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July 13, 2007

Massey Ferguson tractors to be produced in Egypt

Thanks to the waters of the Nile that irrigate the country from top to bottom, Egypt is the only country in North Africa with an agriculture-based economy. Massive hydrological works including the Aswan Dam and the more recent Toshka project have shown that the connection between water, irrigation and agriculture remains a fundamental component of the economy.

With almost one in three Egyptians employed in the agriculture industry — and many still using farming techniques that have changed little since ancient times — the opportunity for growth and modernization in the country’s agricultural sector is enormous.

Advanced Tractors and Agriculture Machines (ATAM) is one company set to capitalize on the opportunity. Chairman Ali El-Haddad wants the company to take advantage of the most obvious opportunity : That farmers are in desperate need of new, affordable machinery, particularly tractors. The potential has been magnified by the fact that the once-dominant Eastern European firms that are now struggling in their home markets are closing their factories here — decreasing supply even as demand rises.

“We knew that Egypt needed an international brand,” says El-Haddad. “The demand for good-performing tractors was becoming bigger, and the Eastern European-built tractors were not meeting demand, because of their limited number and poor performance. We were doing business with one of Massey Ferguson’s sub-brands, so making contact was not a problem — especially given that their dealer in Egypt was under-performing.”

ATAM and Massey Ferguson decided on a joint venture in which ATAM would initially assemble tractors to meet local demand and eventually act as a hub to export to North Africa and the Arab world.

“Massey Ferguson wants to have a powerful presence in Egypt, so we agreed that having a joint venture was the quickest, most profitable and least risky for all parties concerned,” says El-Haddad. “Massey Ferguson will give us the know-how and provide us with the components that we couldn’t produce and give us support in after-sales maintenance. ATAM will be in charge of assembly and meeting operational and marketing demands. ATAM’s headquarters have a team of highly trained technicians, and a regional training center to train new employees and customers alike. We also are responsible for the dealer network throughout Egypt.”

Massey Ferguson and ATAM have set short-term and medium-term plans, which, according to El-Haddad : “First, to become a hub for export to North Africa and the Arabic-speaking world. Next, we will operate the regional Arabic-speaking Massey Ferguson training center to serve dealers, customers and employees throughout the region. Our ultimate goal is to fully produce Massey Ferguson balers (for compression and packing of straw) here instead of at their European plant. Only the gearbox will be imported. We will export these balers to Europe and Asia.”

Massey Ferguson’s product range includes some of the most advanced tractors in the world — and some of the most basic. ATAM is authorized to assemble all their products, according to El-Haddad, though it will start a bit lower on the value chain. “We realize that the individual farmer doesn’t need the high-tech tractors, in addition to the financial constraints of purchasing a new tractor. But we have still made it possible for the farmer to add the options that he needs, so there is a significant degree of customization available with our products.

“Our customers are divided into two main segments,” El-Haddad explains. “First, the individual farmers, with lands rarely surpassing 100 acres. They make up about six million farmers, and they usually take the more basic tractors. The other segment is the corporate farmers; they are based in the desert, their land size starts from 200 acres and could reach up to 7,000 acres. This segment started in the 1970s, and these are the ones most likely to purchase our more advanced tractors. They are the high-profit customer base.”

Despite recent drops in the total area of land under cultivation, El-Haddad is optimistic about the industry’s future. “In the coming five years, there is a projected growth of 100% in the agricultural industry. Between farmers wanting to replace their old tractors and the needs of new projects, demand will increase for more sophisticated agricultural machinery. Also, there will be a necessity for economies of scale for operators to be able to compete with the foreign brands invading the Egyptian market place,” he says, adding, “This might not be that apparent in the agricultural industry, but it is significant to our suppliers.”

The inevitable next step will be to fully produce an Egyptian tractor, completely independent of any international brand. El-Haddad sees it as a lucrative opportunity, but one that requires a market of a scale much greater than that which is currently being served. "The gearbox can be produced here, but the factory needs to output at least 40,000 units every year to achieve acceptable economies of scale. The engine is the major problem — any factory producing them must produce at least 100,000 units every year to achieve good economies of scale. The obstacle is not the know-how, but the potential size of the market —it just isn’t big enough.”

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