Deere Russia farm equipment sales fall 50 percent

Deere & Co., the world's largest maker of agricultural equipment, said sales in Russia have plunged more than 50 percent this year after the country imposed tariffs and loan limits on foreign farming machinery.

"The combination of that is very significant and cut our business more than half," Samuel Allen, chief operating officer and president, said in an interview in Moscow today.

Loan restrictions have more than doubled borrowing costs for farmers willing to buy foreign machinery, said Allen, who will succeed Robert W. Lane as chief executive officer of the Moline-based company on Aug. 1.

Deere and Peoria-based Caterpillar Inc. were most affected by loan restrictions and tariffs of as much as 25 percent imposed by Prime Minister Vladimir Putin, according to a U.S. Chamber of Commerce survey earlier this year of the top 50 American businesses in Russia. Putin said yesterday Russia has no plans to extend farm machinery tariffs beyond the "severe" phase of the economic crisis.

International producers expect the Russian government to eliminate import tariffs and provide support for companies who set up assembly lines in Russia, similarly to the way it supports carmakers, Allen said.

Deere may invest about $500 million in Russia during the next five to seven years, Allen said. Deere has a production unit in Orenburg and is developing an $80 million project in Kaluga, where it may also build a production plant. The company and its dealers employ about 2,000 people in Russia.

"We'd look at investing in a manufacturing facility that's stamped 'Russian-made' for all of our businesses," Allen said. The facility will be flexible and may produce tractors, combines, forestry and construction products, he said.

Transition Time

Deere could start such production as early as 2010 in a leased facility if the government provides favorable transition time in terms of allowing a ramp-up, he said.

While the U.S. and Europe will remain "good" markets, "the growth opportunities of the world are in the emerging markets," Allen said. Russia and other former Soviet states, Brazil and Argentina present "significant opportunities and the rate of growth will be much more accelerated there in comparison to that of the western world," he said.

Allen, who headed Deere's construction unit before being named last month to succeed Lane, expanded the company's construction and forestry division in emerging markets.

Joint Ventures

Deere formed a joint venture in India last year with Ashok Leyland Ltd. to make and market backhoes and four-wheel drive loaders. Earlier in 2008, Deere announced a joint venture to build excavators in China, the first time it had built non- agricultural equipment in that market.

Allen said he plans to "capture a lot of the growth that will be going on in the agriculture around the world over the next 20 years" once he becomes CEO.

The company doesn't expect to lay off more employees and may start hiring soon, Allen said. "We have put on the brakes real hard early on, so our field inventories are less than half of what our competitors are," he said."

Deere, which also makes equipment for the construction industry, expects the decline in the North American building market to bottom out in 2009 with improvement next year, he said. "It won't be until some time in 2010 that we'll see a turn back up," Allen said.