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Agco Targets Africa’s Agriculture Boom With $100 Million Plan

November 16, 2012

By William Davison – Bloomberg News

Agco Corp. (AGCO), the world’s third- largest farm-equipment maker, plans to invest $100 million in Africa over the next three years to capitalize on an agricultural boom and a shift to commercial farming.

The company, based in Duluth, Georgia , opened a $35 million parts warehouse in Johannesburg in May and on Aug. 17 signed a deal with Algeria Tractors Co. to build a plant to produce Massey Ferguson tractors, Nuradin Osman, Agco’s director for Africa and the Middle East, said in an interview on Nov. 13. Most of the future investment will come from existing funds, he said in Ethiopia’s capital, Addis Ababa.

“The only frontier left for arable land is in Africa ,” he said. “We are in for the long-term in Africa. We’re coming here for 100 years and more.”

Africa has 60 percent of the world’s uncultivated land and investment in agriculture has the potential to create millions of jobs on the continent, according to the World Bank . About 10 percent of cropped land in Africa is prepared by tractor, and only 4 percent of land is irrigated, London-based Standard Chartered Plc said on its website. The continent has the potential to boost farm output to as much as $880 billion by 2030 from $280 billion in 2010, according toMcKinsey & Co.

Agco’s African strategy is to build factories, set up model farms to demonstrate equipment and teach modern farming techniques, while working with banks including Rabobank International to boost credit to potential customers, he said. “Our solution is a one-stop shop where farmers can get access to everything they need to know in agriculture,” Osman said.

Land Leases

African governments are looking to increase productivity by mechanization as farming becomes more commercial, Osman said. Ethiopia for example has set aside 4 million hectares (10 million acres) for foreign agricultural investment while South African farmers have been offered land in Angola and Uganda.

About 60 percent of Agco’s African sales come from South Africa and Morocco , while Nigeria, Zambia and Mozambique are growth areas, Osman said. The company is planning to build smaller parts distribution warehouses costing as much as $15 million each in East and West Africa after it identifies their locations, he said.

Agco plans to produce 1,500 Massey Ferguson tractors at its Algerian factory next year and is targeting 5,000 of the machines annually by 2015, Philip de Leon, director of global trade relations at Agco, said in an interview yesterday.

Returns from the continent probably won’t exceed 10 percent in the next five years owing to the high cost of transport and logistics, Osman said.

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