Agco joins Deripaska empire to ramp up in Russia

Agco has agreed a joint venture with Oleg Deripaska's aviation-to-agriculture empire to set up a manufacturing operation in Russia market, following rivals such as Deere into what is deemed a promising market .

Agco, the maker of Massey Ferguson and Fendt farm equipment, said that the 50:50 tie-up with Russian Machines would early in 2014 begin operations, which are expected to swallow some $100m over the next three years.

The joint venture, which is to manufacture Agco-branded machinery at a plant near Moscow, represents the group's first effort to build its equipment in volume in Russia.

"Agco has done some very light assembly in Russia in the past," a company spokesperson said, with the group until now supplying the market through equipment made in Europe, with some US-manufactured combines and tracked tractors too.

However, Russia is broadly viewed as an increasingly important growth market for farm equipment groups, with Deere and CNH Global, the maker of Case and New Holland tractors, having already set up a plant in the country, and farm tyres group Titan International negotiating a joint venture there too.

'Significant potential'

"This joint venture is a very significant step in Agco's growth strategy for the Russian market," said Martin Richenhagen, the machinery group's chairman and chief executive.

"The agricultural sector in Russia has significant potential but needs modernisation and efficiency gains."

Indeed, according to Titan International while Canada has 1,800 tractors per 1,000 farmers, and the US 1,600, Russia has 96, implying a large market opportunity as farmers play catch-up with Western rates.

According to Rosagromash, the Russian farm machinery industry group, the country's market grew 14.8% by sales volumes last year, reaching 124.8bn roubles, although results have not been so healthy in 2013.

Up to July, sales of tractors were, at 24,246 vehicles, down 10.1%, and of combines, down 45% at 2,984 units.

Massive empire

However, Russia's government is attempting to grow the market through encouraging domestically-made equipment, rather than imports.

Deere's opening of a plant near Moscow followed a 2008 decision by Moscow to exclude equipment manufactured outside Russia from a financing programme for farmers purchasing new machinery a ruling the company said cut its market in the country "by over 80% overnight".

In joining forces with Russian Machines, Agco is linking to Mr Deripaska's Basic Element empire, which alone is responsible for some 1% of Russia's economic output.

Its operations span from Rusal, the world's largest aluminium producer, to Kuban Agroholding, which farms 84,000 hectares of Russian farmland, and have helped drive Mr Deripaska to a net worth of $8.5bn, according to Forbes.

Joint ventures for tractor makers in emerging markets are not without risk, as Deere found with its troubled tie-up with Chinese construction equipment group XCG.

However, Siegfried Wolf, the Russian Machines chairman said the "combination of Agco's technology driven products with Russian Machine's local production capabilities will lead to a highly successful business operation that will enhance the shareholder value of both companies".

CNH Global in 2009 unveiled a tie-up with Russian truck group Kamaz aimed at enabling local production of its farm equipment.

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