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Will Indian tractors inspire Japan's outdated farmers?

Publication: Asia.nikkei.com
Date: December 6, 2016
URL:   http://asia.nikkei.com/Business/Companies/Will-Indian-tractors-inspire-Japan-s-outdated-farmers

Mitsubishi Mahindra aims to gain greater presence with more affordable farm machinery

Japanese rice and vegetable growers have long been protected by government subsidies. They tend to be less aware of cost-cutting efforts and often buy overly expensive machinery and equipment. But a new partnership between Japanese and Indian makers could be a remedy for the industry to see the reality they face.

Mitsubishi Mahindra Agricultural Machinery in July held a trade fair in the city of Kyoto that attracted thousands of people from large-scale farms and agricultural bodies. "I would like to remind people in the industry that we are seriously seeking to regain our presence," said Masayuki Suematsu, president of the Japanese-Indian business.

The manufacturer had been known as Mitsubishi Agricultural Machinery until recently. In 2011, aiming to overcome business slumps, it became a wholly-owned subsidiary of Mitsubishi Heavy Industries
and drastically reshaped itself. In October 2015, Indian auto and machinery manufacturer Mahindra & Mahindra
acquired a 33% stake in the Japanese business, and given its current name.

At the first large promotional event since the business restarted last year, Mahindra-brand tractors were displayed in the center of the venue, along with Mitsubishi-labeled vehicles, among more than 250 farm machines including some from partner manufacturers. The company plans to roll out the Indian-brand vehicles in Japan, possibly within one or two years.

Mahindra products have simpler functions than typical Japanese farm machines. Although some modifications will be applied to meet the needs of customers in Japan, the Indian models will in general be priced cheaper than Japanese rivals' machines, according to Suematsu. "The price advantage is part of our strategy," said the president. The target customers are large farms that want to buy an additional tractor, or those seeking to replace their second-hand machines.

Four major manufacturers, including Mitsubishi Mahindra, control roughly 80% of the farm machinery market in Japan. But the share of the Japanese-Indian business has gradually fallen to 5% or so. The company considers promoting its large farm machines a crucial step if it wants to regain a larger market share.

As the number of farmers declines in Japan, the acreage per farm is expanding. The government is encouraging the consolidation of farm lands into more efficient units, which could boost demand for large agricultural machines in the country.

To respond flexibly to the needs of farmers, Mitsubishi Mahindra plans to spend about 1 billion yen ($8.79 million) to double its maintenance network to 20 locations in the next several years.

Mahindra & Mahindra is one of the world's top tractor providers and has a strong sales network worldwide. Mitsubishi Mahindra seeks to drastically shift its business in Japan, taking advantage of the Indian-style speedy decision-making, to catch up with the slowly but increasing awareness of cost efficiency among Japanese farmers.

Complacency over cost effectiveness?

One rice farmer in northwestern Japan recently replaced his 10-year-old tractor with a used machine he bought through an online auction website. Previously, Japanese farmers typically bought their machines through the National Federation of Agricultural Cooperative Associations, known as Zen-Noh, or directly from machinery makers. In the online second-hand market, agricultural machinery can be found as cheap as 10% of normal prices for new machines: 300,000 yen for a tractor and 35,000 yen for a cultivator, for example.

The transaction amount of farm machines on the auction platform has more than tripled over the past five years, indicating more and more farmers prioritize cost over after-sale service from manufacturers.

According to the agricultural ministry, farm machines account for about 20% of the entire cost of rice production -- much higher than the 7% for fertilizers or 6% for pesticides. In other words, there is still considerable larger room for cost cut.

Nonetheless, the second-hand or leasing market of farm machines in Japan is not as large as that of cars. According to a farm machinery manufacturer, Japanese farmers typically prefer to have newer, better machines than their neighbor farmers. Kubota and other makers, which sell their products
overseas as well, have launched simpler, more affordable lineups in Japan. But "they do not really sell," said an employee of Kubota.

Thanks to the government subsidies, Japanese farmers do not have to face losses as long as they follow advice from Zen-Noh. Also, they do not hesitate to pay millions of yen for new, expensive machines, partly due to the lack of maintenance locations for used machines. As a result, farmers have been slow to take action to cut costs.

On the other hand, falling rice consumption in Japan has meant a shrinking farm machine market, triggering intensifying price competition for new machines.

The agricultural workforce in Japan has shrunk to roughly 1.8 million at present, down by about 500,000 over the decade. Higher cost awareness among farmers should be crucial to revitalize the industry.

Expensive technologies

Meanwhile, major manufacturers are keen to develop next-generation farm machines, taking advantage of information and communications technology that can supplement the lack of manpower in the industry.

In September, Kubota launched a new rice-seedling transplanter that even unskilled drivers can drive to move the machine straight. The manufacturer is also developing auto-driving farm machines that use the GPS, with help from telecommunications giant Nippon Telegraph and Telephone group. It aims to roll out unmanned tractors, too, sometime around 2018.

Yanmar, on the other hand, is currently testing a prototype of a next-generation tractor that can be operated remotely with a tablet device dozens of meters away.

However, not all farms will be able to afford such machines and their advanced technologies. If so, will the machinery manufacturers be able to continue to spend on developing new machines for the shrinking Japanese market?

Kubota is positive about the future of the farm machine business, being able to cut costs further. One of its production sites in Ibaraki Prefecture, near Tokyo, has been working to improve productivity for years, taking its inspiration from Toyota Motor's incremental improvement practices.
"Compared to automakers, we still have a lot of room to improve in manufacturing process," said a Kubota employee.

The Japanese government in late November proposed a restructuring plan for the country's agriculture industry. But the recommendation did not include measures regarding farm machines. Machinery makers should now take the lead in encouraging Japanese farmers to undertake cost-cutting efforts.
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