AGCO and TAFE conclude commercial partnership with $260m share buyback
AGCO Corp has agreed with TAFE to resolve all outstanding disputes and matters related to their commercial relationship.
One separation currently passing through the courts is that of AGCO and TAFE, a move which seems to have caught the financial world off guard, although rumours suggest the former was less than enthusiastic about TAFE’s 16% market shareholding, although AGCO itself owns 21% of TAFE shares.
It might be interesting to understand the ‘he said, she said’ arguments when you understand the size of the Indian tractor market and see the potential that is contained within.
Said to be the largest market in the world (by unit), over 945,000 tractors were sold in the 2023 financial year.
The numbers are always watched closely by overseas manufacturers who are drooling to get a share.
Currently, the market is dominated by indigenous players like Mahindra, who hit 390,000 units in that year, and TAFE who came in a relatively distant second with 170,000 sales. Local operators Sonalika and Escorts took third and fourth places, while John Deere came up fifth with 83,000 machines and New Holland taking sixth spot with 35,000 tractors.
More recently, Deere looks to be building on that result, indicating a 10.6% increase in sales in July 2024 over July 2023. Likewise, New Holland was up by 7.6%, although it appears that Kubota hit the wall and saw sales dropping by 33%.
Those with a keen eye will notice that AGCO and its Massey Ferguson brand appear to be missing from these statistics. But one should remember that for many years AGCO has licensed the famous red brand to TAFE, effectively excluding themselves from selling directly into this huge market and letting TAFE decide which brand it wishes to promote and sell.
Sources tell Dairy News that AGCO wants to stop the longstanding agreement on the premise of TAFE’s “continued poor operational performance as a supplier, brand licensee and distributor to AGCO, as well as a lack of focus on AGCO customers in several key markets”.
It is also understood that those residing on the upper floors of AGCO HQ have become increasingly restless about wanting to control their own destiny in this market, rather than rely on a third-party, especially given the increasing success of its two major competitors John Deere and CNH.
That patience is also being tried by TAFE’s insistence that the AGCO board make changes to internal housekeeping matters, while the Indian company remains permanently under the control of Mallika Srinivasan.
Looking at the global market in more detail, farm sizes in the western world are increasing, while in India they are getting smaller, as plots are divided between families when land is passed on after a farmer’s death. Reports suggest that small and marginal holdings account for around 86% of all farms, although the government’s SMAM (Sub Mission on Agricultural Mechanization) scheme is helping machinery of all types find its way onto paddocks.
Looking at the broader picture, manufacturers from outside India who produce units for larger farmers will find it easier to scale down than the local producers of small tractors will find it to scale up, particularly as they have no home market in which to sell a larger tractor.
