According to estimates from Soyuzagromash, the Russian Association of Agricultural Machinery Producers, and the Russian Ministry of Industry and Commerce, the total market for agricultural equipment in Russia in 2008 increased 50% and reached nearly $6 billion. Total local production showed a 25% increase while imports increased 60%. The leading foreign suppliers of agricultural machinery remained Germany (28%) and the United States (21%).
It is important to note that 2008 should be viewed in two parts: The first half of the year, when the market was growing fast, and the second half of the year, when the economic crisis impacted the sector greatly. According to Soyuzagromash, Russia’s agricultural machinery market increased 68% in the first half of 2008. This rate of expansion was the highest in the last 10 years. Russian production grew 60%, while Russian imports of agricultural machinery in the first six months totaled $2 billion, a 55% increase over 2007. Market growth was driven by rising world food prices and implementation of the “Program of Engineering Modification” established by the Russian Ministry of Agriculture in 2006. According to this program the Russian government is to help local agricultural companies and farmers replace 40% of their tractors and 55% of their combines.
In the second half of 2008, due to the global economic crisis, the situation in the Russian market changed dramatically. By the end of the year, production of the main types of agricultural machinery fell significantly. For example, grain and fodder harvesting combine production in November 2008 was half that of November 2007, tractor production dropped by a factor of 4.4, and harrow manufacture fell by a factor of 9. Other types of machinery faced similar difficulties.
There is currently much idle machinery on the Russian market. According to Soyuzagromash, accumulated unsold inventory makes up approximately 40% of all the machinery produced in Russia in 2008. An analysis of December and January data by the manufacturers suggests that the industry recession in 2009 will exceed 50%. Given that agricultural machinery imports have greatly outpaced local production for the last few years, at the end of 2008 Russian Prime Minister Vladimir Putin held a conference focused on the situation of the sector. The following decisions were announced during the conference:
• The government will contribute an additional 25 billion rubles ($750 million - $1 billion) to the authorized capital of JSC “Rosagroleasing”, a state company that finances machinery purchases by Russian farmers and agricultural enterprises. Information about deadlines, volumes, the range of machinery, and the plants that will participate in the leasing program has not yet been announced.
• State banks “Sberbank” and “Rosselkhozbank” will no longer provide credits for purchases of foreign agricultural machinery. “Rosselkhozbank” has already established instructions that place a moratorium on any further financing of foreign agricultural equipment. “Sberbank” is expected to do the same shortly.
• Instructions were issued that forbid using federal and regional budget funds for the purchase of foreign agricultural machinery.
As of February 14, new increased duties will go into effect for combine harvesters, raising the current duty rate of 5% ad valorem to a new rate of 15% but not less than 120 Euros per kilowatt of engine capacity. In addition, the Ministry of Industry and Trade is currently conducting a safeguard investigation of imported harvesters, scheduled to be completed soon. It is not yet clear whether the ministry will recommend that the Russian government impose any additional measures on imported harvesters, such as a further duty increase or a quota on imports.
As one might expect, the above events have created a somewhat negative perception of the sector as we enter 2009.
Despite this cloudy outlook, there could be some niche opportunities for U.S. exporters in the following areas:
• Agricultural tractors
• Cultivators and other soil preparation equipment including plows, harrows, cultivators, seeders and fertilizer spreaders • Equipment for dairy livestock breeding, swine and poultry production
• Combines and other harvesting equipment, a traditionally strong import item for Russia. Due to the newly established government resolution, however, imported grain and silage-harvesting combines now face higher duty tariffs - 15% of the customs price, but not less than 120 Euro for 1 kW of engine power.
• Food processing machinery companies.
Given the crisis in the agricultural sector and strict government regulations, large sales will probably be possible only for sellers that go substantially beyond simple direct sales and are able to provide financing as well as a support system for purchases. Some major U.S. companies have proposed comprehensive equipment, financing and service projects, which could significantly increase associated farm machinery imports to Russia by making use of export credit guarantees available from the Export-Import Bank of the United States.
For U.S. firms interested in the Russian agricultural machinery market, exhibiting at one of the two key Russian agricultural trade shows is advised. These trade shows are a powerful marketing tool and reassure Russian buyers that the U.S. company is committed to establishing and maintaining its presence in the Russian market. Substantial sales are often made at these events. U.S. companies may also have opportunities where financially healthy Russian companies are trying to expand in order to satisfy growing demand for domestically produced food. For example, increased sales of meat, fruit and vegetable processing equipment may be possible.