AGCO AGCO Corp

Russian agriculture production is being undermined by credit conditions in the country that discourage farmers from purchasing machinery and land, the chairman and chief executive of equipment maker Agco Corp. (AGCO) said Tuesday.

Martin Richenhagen said farmland utilization has fallen about 42% since the collapse of the Soviet Union nearly 20 years ago because Russian farmers lack adequate equipment to farm all the available land. He said the volume of tractors and combines in service in Russia has fallen by half in the past decade. The average age of the equipment still in use is 15 years old.

He attributed the aging, dwindling fleet to a lack of financing for equipment purchases.

"The big problem for Russian farmers is they're not in position to do retail financing," Richenhagen said during comments to reporters in New York that were broadcast over the Internet.

Most Russian farmers don't own the land they farm. As a result, they usually lack sufficient assets to qualify for equipment loans. Moreover, the difficulty of repossessing equipment for nonpayment of loans keeps most foreign banks from venturing into the Russian equipment market.

"To do business in Russia right now is very difficult and the main reason is securitization," he said. "You don't have a stable finance system."

While farmers can buy land, Richenhagen noted that few can actually afford to do so. He said the government needs to do overhaul farm-sector lending, especially in the wake of shrinking government programs to promote equipment purchases.

"The system needs to be restructured," he said.

Russia is one of the few farming regions left in the world with the potential for a big increase in row-crop production, making the country a key growth market for Agco, based in Duluth, Ga., and rivals Deere & Co. (DE) and CHN Global N.V. (CNH).

Last year, Agco launched a joint venture with Russian machinery maker Concern Tractor Plants to build diesel engines for farm equipment. Concern Tractor is owned by Russian industrial conglomerate Agromash Holding. Agco also is considering its joint-venture options for production of combines in Russia, the company said.

Agco's stock closed Wednesday up 4.5%, or $1.37, at $31.81.

-By Bob Tita, Dow Jones Newswires; 312-750-4129; robert.tita@dowjones.com

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