US tractor maker takes creative approach to build its business in Africa

Rather than waiting for farmers on the continent to adopt modern farming techniques, US agricultural equipment manufacturer AGCO has taken it upon itself to develop the sector.

AGCO will invest in agriculture in Africa to develop the sector.

AGCO will invest in agriculture in Africa to develop the sector.

New York Stock Exchange-listed AGCO manufactures the Massey Ferguson brand of tractors, as well as a variety of other agricultural machinery.

Towards the end of 2012 AGCO announced it will invest US$100m in Africa over a three-year period. A week ago the company held its third annual AGCO Africa Summit in Berlin, Germany.

One of the challenges for machinery manufacturers targeting Africa is that many farmers on the continent still use relatively primitive production techniques.

“Currently, the majority of power for farming in Africa is provided by draught animals or human hands. This not only severely limits productivity but the hard work for so little return also makes agriculture an unattractive occupation,” said AGCO in a statement.

In Zambia AGCO has invested in a demonstration farm and training centre with the aim of educating local farmers on modern agricultural technology and the latest farming practices.

In a recent report, Dutch multinational banking group Rabobank notes that this initiative is not one with immediate pay-offs for AGCO but rather a more strategic approach to develop farming in the region and subsequent demand for its own equipment.

“Such creative and pre-emptive commercial behaviour is one important way global food and agribusiness companies can creatively establish themselves in the continent for the longer term, while helping commercial agriculture emerge more rapidly than would be the case otherwise and at the same time helping build long-term demand for their products,” says Rabobank.

The report adds that “this approach recognises that simply selling inputs will not be enough for global companies to build a sustainable business in Africa. African farmers need access to know-how, education, credit and technology, and global food and agribusiness companies are well positioned to help.”

“Africa lies at the heart of what promises to be a new agricultural revolution,” said Martin Richenhagen, CEO of AGCO. “A new roadmap for ensuring a sustainable food supply has to be developed – harnessing the expertise of the private industry sector, and the knowledge of local communities and farmers.”

Growing competition

AGCO, the world’s third largest agricultural machinery manufacturer, is however far from the only international equipment company eyeing African farmers. Bloomberg last year reported that John Deere dealers are targeting an “emerging agricultural class”. Asian manufacturers are also providing competition for Western brands, which some farmers perceive as being too expensive.

A study by the Food and Agriculture Organisation notes that farming mechanisation holds the potential for both economic and social gains in sub-Saharan Africa. These benefits include increasing the efficiency of labour, boosting yields and encouraging younger and more innovative people to remain in rural areas and work the land.