October 5, 2016 / 10:42 PM / a year ago

AGCO eyes comeback in South America after political shifts

(This version of the October 5th story corrects to fix production numbers to 38,785 units not 85,000 in 2013 and 23,560 not 52,000 in 2015 in 10th paragraph)

By Marcelo Teixeira

FOZ DO IGUAÇU, Brazil (Reuters) - AGCO Corporation, a leading agricultural machinery maker, believes political changes in Brazil and Argentina could spur renewed farm investment in South America’s two largest countries and revive the region’s status as a growth area.

After seeing sales dive in the two grain-producing nations plagued by deep recessions, AGCO is betting the arrival of more business friendly governments will prompt a revival in investment in the agricultural powerhouses, its chief executive told Reuters in an interview.

The company even expects to see its first sales increase since 2013 as early as next year, chief executive Martin Richenhagen said on the sidelines of a four-day meeting with South American dealers in Foz do Iguaçu, a Brazilian city bordering Argentina and Paraguay.

In Brazil, the world’s biggest exporter of coffee, sugar and soy, centrist Michel Temer formally took over the presidency in August when left-leaning Dilma Rousseff was dismissed from office by the Senate on charges of breaking budget rules, in the midst of the worst economic downturn in decades.

In Argentina, also a major exporter of soy and corn, President Mauricio Macri has steered the country to the center-right since taking office in December.

“Yes, we are pleased with the political changes,” Richenhagen said. “When Brazil comes back, it does so big time. So, we need to make sure we have the ability to react quickly.”

The head of the Duluth, Georgia-based company also pointed to promising signs in Argentina after Macri scrapped most taxes on food exports and introduced new financing measures for farmers.

The German-born executive had branded the export taxes, introduced by the previous government of left-leaning Cristina Fernandez, a “stupidity.”

He has also criticized the way Brazil’s former left-leaning government had stalled on granting farmers’ requests for financing, saying Brasilia was slowing down the process to reduce spending.

AGCO sales in South America have been falling since 2013. Its production in the region went from 38,785 units in 2013 to 23,560 in 2015, and should fall by about 5 percent this year.

But the company expects to see the first sales increase in 2017, by an estimated 12 percent. That should help compensate for smaller sales in the United States as lower grains prices cut investments by American farmers.

Despite recent setbacks, Richenhagen said that AGCO’s investors were aware of Latin America’s importance in a cyclical business environment.

”Around 80 percent of our business is done outside the U.S., which gives us a balanced portfolio so when things don’t go well in a region they can be compensated in another,” he said.

AGCO has seven plants in Brazil and one in Argentina. The company believes demand for agricultural machinery from the region will remain strong if financing is adequate.

Farming data showed there was ample scope for increased investment, he said.

While there are 12 hectares of farm land per tractor in Germany and 36 per tractor in the United States, there are 113 per machine in Brazil and 165 in Argentina.

“So, yes, there are a lot of opportunities here,” he said.

Reporting by Marcelo Teixeira; Editing by Daniel Flynn

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