U.S. equipment manufacturers dominate the Brazilian tractor and combine markets.
First-quarter industry figures show AGCO's Massey Ferguson is number one with 36% of all tractor sales in Brazil. Valtra (also owned by AGCO) is second with 29% of the tractor market. The New Holland brand is third at 18%, and John Deere is fourth with 7.5% of the market.
In the combine market, the New Holland brand is the big leader with 41% market share. John Deere takes second with 27%, and AGCO's Massey Ferguson is a close third with 22.5%. Case IH is fourth with 9%.
Massey Ferguson, Valtra and New Holland are well-established brands in Brazil. The Finland-based Valtra was the first tractor manufacturer in Brazil, hitting the market in 1960. Another AGCO brand, Massey Ferguson, started selling tractors in Brazil 44 years ago. New Holland sold combines as early as 1973.
A tradition in the market helps U.S. brands maintain market share. These companies should continue to dominate if they deliver the equipment that Brazilian growers will need as more land opens up for crop production.
At Brazil's Agrishow, the country's largest farm equipment show, U.S. manufacturers talked about the Brazilian agricultural equipment market and its future. “Brazil is one of the last frontiers for crop production,” reports Paulino Jeckel, Massey Ferguson marketing. About 260 million acres are available to develop for crop production.
“We will have to use this land because the world needs it,” Jeckel says. “So the future of Brazil is agriculture. And tractor manufacturing will grow as well.”
High import taxes
Although the Brazilian market looks lucrative, it's a tough one to enter. Brazilian import taxes and financing restrictions double the price of imported equipment such as tractors and combines. To beat the pricing problems, companies must manufacture 60% of the equipment in Brazil, including components. Therefore they must invest in manufacturing facilities to compete in the Brazilian market. The traditional Brazilian brands like AGCO and CNH have an edge with established factories. Newcomers face high up-front costs to compete.
At the show, a distributor for Outback Guidance equipment reported that the price of the entry-level package in Brazil is $7,000 compared to $3,990 in the U.S. The increase in price is due to taxes and duties. In addition, the Brazilian government recently ended its low-interest financing program on imported ag equipment.
High import taxes have hurt sprayer sales for U.S. manufacturers. Self-propelled sprayers used to be a nonexistent market until Asian soybean rust invaded the country. “Because the spray window [for rust] is very short, farmers are replacing four pull-type sprayers with one self-propelled sprayer,” reports Nilson Righi, Case IH marketing specialist.
Because companies like Case IH must sell their imported self-propelled sprayers at high prices, they are working to locate their sprayer manufacturing within the country. Righi says Case IH should be building self-propelled sprayers in Brazil in the next one to two years to tap this market. The sprayer market leader in Brazil is Jacto and it sells 1,000 self-propelled sprayers a year, he adds.
U.S. manufacturers sell different models of tractors and combines in the Brazilian market because the growers want stripped-down equipment. “Farmers here don't buy for convenience because they don't drive the equipment,” Righi says. “They pay very low wages. So they buy only if they can see a return on investment.”
Manufacturers call the equipment sold in Brazil “low spec.” Farmers want simple, low-cost and easy-to-repair vehicles, especially in remote soybean areas, reports Jak Torretta, Valtra product development and marketing. It may take days to bring in a service person to repair specialized equipment if it breaks down in a distant field. So Brazilian growers want simple equipment, such as tractors with mechanical transmissions.
All U.S. manufacturers selling in Brazil spoke of the current depressed ag equipment business. Brazil is in the middle of a down cycle due to low commodity prices. New equipment is the first item farmers stop buying when money is tight, the manufacturers report.
Compounding the problem is an unfavorable exchange rate on Brazilian currency. The exchange rate affects how much money Brazilian growers earn on their grain because the majority of the crop is exported. And right now, they are not making much money, according to Case IH's Righi.
In spite of the down market, U.S. manufacturers selling in Brazil are upbeat about the future. They say they believe prices will be better next year and the industry will start rebounding.
During the Agrishow, manufacturers discussed what equipment is popular with Brazilian growers and how it differs from U.S. models. Here's a closer look what each company is selling.
The most popular tractor sold by Massey Ferguson in Brazil is the MF275. This 75-hp, low-spec tractor costs $35,000 to $40,000, according to MF's Paulino Jeckel. Generally, the transmission is mechanical, Jeckel says. MF sells tractors in the 50- to 220-hp range in Brazil.
AGCO manufactures 22,000 MF tractors a year in a factory located in the country and exports more than half of the tractors. The company also produces about 2,300 MF combines a year in another Brazilian factory and exports 45% of the combines, Jeckel says.
AGCO currently imports sprayers and Challenger tractors to sell in Brazil but plans to add manufacturing for both in the country to lower prices on the equipment.
AGCO has marketed its precision farming equipment to Brazilian growers for several years and is seeing some adoption. Gregory Riordan with AGCO's Global Technologies in Brazil says the market is starting to develop quickly. The depressed ag market may be driving some of the interest, he adds, because farmers want to improve their efficiencies, especially when applying chemicals and fertilizer. “The amount of herbicide, fertilizer and insecticide that can be wasted is huge,” he says.
Today, lightbars are mainstream and purchases of low-cost guidance are starting to increase. Riordan says the highly accurate real-time kinematic (RTK) equipment is in the early stage of adoption. RTK equipment currently costs twice as much in Brazil as it does in the U.S.
A Finnish company, Valtra recently was purchased by AGCO. The company is unique because all of its tractors are custom built in one factory in Brazil. About 9,900 Valtra tractors are built a year with 7,000 sold domestically and the rest shipped to other South American countries, the U.S. and China.
Valtra tractors sold in Brazil range from 62 to 180 hp. Valtra's Jak Torretta says he has seen the 80- to 110-hp range grow in the last decade and thinks Brazilian farmers will purchase higher-horsepower tractors in the future.
Farmers in Brazil also may use an alcohol-based biodiesel in the future. The government is developing programs to promote the use of biodiesel. Torretta says this will be good for Valtra because its tractors can use up to 50% biodiesel mixture without a change in engine performance.
Most Brazilian farmers purchase very basic combines, according to Flavio Mazetto with New Holland's Brazilian combine marketing group. The CNH New Holland brand is the leader in the combine market.
Mazetto says the most popular New Holland combine sold in the country is called the Exitus. The Exitus is a basic straw walker with a mechanical transmission and no self-leveling capabilities. It is equipped with a 170-hp Genesis engine and a small-capacity grain tank and air conditioning in the cab. A TC57 Exitus with 17-ft. header costs about $100,000.
John Deere introduced its new 15 series tractors to Brazilian farmers during Agrishow. Antonio Garcia, the company's director of South American manufacturing, says the new line of tractors is similar to the 20 series in the U.S. except that the cab has fewer features. The most popular Deere tractors purchased in Brazil are 100 to 120 hp. Garcia says that price levels for the tractors are similar to those in the U.S. In the combine market, Brazilian growers prefer a medium-sized combine, he adds.
Deere has two manufacturing plants in Brazil with one for combines, tractors and planters and the other for sugar cane equipment. The company is adding a third plant for more tractor manufacturing.
Most of the planters John Deere sells in Brazil are no-till, Garcia says. And now planters with the central commodity systems (CCS) are gaining popularity.
Planters in Brazil are equipped with big hoppers to hold granular fertilizer. “Because of the transport problems, fertilizer is handled in a granular form,” Garcia explains. Planters run day and night so they are lit up “like a Christmas tree with lights,” he says.
CNH's Case IH brand is not as popular in Brazil as its New Holland brand. “The Brazilian farmer is very price sensitive and Case IH is tops in the technology end of the market,” says Nilson Righi, Case IH marketing specialist. So the higher prices for high-tech equipment keep many Brazilian growers from buying. The Case IH brand tractors, combines and planters are manufactured in the country.
The Case IH brand offers 135- to 270-hp tractors in the Brazil market, with the MX270 as the largest tractor model. It sells a 22-row planter.
Although the majority of combines sold in Brazil are straw walkers, Righi says he sees a new trend towards rotary combines. Grain companies are starting to discount soybeans for poor quality, so growers may switch to rotary models to protect the quality of their grain.