The crisis year 2020 for the whole country paradoxically turned out to be very successful for the production of domestic tractors and combines. Sales of agricultural machinery within the country and export of agricultural machinery have also increased sharply. What is the reason for such achievements of the whole industry and whether it will be possible to repeat this success in 2021?
According to the association "Rosspetsmash", which unites the majority of Russian manufacturers of agricultural machinery, for 11 months of last year, its output in value terms increased by 30% compared to the same period in 2019 – to 136.7 billion rubles. Shipments of agricultural machinery to the domestic market of Russia during the same time increased by 46%, to 121.3 billion rubles.
Synergy of the field and the machine
In quantitative terms, the largest growth was recorded in the segment of agricultural tractors – their production increased by 27%, to 4.13 thousand units; Russian plants produced more grain harvesters by 24% (5.2 thousand units). The same dynamics was noted in the production of forage harvesters – 641 of them were produced. Double-digit growth rates were also observed in the production of harrows, seeders, self-propelled mowers, grain cleaning machines and sprayers.
Few branches of Russian industry (with the exception of those whose products have sharply increased demand due to the pandemic) could boast of such dynamics last year. This effect, however, did not arise from scratch. The production of Russian agricultural machinery has been growing annually since 2013, increasing 3.4 times over the next six years (up to and including 2019), and its share in the domestic market has reached 54%.
As explained in the association "Rosspetsmash", the growth of the indicators of machine builders was provided due to the high competitiveness of Russian agricultural machinery, a significant improvement in the technical characteristics and quality of domestic agricultural machinery. Domestic agricultural machinery in some respects surpasses foreign counterparts:
"The plants are constantly expanding the model range and product range, which is better adapted to work in various, including complex agroclimatic conditions. Also, Russian equipment is characterized by high economic efficiency. In addition, the positive dynamics of last year is due to the fact that the agricultural business, as well as agricultural machinery manufacturers, did not stop their activities in the conditions of the pandemic. As a result, farmers were able to harvest a good crop in 2020, as well as a year earlier. Prices for their products were kept at a level that allowed us to purchase more agricultural machines, and domestic factories fully met the growing demand."
The success of Russian agricultural machinery manufacturers depends on the growth rate of agriculture, and in 2020 they were high, adds Dmitry Teplov, director of the Krasnokamsk RMZ. At this machine-building enterprise from the Perm Region, agricultural production increased by 5% last year. In addition, at the beginning of the pandemic, agricultural machinery was immediately recognized as a system-forming industry:
"The Russian government has made a very important decision: it has not extended the non-working days regime to agricultural machinery enterprises. The factories did not stand up, did not stop providing the industry with the machines that it needed so much at the beginning of the sowing and foraging seasons. The work did not stop at the moment when foreign suppliers of equipment suspended deliveries due to the pandemic-the enterprises focused on Russian components. The growth of reserve currency exchange rates also played a role: Russian cars have become more competitive in the domestic market."
In addition to the devaluation, the growth of production in the past year was due to the action of a couple of factors, says independent industrial expert, Candidate of Economic Sciences Leonid Khazanov. First, according to the results of the harvest year 2019, agricultural organizations received good profits and were able to expand the renewal of the fleet of equipment. And secondly, the state continued to support agricultural engineering. The import of agricultural machinery has significantly decreased.
The high foreign demand for Russian agricultural machinery was caused by the economic crisis, according to Pavel Segal, First Vice president of the Opora Russia Business Association. Due to the long quarantine in a number of countries, the planting of agricultural products, as well as the technological supply chains of goods, were disrupted. To avoid a shortage, the governments have taken care to buy Russian equipment, which is not only affordable, but also of good quality. Therefore, according to Segal, new contracts for its purchase will be concluded in 2021, as the agricultural sector helps to support the economy and create new jobs. In the domestic market, in his opinion, it is important for manufacturers to more actively declare their products to potential buyers – for example, to hold fairs and exhibitions of equipment with the connection of banks that can lend money to buy it at a favorable interest rate.
Close-knit lobby
State support really plays a fundamental role in the success of the Russian agricultural machinery industry. The turning point was the government's Resolution No. 1432 "On Approval of the rules for granting subsidies to agricultural machinery manufacturers", adopted in 2012, which allowed farmers to buy domestic machines at a serious discount.
The "1432" program, by reducing the cost of equipment for farmers, accelerates the re-equipment of agriculture and ultimately increases its productivity and profitability. And after the recent transfer of authority to administer the program, the process of accreditation and distribution of subsidies has become easier, says Dmitry Teplov. In addition, from April to June last year, the "anti-virus" program of "Rosagroleasing" worked, which allowed you to receive equipment without prepayment and with a deferred first payment. According to Teplov, this program allowed his company to sell three times as many machines to Russian farmers – forage harvesting equipment and mounted front loaders.
The effectiveness of state programs is largely determined by the fact that Russian agricultural machine builders are one of the most cohesive industry communities in the domestic industry, to the opinion of which the state is accustomed to listen. When in the summer of 2019, the government started talking about the cancellation of the "1432" program, the president of the Rosspetsmash association and a shareholder of the Rostselmash combine plant, Konstantin Babkin, immediately announced that the legendary Rostov enterprise would stop production for two months, and then switch to a three-day working week-and subsidies for machine builders were preserved.
Moreover, in the future, Rostselmash announced plans to build a new tractor plant worth 4 billion rubles on its unused territories. It will be used to localize the production of Buhler Versatile tractors produced in Canada at the enterprise acquired in 2007 by the New Commonwealth Holding, which includes Rostselmash.
The success of Russian agricultural machinery in foreign markets can also be considered the result of joint efforts. As noted in the association "Rosagromash", export deliveries in recent years covered more than 50 countries, for 11 months of last year they increased to 13.8 billion rubles, which exceeded the figures for the whole of 2019, when a record export volume was recorded (12.1 billion rubles). The main export destinations are not only the traditional markets of the CIS and the former socialist camp, but also the countries of Europe, Africa, and the Middle East. For example, last year, the export of Russian agricultural machinery to Austria in monetary terms increased by 3.8 times, to the Netherlands-by 84%, to France-by 77%, to Germany-by 56%.
The countries of Africa, Asia and South America are promising for Russian agricultural machinery, as there are practically no serious producers of such products in them, with the exception of South Korea, China and Japan, Leonid Khazanov believes. According to him, these regions are unlikely to close their markets. In addition, Russia has long been perceived there as a reliable political and trade partner, which can also contribute to the export of combines and tractors.
Toxic effects of devaluation
Agricultural machine builders are not so optimistic about the prospects for the coming year. According to the association "Rosspetsmash", manufacturers of specialized equipment have already faced an increase in the cost of production. The increase in metal prices last year was 25-35%, depending on the type of product. The cost of natural monopolies ' services increased at a rate that exceeded inflation, and the epidemiological situation required factories to increase their social obligations.
All this, machine builders predict, will lead to an increase in prices for specialized equipment in 2021 by 10-20%. And this, in turn, will lead to a decrease in sales and a reduction in the rate of renewal of the fleet of special equipment. The costs of construction, agricultural, transport and municipal organizations will increase, jobs in industries will be reduced, and tax deductions to budgets of different levels will decrease.
Rosagromash sees a way out of the situation in expanding the existing measures of state support for consumers of special equipment – programs of preferential leasing and lending, subsidizing discounts on equipment.
This will avoid an increase in the cost of equipment for consumers, and the source of additional funding for programs may be the indexation of the recycling fee rates for special equipment. On January 19, this proposal was already supported by the Ministry of Industry and Trade of the Russian Federation – the draft submitted by the ministry stipulates an increase in the utilization fee for wheeled tractors by 2.7 times, for tracked tractors – by 3.6 times, for combines and agricultural machines – by 2 times.
"The need to adjust the recycling fee rates is also related to the fact that since their approval, inflation and rising energy prices have led to a change in the cost of recycling services. In addition, when introducing this mechanism, reduced rates were approved for new cars, as opposed to those that were in operation, for the duration of the grace transition period. Therefore, it is necessary to ensure the alignment of rates for used and new equipment. Russian producers and importers have noted that for the duration of this mechanism demonstrated high efficiency: significantly decreased the number of operated equipment with extremely high share of wear and tear; on the background of growing volumes of recycled products has increased the volume of purchase of new machines, machine builders have been able to invest in upgrading and expanding their production", – noted in the Association "Rosspetsmash".
The state benefits from supporting investment to upgrade the machinery, because the Russian agriculture remains nedonoshennykh modern appliances, and in some places parks and farms in need of total replacement due to complete obsolescence, says Dmitri Teplov. According to him, modern industrial equipment can be recouped at the plant in at least five years, and in agriculture, innovative equipment pays off in most cases in a year or two.
Michael Kowerko