A new leasing company will be launched in Russia with EBRD backing by Deere & Company (NYSE: DE) the world’s leading manufacturer of agricultural equipment to help Russian farmers access the credit needed to overcome one of their most critical problems, the shortage of modern and efficient farm machinery.
A five-year EBRD loan of up to 4.7 billion roubles (equivalent to EUR 114 million) will support the new venture, which will also target the forestry and construction industries but where renewing farm equipment is likely to account for most of the business. The loan represents the first part of a planned EBRD financing package for this project.
Russia is expected to be one of the fastest-growing markets for farm machinery in the next decade, hence the logic for John Deere to offer leasing solutions to its customers, EBRD’s First Vice President Varel Freeman said at a signing ceremony today held on the sidelines of the annual general meeting in the Kazakh capital, Astana.
The number of tractors and harvesters in Russia has been steadily shrinking since 1991 and developing the country’s vast untapped agricultural potential will require the renewal of equipment whose average age already exceeds 10 years and which is deteriorating faster than it is being replaced.
Access to credit remains one of the main problems faced by farmers in Russia where 30 percent of machinery purchases are still paid for in cash. The new leasing company will provide an alternative form of finance where traditional bank loans are not available.
The products offered by Deere & Co’s Russian leasing subsidiary should mainly interest medium-sized customers whose equipment is in urgent need of renovation, typically mid-sized former collective farms which have in the past few years turned profitable. At present, modern machinery is used on less than 25 percent of Russian farm land.
In the agribusiness sector alone the EBRD has directly committed over EUR 6.4 billion in over 420 projects across central and eastern Europe and the Commonwealth of Independent States since 1991. The relevant EBRD agribusiness figures for Russia during that same period are over 70 projects totalling over EUR 2 billion.