AGCO looks to bridge the mechanisation gap in African farming

Africa’s agricultural potential is attracting attention from global investors and policymakers alike. However, closing the gap between the region’s potential and its current low levels of productivity remains a challenge.

According to the African Development Bank (AfDB), agriculture supports 80 percent of livelihoods for Africa’s 1.1 billion population. However, malnutrition and food insecurity remain high, while the sector as a whole only performs at an estimated 40 percent of its potential yield. AGCO, a leading distributor and manufacturer of agricultural equipment, is looking to change this by supporting sustainable mechanisation across Africa.

“For us, sustainable mechanisation means designing our products with Africa in mind. It means building our products on the continent locally. It means providing education in successful agricultural practices, in training operators, mechanics, and our dealer partners on how to operate, service and maintain our machines. And of course it means providing first-class support to our customers in the field,” says Rob Smith, Senior Vice President and General Manager for Europe, Africa and Middle East at AGCO.

Many problems - ranging from poor infrastructure, chronic underinvestment by policymakers, and climate change - all contribute to the underperformance of African agriculture. But lack of mechanisation plays a large role.

The acreage of farms in Africa tend to be small, and farmers continue to rely on manual practices to till and cultivate fields. As of the turn of the millennium, there were only 200,000 tractors in use in all of sub-Saharan Africa, compared to just under 1 million in China and more than 1.5 million in India. Meanwhile, only around 10 percent of cropped land in Africa is currently prepared by tractor, and only 4 percent of land is irrigated.

The difference shows: Africa’s agricultural productivity is one of the lowest of any region in the world. According to the UN Industrial Development Organisation, lack of mechanisation means that “agricultural operational efficiency and productivity, and, therefore, the prosperity of a very large proportion of the African population, has remained a problem”.

AGCO, the US-based manufacturing company whose products include iconic tractor brands such as Massey Ferguson as well as the full range of agricultural equipment, sees it as part of their mission and business strategy in Africa to support mechanisation

So far, this approach appears to be bearing fruit: the company’s business in Africa, though long established, has been growing rapidly over the past few years in line with the narrative of the region’s economic resurgence. According to AGCO’s CEO, AGCO's sales grew over 60% between 2012 and 2014. At the same time, the company pledged to invest $100m over three years in its Africa operations in 2013.

“It is almost a greenfield scenario, because while we have done business in Africa for many years now it has all been export business mainly from England and France. In the meantime, of course, Africa changed a lot,” Martin Richenhagen, AGCO's Chairman, President and CEO, explains.

As the region has changed, so has AGCO’s approach to doing business there. The company now has an assembly plant in Algeria through a joint venture with the Algerian Government. So far, over 2000 tractors have been assembled at the Algerian plant. In addition, the company has established parts and support outposts around the region to support its customers as they drive forward Africa’s process of mechanisation.

“These are the elements which are helping us to gain market share,” Mr Richenhagen asserts.

The company is also building a future farm in Zambia, slated to open officially in May 2015. The farm will provide training and demonstrations for regional farmers on topics ranging from basic agronomy to general mechanisation techniques, as well as courses on more advanced tractors and precision farming techniques. The centre will also showcase techniques and equipment for farmers to minimise post-harvest losses.

One of the main challenges that drives for mechanisation comes up against is financing. Banks and traditional financial institutions have always viewed agriculture as risky, and have difficulty lending to farmers in Africa. However, access to credit is vital for farmers looking to upgrade their production - whether on the scale of buying a few bags of improved seed, or larger scale mechanisation and infrastructure upgrades. Agriculture supply companies are working closely with financial institutions to come up with solutions to bridge this gap.

“Once [farmers] get into the cycle, then they become bankable. Really, it is in that very first year that is the most difficult to get the inputs early, and to get the financing up front,” explains Martin Dawkins, regional head of EMEA for Bayer CropScience, a leading supplier of farming chemicals and inputs.

However, once farmers “get the proof that [they] can deliver and return, credit ratings go up. For the mid-size farmers particularly, they become bankable quite quickly,” he asserts.

Ultimately, all of these initiatives are united by a common goal: making African agriculture into a viable, sustainable business proposition. This is important not only to support the thousands of families across the region that already depend on agriculture for their livelihoods, but to make the sector attractive to Africa’s growing youth population.

“The more the rural space is marginalised, the more the rural population, particularly the youth, will migrate to big cities,” says Kanyo F Nwanze, president of the International Fund for Agricultural Development (IFAD).

“The mistake we make is that it is actually the rural space that provides environmental benefits to the urban, it provides social services, it provides food, it provides job opportunities. So a neglect of the rural development has dire consequences for overall national development.”

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About AGCO

AGCO (NYSE: AGCO) is a global leader in the design, manufacture and distribution of agricultural equipment.

AGCO supports more productive farming through a full line of tractors, combines, hay tools, sprayers, forage equipment, grain storage and protein production systems, seeding and tillage implements and replacement parts.

AGCO products are sold through five core equipment brands, Challenger®, Fendt®, GSI®, Massey Ferguson® and Valtra® and are distributed globally through a combination of approximately 3,100 independent dealers and distributors in more than 140 countries.

Founded in 1990, AGCO is headquartered in Duluth, GA, USA. In 2014, AGCO had net sales of $9.7 billion.

For more information, visit http://www.AGCOcorp.com.