As one of the world’s traditional top food suppliers Argentina will continue to be an important market for agricultural equipment, especially given current high prices for grain. The U.S. and Brazil are traditionally the largest foreign suppliers of agricultural machinery with a market share of 25 and 50 percent of the import market, respectively. The importance of agriculture to the Argentine economy can be illustrated by the fact that agricultural-based exports generate two thirds of the country’s foreign exchange earnings. The favorable international commodity prices, soybeans and corn in particular, are generating a rapid change in Argentina’s usage of farmland: large extensions previously used for livestock or left fallow are now being prepared for agriculture and state of the art technologies are being incorporated to increase yields.
During 2012 good rain and solid international commodity prices have helped agricultural activities to grow. As a result, the agricultural machinery market is growing and agricultural machinery imports are projected to reach USD 1.2 billion in 2013, a 35 percent increase over 2010.
The traditional U.S. brand names are market leaders. With the exception of the larger tractors, 250 HP and above and state-of-the art equipment, most imports come from Brazil. This is due to the fact that many of the world leading international firms have manufacturing facilities in Brazil. Some farmers have begun to experiment with less familiar, non-traditional crops, such as specialty fruits and vegetables, and are gradually generating demand for specialized equipment.
Also, fertilizers and agricultural chemicals, have seen sales soar in recent years. An example of widely used efficient technology is the direct sowing or “no-tillage” system which brought a threefold growth in the consumption of herbicides. Direct planting, hardly used two decades ago, now covers over ten million acres of farmland. Also, in the past decade, more than 120 genetic engineering studies have been conducted by Argentine seed producers and local affiliates of foreign companies on herbicide and insecticide tolerance. Gradually, the Argentine agricultural sector is becoming a technology-based industry with a market-driven approach that is enhancing its competitive advantage. Information technology services for agriculture continue to grow with wireless connections and Wi-Max networks. This offers opportunities for U.S. companies that can provide this technology.
Competition from Local Manufacturers
Because agriculture was one of Argentina's first industries in the late 19th century, there are many well established local manufacturers of farm machinery and implements. Domestic production of agricultural machinery and equipment accounts for between 15 and 35 percent of the total market, depending on the product.
There are approximately 130 manufacturers of a wide variety of machinery, both in terms of company size, production scale, and level of expertise. Many rely on imported key parts and components. Most are family-based business, highly concentrated in specific geographic areas in the interior of the country, in the provinces of Cordoba and Santa Fe. Local manufacturers supply mainly seeders, harvesters and sprayers. As the level of sophistication increases, these plants generate increasing demand for imported parts, components and accessories that presents opportunities for U.S. suppliers. The best way of familiarizing potential Argentine customers with a company’s product line is to exhibit in local trade shows. Distribution agreements, joint-venture alliances with domestic manufacturers and licensing are options but U.S. firms should choose their partner carefully given that protection of intellectual property is a continuing challenge and local Argentine firms have been known to make copies of patented foreign designs.
In the past few years, Argentine exports of agricultural machinery have soared, specifically to Venezuela, South Africa, India and Europe as some Argentine firms have been able to produce internationally competitive equipment such as self-propelled sprayers.
Imports from countries other than the United States represent approximately 60 percent –by value- of the total import market for agricultural machinery. It must be borne in mind that with the aim of reducing the trade deficit and limiting foreign exchange expenditures, the Argentine government implemented a non automatic import license system in March 2010 with the aim of increasing local production of agricultural machinery. Moreover, as capital flight increased in 2011, the Argentine government imposed foreign currency controls and additional measures to suppress imports as a means to preserve foreign exchange. This has affected all imports, but particularly firms that do not have a local manufacturing base. The government’s stated goal is for imports of any given firm to match their exports. Thus, in order to gain permission to import goods, importers have had to reach agreements with the Argentine government on measures to compensate for their imports using a variety of mechanisms. These range from local production/import substitution plans to unorthodox measures such as agreements to purchase domestic goods that would have been exported by their domestic producer and exporting the goods themselves in order to gain export credits. Regarding the origin of imports, Brazil, followed by the U.S., is the largest supplier, especially for mid-size tractors and soil preparation/cultivation equipment. The leading international agricultural machinery firms -many from the U.S.- have manufacturing facilities in Brazil and because of the MERCOSUR customs union, imports from Brazil enter Argentina free of duties.
Sales of parts and components for agricultural machinery represent approximately ten percent of the annual sales value of tractors and harvesters. This estimate takes into account the age of the existing equipment, prices, and the exchange rate.
Annual tractor sales in Argentina averaged 4,400 units during the last two decades. However, according to industry specialists, the Argentine agricultural sector needs 10,000 units annually to achieve its full potential. Currently there are 190,000 tractors that are operational of which nearly 85 percent are over ten years old.
The market for tractors with front-wheel power assist has grown and represents over 50 percent of total deliveries. The demand for medium capacity machinery with computerized units has grown as well as the preference for more efficient and more comfortable units with air conditioning, GPS, audio, etc. Regarding harvesters, the total number is estimated at 27,200 of which 18,000 units are operational. The median age is also ten years.xx Over 70 percent of total tractors sold during 2010 had front-wheel power assist, of which 90 percent originated from Brazil. A similar percentage of combines were imported from Brazil as well.