South America, especially Brazil, features strongly in most financial reports from the major manufacturing companies due to steady sales growth in the region compared to the mature western markets of North America and Europe.
Although Brazil is the country most often mentioned Argentina, Uruguay and others have caught the attention of the marketing departments as they strive to keep the production lines busy, for the Mercosur region as a whole is experiencing strong growth in agricultural productivity.
The enthusiasm for Brazil is understandable, in 2021 the country’s farmers purchased 45,000 tractors compared 215,000 for the whole of Europe in 2022, and the market is still growing with an estimated Compound Annual Growth rate (CAGR) of 4.75%.
Should this rate of growth be achieved there will 62,000 units sold in 2028, rich pickings that are being viewed by all global manufacturers, not just those in the west for Mahindra and Kubota are listed among the top five brands in the country, along with the usual big three of AGCO, Deere and CNH.
Rain forest concerns
The size of its farming economy can be judged by the 92 million hectares it has under cultivation, this compares to the approximate 5m ha that Ireland farms which represents 69% of land use in this country.
Brazil, on the other hand, farms 29% of its area, yet still manages to rank as the world’s second largest exporter of grain.
Expanding the cultivated area in Brazil is a matter of great contention for that invariably involves clearing the rain forest which, to be fair, the government has made genuine efforts to protect
However, it is no easy task and several states within the Amazon region have made it quite clear that they wish to to continue with clearing the land for agriculture, neatly illustrating the clash between lofty ideals and the visceral desire of mankind to farm.
One of the states, which goes by the name of Acre, has passed its own internal legislation which undermines the government’s attempts to conserve the forest, the new laws will allow privatisation of conservation areas and reduce the penalties for illegal deforestation.
Boosting productivity
Clearing the forest may be one way way of increasing Brazil’s output, yet the government is intent on following a second path and that is increasing production from the land already being farmed.
The enthusiasm of the government for increasing yields rather than clearing forests makes it an attractive proposition for manufacturers who see further growth in the country as it adopts the technology that western manufacturers have to offer in a bid to further this aim.
Mechanisation has long played a part, yet there is always room for improvement and $90 billion was recently pledged by the government in support of securing a sustainable food supply.
Some of this money will be directed to updating the machinery fleet and equipping it with GPS and autonomous technology, although there are no details as yet of the mechanism of how this will happen, but it is a good deal of money in addition to the usual farm incomes.
The market players
There are nearly five million farms in Brazil, a figure which has remained consistent over the years, as has the mix between sizes, ensuring companies will need to offer tractors across the whole power range.
The attraction of Brazil is nothing new, back in 1960 Valtra, or Valmet as it was then, opened a factory in the country after it won a contract to partner with the government in building tractors within the country.
This factory was a converted textile mill and the first tractor, powered by a 40hp MAN diesel (MAN was already active in the country) rolled off the production line at the end of 1960.
Valtra is now part of AGCO, which still shows the greatest enthusiasm of the big three for Brazil. The corporation takes every opportunity to mention its desire to see Fendt sales in particular grow in the country, despite the Valtra factory still going strong.
This desire to see its sales boosted is coupled with a $20 million investment by its leading distributor in Brazil, the Vamos Group, in a new sales and service and training centre.
John Deere tech investment
John Deere explored the market in 1976 when it formed a partnership with Schneider, Logemann & Cia ltd to produce combines in the country. A proposal to manufacture tractors alongside the harvesters was explored at the time but was subsequently dropped.
It took until 2008 for the company to open its own factory at Montenegro, in which it produced a wide range of tractors from 55hp to 400hp to cater for the mixed market. This plant was further expanded in 2021.
More recently, it has opened a Tropical Development and Technology centre in the country that will conceive and develop new engineering products, not just for Brazil, but the tropics generally, it is taking agriculture in the developing world seriously.
New Holland’s legacy
New Holland started manufacturing harvesters at Curitiba in Brazil in 1976, followed by tractors in the 80’s after the company had been acquired by Ford.
Currently, the 750,000m2 Curitba plant employs 2,145 people and has the installed capacity to produce 100 tractors, 12 harvesters and 14 harvesting platforms per day.
Altogether the company now employs over 4,000 people in its three Brazilian plants compared to 1,000 at its Basildon factory.
Indian influence in Brazil
Mahindra is another company that is committing to Brazil with the construction of a factory in Ararica, Rio Grande do Sul.
This is described as a state-of-the-art facility, covering an area of 93,000m2 and is scheduled to open in the first half of 2025, signalling Mahindra’s commitment to the Brazilian agricultural sector.
The company focuses on competitive pricing and boasts of a robust distribution network serving a diverse agricultural sector and it this which is the key to Brazil, for it includes tropical and sub-tropical climates enabling everything from wheat to coffee to be produced.
Kubota is also present in the market through its importers TMI, but it has no manufacturing facility in the country.
Brazil holds a huge potential so while the manufacturers would like us to think that it is only the Irish market they have at heart the truth is that they are looking much further afield and it is the larger markets that they will be taking most notice of.
The country is shining bright on their radars and we can expect to hear a good deal more from them as they go about reassuring shareholders that it is where there is they see the greatest capacity for sales growth.
