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Business trends

Global tractor makers seek fertile ground in Indian market

Kubota and John Deere face off against local leader Mahindra

Mahindra & Mahindra controls 40% of the tractor market in India.   © Reuters

MUMBAI -- India, the world's largest tractor market, is set to grow even larger over the next decade, and manufacturers at home and abroad are vying to establish deep roots in the South Asian country.

At a sugar-processing plant in a village 200 km southeast of Mumbai, farmers deliver freshly harvested sugar cane. Many use traditional ox-driven carts to transport the harvest, while others employ tractors. One bright-red tractor emblazoned with the logo for Japanese farm equipment maker Kubota lugs a towering stack of cane on an eight-wheel loading bed.

It takes 16 km to travel between the fields and the plant, but the tractor consumes only three or four liters of fuel, said its owner. Not only is the fuel consumption better than a John Deere tractor, but Kubota's model drives with less noise and less vibration.

The owner switched to the tractor three years ago from a vehicle made by CNH Industrial, a European manufacturer. Too heavy a load would cause the front wheels to float, he discovered, creating a driving hazard. A friend did not recommend a tractor from the leading Indian maker Mahindra & Mahindra, citing maintenance problems.

India's tractor market surpassed 700,000 units during January-October 2018, putting the country at the top of the global rankings and fourth in terms of value. Estimates have the market reaching the 1-million-unit scale next year.

Although over half of India's population earns income through farming, the adoption rate of agricultural machinery still hovers at around 10%. Ox- or horse-driven carts are still in widespread use here, largely owing to the scant incomes garnered by farmers.

At the same time, farm wages have risen and more people are taking better jobs in urban areas, leaving fewer people to work as farmhands -- all of which is fueling demand for farm equipment. Tractor sales are expected to climb by 7-8% each year until 2030, according to Indian brokerage Kotak Securities.

Kubota first started exporting tractors to India in 2008, focusing on the southern end of the subcontinent, since the rice crops there aligned with the Japan-honed technology. In 2015, Kubota developed other models designed for hauling crops and other purposes outside of cultivation, in a bid to answer demand.

A farmer stands by a Kubota tractor hauling sugar canes in India's state of Maharashtra. (Photo by Akira Hayakawa)

Kubota's tractors have drawn buyers thanks to their fuel efficiency and low noise. During the first nine months of 2018, the company sold 6,700 units, a roughly 50% jump from a year earlier. But Kubota's Indian market share still wallows at around 1%.

"We've been active there for a decade, but we have yet to reach cost competitiveness," said President Masatoshi Kimata. Among tractors in the 50-horsepower range -- the mainstream option in India -- machines that Kubota imports from Thailand fetch a market price of about 800,000 rupees ($11,000) in the Mumbai area. That's around 10% more expensive than similar offerings from Mahindra.

To better compete against Indian rivals, Kubota has formed a joint venture with Escorts, the country's fourth-largest tractor seller. The partners will build a plant in the northern Indian state of Haryana, due to start mass production next June, with a goal of producing 50,000 units in 2022.

Kubota will reduce production costs 20% by utilizing Escorts' component supply chain, and its sales network will double to 400 dealers by 2023, stretching to every corner of India. The company positions India as a key global growth market, with sales expected to soar 130% to 30 billion yen ($275 million) in 2022.

But the Japanese company will still have to contend with powerful Indian competitors. The top-four Indian manufacturers control 80% of the market, with Mahindra alone holding 40%. Formed in 1945, Mahindra is a household name in India, since it is a major automaker as well.

The Mumbai-based company offers a vast catalog and its sales network spans more than 1,000 dealers. That sort of presence gives a customer easy access to spare parts in case of breakdowns, said one farmer. Used Mahindra machines can easily find new homes, and the company also leverages a loan provider under its group umbrella.

Recently, Mahinda has been targeting consumers with meager budgets by launching a rental service. Furthermore, Rajesh Jejurikar, head of Mahindra's farm-equipment segment, said the company has expanded production capacity to meet the expected growth in demand in the next two to three years.

Deere & Co., the U.S. maker of John Deere tractors, has carved out a 10% market share in India, earning it fifth place. After years of competing against both Kubota and Mahindra on its home turf, Deere decided to take the fight to India in 2000, where it formed a joint production venture with a local concern, later converting the venture into a fully-owned subsidiary in 2005. When it comes to branching out to India and launching local production there, Deere enjoys a substantial head start against Kubota.

Now, Deere plans to boost engine production to match its Indian tractor-manufacturing capacity, which amounts to over 130,000 units a year including export-bound goods, according to local new sources. That way, the company will not have to rely on imports. Deere also introduced a 28-horsepower small tractor into the market last month.

Other Japanese players have recently joined the fray. In a deal completed in 2017, Yanmar Holdings lifted to 30% its stake in International Tractors, India's third-ranked tractor company, and the two are jointly developing new tractors. Iseki formed a collaboration last November with Tractors and Farm Equipment, India's second-largest seller, to sell high-perfomance midsize tractors.

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