Developments in agriculture have helped a big British tractor-maker

Developments in agriculture have helped a big British tractor-maker

May 31st 2014 | BASILDON | From the print edition

DO NOT underestimate the political significance of tractors. In the Soviet era, Communist officials cited rising production as evidence of the superiority of a centrally planned economy. And in 2012 David Cameron, the Conservative prime minister, and Nick Clegg, his Liberal Democrat deputy, used a visit to the New Holland tractor factory in Basildon to reaffirm their commitment to the coalition. The pair doubtless hoped that the firm’s success would send an optimistic message about British manufacturing.

Business is indeed bright. Last year 23,000 tractors rolled off the production line. The tractor factory, one of Europe’s largest, is part of CNH Industrial (controlled by Exor, an investment vehicle for Fiat’s founding family, a member of which, John Elkann, is a director of The Economist’s parent company). CNH is the result of a merger in 2012 between Fiat Industrial, an Italian truck and construction-equipment firm, and its American tractor-making unit (itself the product of a merger between Case and New Holland in 1999).

The Basildon factory celebrates its 50th birthday in 2014. It has remained in the field as other tractor-makers have left Britain. Canada’s Massey Ferguson closed its factory in 2003 to consolidate European operations in France. Basildon, acquired by Fiat in 1998, used to make Ford machines.

CNH is marking the occasion with a golden jubilee version of its best-selling models, with a dark-blue livery, gold detailing and a leather seat. The opulence is a reminder that tractors are like luxury cars. They are pricey—the medium-sized models from Basildon cost from £50,000 ($84,000) to £150,000—and profit margins are well over the 10% that satisfies most premium carmakers. For that money farmers want a machine with heritage, which is one reason, according to Carlo Lambro, New Holland’s brand president, that the firm thrives in Essex. Basildon’s long association with tractors convinces buyers that the vehicles come with a bit of history.

Mr Lambro also cites the excellence of local suppliers. In Ford’s day the tractors were built from scratch on site. Now CNH brings engines from Italy, transmissions from Belgium and cabins from France. But nearly 30% of the finished vehicle, including hydraulics, pipes and trim, comes from local firms. And proximity to a sizeable British market helps, though 90% go abroad, mainly to Europe and America.

Long-term shifts in agriculture are another factor in Basildon’s favour. The rich world’s farms are consolidating and growing. Bigger tractors are needed to cover the ground and to lug around larger pieces of equipment, a role ideally suited to the machines turned out in Basildon.

Yet just as world-weary farmers will point out the only cloud on the brightest summer’s day, some fear the Basildon factory may one day struggle. Overcapacity is vast. The plant could produce 30,000 tractors, and twice as many if shifts are doubled. CNH plans to expand production of smaller tractors in India and China—as farms there grow, leaner local production of bigger tractors might supplant imports from places such as Basildon.

As in Britain’s booming car industry, Basildon’s 1,000 workers excel at assembling the finished machine. The priciest and most profitable parts are imported. Investment in technologies for the next generation of tractors, powered by hydrogen or methane, or for self-driving machinery that will boost efficiency, is largely taking place elsewhere. Lower-value manufacturing is more vulnerable to competition from lower-wage economies. With this in mind, Basildon’s bosses are striving to improve quality and productivity. As long as they do so Britain’s last big tractor-maker will keeping ploughing on.

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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