(Bloomberg) -- The days of government-subsidized tractor loans, which propelled Turkey among the top markets of the world, are over as loan rates skyrocket and lira depreciation pushes prices, according to the top executive of the market’s newest entrant.
About 73,000 tractors were sold in Turkey last year, making it the world’s fourth biggest market after India, China and North America. However, the figure doesn’t reflect the reality of Turkish agriculture, Hayati Kosoglu, chief executive officer of Anadolu Landini, said in an interview in Istanbul earlier this month. “About 50,000 units would be more rational,” he said.
Through state-run Ziraat Bank, the government reduces interest payments on tractor loans by as much as 50 percent, an incentive which has encouraged farmers to use the vehicles as “working capital,” Kosoglu said. “The farmer buying the tractor sells it a few years later, using the cash. Then he goes and buys another tractor. This allows the rollover of farmers’ debt, but how long can that last?” he asked.
Not for long, data from industry association Tarmakbir show. As the economy slows down, tractor registries in the first half declined 21 percent to 27,412 units. Turk Traktor, the joint venture of CNH and Koc Holding, which dominates the market, reported a 36 percent drop in domestic sales in the first seven months of 2018.
The weighted average interest rate for vehicle loans in Turkey rose by more than 11 percentage points this year to 25.35 percent, data compiled by Bloomberg show. This year, the Turkish lira declined around 35 percent against the euro, the key factor for domestic tractor prices. Tractor loan rates at Ziraat vary between 10.7 percent and 14 percent and the rates haven’t changed this year, the lender said in an email.
Anadolu Landini, the joint venture of Italy’s Argo Tractors SpA and Turkey’s Anadolu Motor Uretim ve Pazarlama AS, will start domestic sales in September, while exports may start early 2019, Kosoglu, 51, said. The company targets producing as many as 2,000 tractors next year, with a longer-term target of ranking among the nation’s top three tractor manufacturers.
Other highlights from Kosoglu:
- Anadolu Landini’s main export targets are Turkey’s neighbors, as it makes use of Anadolu Group’s presence in Central Asia and Commonwealth of Independent States nations. Syria and Iraq would be very promising markets once political stability is achieved
- Four versions of the “Globe” brand will be produced in Turkey in the first phase. The company plans to produce three other models from early 2019
- Anadolu Landini ponders cooperating with Anadolu Group unit Garenta to start second-hand tractor sales
- The company sees about 300 million liras (about $56 million) sales in 2019