Why manufacturers of imported agricultural machinery are not in a hurry to build plants in Kazakhstan - Case IH and New Holland on the utilization fee

13 august 2020
3 min
Author: Yevgeniy Fedotov
1239
Why manufacturers of imported agricultural machinery are not in a hurry to build plants in Kazakhstan - Case IH and New Holland on the utilization fee

The introduction of utilization fee for agricultural machinery in Kazakhstan has become an unpleasant surprise for most domestic agricultural producers. At the same time, one of the main goals of such a step was to support the domestic machine-building industry. In response to the request of the portal World of Nan on this topic, the Ministry of Industry and Infrastructure Development of the Republic of Kazakhstan announced that several large Western manufacturers of agricultural machinery are already dealing with the issue of localization of production in Kazakhstan. Among them were voiced brands CLAAS, Case IH and New Holland.

We have addressed the manufacturers of imported machinery to find out when Kazakhstan should expect the opening of new plants for the production of agricultural machinery in its territory. The first answer we received from "BHK Agro AG" LLP - distributor of agricultural machinery and spare parts of the CNH Industrial company, which includes brands Case IH and New Holland Agriculture.

Does your company work on localization of its equipment production in Kazakhstan?

- We and our partners in CNH Industrial highly appreciate the intention of the Government of Kazakhstan to contribute to the increase of agricultural machinery production in Kazakhstan. However, we regret that instead of stimulating investment in local assembly and production, there is a restriction on free trade, as exemplified by the introduction of recycling charges for tractors and combines. These measures are potentially negative for Kazakh farmers because they increase the cost of machinery and therefore reduce the income they need to develop their business or limit farmers' access to the best agricultural machinery in the world.

Most of the world's agricultural machinery companies supply components from around the world, but the final assembly takes place in one or more countries where huge investments in research, development and production are justified. Investments in production technologies for major components such as engines, transmissions, frames, etc. require significant sales volumes for commercial justification. For more than two years CNH Industrial has been carefully studying the production potential in Kazakhstan.

To establish local production in small markets such as Kazakhstan, the process usually starts with local assembly, but even this process is not easy to start at a new location.

What support is required from government agencies in localizing production?

- Assembly of agricultural machinery requires a significant investment in facilities, as well as in the supply of quality local components that would match brands such as Case IH and New Holland. In addition, a highly skilled workforce must assemble incredibly complex technological units.

If local assembly in Kazakhstan were to start with a small percentage of locally manufactured components, they would not be the ones on which already developed technologies (such as engine, transmission or electronics) are based due to the low volumes required by Kazakhstan. To ensure a stable supply of the required components, government agencies will need to support the attraction of new manufacturers of these components, as well as to facilitate retail lending and leasing.

BHK Agro and CNH Industrial are exploring all possible ways to provide locally assembled world-class machines to farmers in Kazakhstan, but we must balance availability without sacrificing product quality.

What level of localization could your company implement in Kazakhstan? What models of machinery could you produce?

- Our goal is to supply 6high quality, productive machinery to the farmers of Kazakhstan. If we can achieve an acceptable level of localization without sacrificing product quality, some level of localization is possible. Our many years of experience shows that it can exceed 50% for tractors, pneumatic seeders and combines, if there is a competent and reliable supplier base and the industry volumes remain consistently high to justify large investments in production. If the government encouraged local producers of components for agricultural machinery, we could buy high-quality components from them.

But at present there are no such manufacturers in Kazakhstan. The government of Kazakhstan needs to launch appropriate production facilities inside the country in order to achieve a significant localization of machine building.

If you did decide to localize production in Kazakhstan, would you build your own factories or lease the area of existing enterprises?

- Given the large investments needed to start local assembly operations, we are likely to use the existing facilities, but there are many other factors to consider in addition to the choice of production facilities.

How many job opportunities you could create under the localization?

- At this stage we cannot provide any information about the potential number of employees.