OSAKA -- Top Japanese farm equipment manufacturer Kubota is teaming up with Indian peer Escorts to produce cheap machinery for sale in developing countries.
Kubota and Escorts, India's third largest farm equipment maker, have agreed to create a new brand, "E Kubota," under which they will market tractors in Eastern Europe, Africa and other regions, from this year.
Demand for agricultural equipment is expected to grow in emerging markets as farming becomes increasingly mechanized.
Key U.S. and European agricultural equipment makers such as Deere & Co. and CNH Industrial are already dominant in more advanced economies where large-scale farming is the norm. This has led Japanese manufacturers to turn to emerging economies where many mid-sized manufacturers are competing to capture market share.
BSE-listed Escorts has a 12% market share in India and has an edge in producing simply designed machines cheaply by buying parts in bulk. Kubota will spend 16 billion yen ($148 million) to acquire a 10% stake in Escorts in a deal that will be completed in June.
Tractors for sale in South Africa will be produced at Escorts' factory in the northern Indian state of Haryana. The factory is not in full operation because of the coronavirus outbreak but is ready to begin exports once economic activity can resume.
For exports to Eastern Europe, tractors will be manufactured at Escorts' plant in Poland. It is hoped that the two factories will sell a total of 800 tractors this year to help Escorts raise its operating rate.
The alliance will mainly offer small 26- to 90-horsepower farming machines to be priced between the equivalent of 1 million and 1.5 million yen in Eastern Europe, compared with around 2.9 million yen at which Kubota sells its 85-horsepower tractor in South Africa.
E Kubota tractors are inferior to the Japanese maker's existing machines in terms of operability and ride quality. But the partners hope that the low-priced models will encourage small-scale farmers to adopt them.
Deere of the U.S. is the world's largest farming equipment maker, chalking up $39.2 billion in sales in the year ended in October, followed by European CNH with $28 billion in the year to Dec. 31 and Kubota with 1.92 trillion yen ($17.8 billion).
Kubota's principal markets are Japan, Southeast Asian nations and the U.S. In Europe, Kubota has a small market share of around 8% and a factory in France.
In emerging economies, tractor markets are in nascent stages of development, with Indian manufacturers like Mahindra & Mahindra already wading in, as well as others from the U.S. and Europe.
Kubota forecast that tractors sales in emerging markets will total 1.9 million units by 2027, of which nearly 70% or 1.25 million will be low-priced machines. Of an expected sales increase of 500,000 units in about 10 years, low-priced tractors will account for 400,000, the company said.
The number in India will increase to 880,000 units from 520,000 and to 420,000 units from 230,000 units in Africa accordingly.
Growing demand for food in emerging economies is stimulating demand for tractors. According to the Japanese Ministry of Agriculture, Forestry and Fisheries, global demand for food in 2050 will likely increase to 5.8 million tons, 1.7 times the level in 2010. In particular, demand in emerging market nations and developing countries is forecast to double.