to 30 new sites in the last three years for a total of about 300 sales and service locations, said Diego de la Calle, business director in Africa for Case IH and New Holland equipment. It plans to continue expanding, particularly in West Africa.

In Africa, the big three face stiff competition from Asian players who are more established in that market.

Dennis Kamoga plans to start farming west of Kampala, Uganda. He has no plans to buy a tractor, but said if he did, “I would go for those from Asia as they are cheaper and their spare parts are readily available. I have never heard about the American tractor brands, but I believe they must be expensive.”