John Deere to setup its unit in Bihar

US-based Deere and Co. said on Wednesday it will invest $100 million (around Rs.450 crore) to set up its second tractor facility in India and also plans to boost capacity at its first plant in Pune, Maharashtra.

Manufacturers of tractors and agriculture equipment are expanding to gain from the country’s anticipated role in meeting global demand for food production.

“We recognize India’s ability to meet global food demand, which is expected to double by 2020,” said Samuel R. Allen, chairman and chief executive of Deere and Co. “It is important for us to be active in some of the key economies across the world to maintain our leadership globally. We have identified six regions across the globe as key areas of growth and India is one of them,” he added.

According to the Tractor Manufacturers Association (TMA), a lobby group, tractor sales have almost doubled from 227,637 units in 2004-05 to 402,608 units in fiscal 2010 and estimated to expand to 460,000 units by the end of fiscal 2011.

“If costs have been one factor driving strong tractor sales, higher prices of farm produce, thanks to better support prices and double-digit food inflation, have made tractors more affordable to farmers with marketable surplus produce,” said Vaishali Jajoo, auto analyst at Angel Broking Ltd.

To cash in on strong demand, tractor firms have lined up aggressive capital expenditure and expansion plans. Tractor makers such as Illinois-based Deere and Co., Mahindra and Mahindra Ltd, International Tractors Ltd (ITL) and Escorts Ltd have chalked out plans to expand capacity with fresh investments.

The Indian economy grew 8.9% in the first half of thecurrent fiscal and is estimated to expand 8.5% for the year,up from 7.4% in theprevious fiscal.

“We are going to invest $100 million, out of which 80% will be utilized for setting up the new plant, and 20% in expanding the existing facility in Pune,” said Allen, the company’s ninth chairman and chief executive in its 174-year-old history. The company is yet to decide the location of the plant.

Deere expects to hold the ground-breaking ceremony in May-June, and be up and running by 2012. It expects to double its production capacity once the second facility becomes operational. It currently manufactures 50,000 units from its Pune facility, and holds an 8% market share of the Indian market.

International Tractors has decided to invest Rs.100 crore to maximize its production capacity by setting up a new facility in Bihar. The company plans to increase its production capacity to 100,000 tractors per year, from 60,000 at present. “We are going to establish a new manufacturing facility in Bihar with an annual production capacity of 20,000 units. We will invest Rs.100 crore to increase our production strength,” A.S. Mittal, vice-chairman, ITL, said in a release on Wednesday. “Also, we are looking forward to increase the production capacity of our Hoshiarpur plant by 20,000 units.”

The company said the new plant in Bihar will be functional by next year. The company already has a facility at Fatuha, near Patna in Bihar where it has invested Rs.250 crore. He said that the process of adding production capacity will be completed by year 2011. The company produces tractors of 30 to 90 HP under the brand Sonalika.

Mahindra and Mahindra plans to invest Rs.800 crore to Rs.1,000 crore over the next three years in its farm equipment business. Mint reported in December that this is the company’s biggest capital outlay plan in the last 15 years. The money will be spent on setting up a greenfield manufacturing unit in Chennai to roll out 100,000 tractors a year, and developing new tractor models for India and overseas.

Another farm equipment maker Escorts Ltd will put in Rs.150 crore to Rs.200 crore in the next 12 to 18 months.

The expansion will increase Escorts’ tractor capacity from 80,000 tractors per year to 100,000.