A televised campaign in the US has led to a war of words for the top spot in the global tractors market. Days after Mahindra & Mahindra claimed in a US ad campaign that it is the world’s largest tractor maker by volume, John Deere, its closest competitor, has hit back.
The Illinois-based farm equipment maker told the Financial Times last Friday that M&M Vice-Chairman and Managing Director Anand Mahindra’s “proclamation was based solely on individual judgment”. The company, which supplies bigger, high-margin tractors to the North American market, said it was the largest manufacturer of agricultural equipment based on revenues, which were $29.5 billion last year.
So far, it was clear that John Deere, which generates volumes at the premium end of the market, is miles ahead in terms of value. But the company is now questioning M&M’s claim of volume leadership as well, though it’s difficult to do an objective comparison as the US firm does not disclose its worldwide or region-specific sales figures.
In its two consecutive annual reports, M&M has been claiming it is the “No 1 tractor company in the world”. M&M last financial year clocked sales of 214,325 units, including 202,513 in the domestic market under the Mahindra and Swaraj brands. The company does not disclose its sales numbers in China. The company operates through two joint ventures in the world’s second biggest tractor market.
As the claims and counter-claims go on, it’s clear John Deere is keen on proving a point to M&M in the latter’s home market. Last week, Deere & Company, which owns the John Deere tractor brand, announced plans of pumping in Rs 400 crore to set up its second factory in India that would produce small tractors for the local market.
The company said the new factory in Madhya Pradesh, which will be operational next year, aims to cater to small farmers which form a huge market base in India – precisely the segment where M&M dominates.
While M&M is trying to gain a foothold in the US market selling high power tractors, John Deere is building low-capacity mini- tractors for India, which is the largest tractor market in the world.
M&M claims a market share of more than 40 per cent in the domestic market across its two brands. It bought Punjab Tractors (PTL) a few years ago which sells the Swaraj brand. TAFE, Sonalika (International Tractors), Escorts, Force Motors and HMT are a few other brands who also retail in India.
On the other hand, John Deere says “our products have been well accepted by customers in India and our investment in this new factory is a direct result of that success,” said Samuel R. Allen, chairman and chief executive officer of Deere & Company in a statement.
John Deere’s first factory in India that will build combines for harvesting was also inaugurated last week. Production is expected to begin later this month at the factory located in Sirhind, west of Chandigarh.
With the addition of the new factory, John Deere’s total installed capacity in India would be in excess of 120,000 units per annum from two manufacturing units.
Mahindra presently has seven tractor making plants in India with two each in China and the US and one in Australia. Its domestic installed capacity is more than double that of John Deere’s. For April to December 2011, total cumulative sales stood at 183,274 units, as compared to 154,265 units for the same period last year, an increase of 19 per cent.
In addition to tractors, both companies are getting into other farm equipment that falls into the allied category of tractors. These are crop harvesting machinery and rice transplanters, which M&M already sells through its outlets.
“The purpose of offering a range of such allied products is to build brand loyalty, which is very crucial in this sector”, said an executive of a rival tractor making firm.
Mahindra’s tractor range starts at as low as 15 horse power (hp) while the John Deere range in India starts at 35hp. Both companies export to developed markets of the west and the African continent from India.
The reason for the war between the two companies is obvious. The domestic market grew by 20 per cent last year selling 480,377 units as compared to 400,203 units in the previous year. This was on the back of a 31.7 per cent growth in the previous year.
This growth has been fuelled by increasing rural liquidity, better crop realisations through higher minimum support prices and increasing cost and scarcity of farm labour, all of which were further strengthened by a good monsoon and continued government support for agriculture and for rural India.