New program to stimulate production of Ukrainian agricultural equipment

By Igor Yatsenko, FirstNews, Kiev, Ukraine

The history of independent Ukraine is dotted with attempts to stimulate domestic agricultural equipment production, so far with only moderate success. Foreign agricultural equipment has usually been more readily available, primarily because the marketers of foreign equipment often carried the major advantage of ready-made financing packages in connection with foreign banks.

A new Ukrainian government program may solve at least a part of the financing problems that farmers have faced.

In order to stimulate both the production and purchase of Ukrainian agricultural equipment, the government has adopted a multi-faceted program for farmers that pays for 30 percent of the purchase and subsidizes a portion of the bank interest on the remaining loan. In addition, the program offers the option of leasing through Ukragroleasing.

The program has been in limbo since the government announced the initiative in March. During March-June, when the demand for agricultural equipment usually grows, the major Ukrainian manufacturers of agricultural equipment such as the Ukrautozapchastyna tractor plant, the Kherson Combine factory, the Ordzhonikidze Tractor Plant in Kharkov and others reported a significant production decrease while waiting for the government to finalize the program.

"Although the amendments to the 2005 state budget, signed by President Viktor Yushchenko on March 31, envisaged about UAH 270 million to cover the 30 percent compensation program, the funds were not provided until mid June. The situation, in its turn, resulted in delay of 2005 spring planting," said Anton Dyukarev, a spokesman of Ukrautozapchastyna.

The program is aimed specifically at Ukrainian produced equipment. In order to qualify as a domestic manufacturer, at least 50 percent of the parts must be made in Ukraine.

In the case of Ukrautozapchastyna assembled tractors, the diesel engines, fuel pumps, transmissions, axels, gear boxes are imported from Belarus while the company installs Ukrainian wheels (rims and tires), radiators, batteries, electric equipment, plastic hoods and fenders.

The program is good news for farmers and for Ukrautozapchastyna, which manufactures about 30 percent of tractors in Ukraine. The company is capable of manufacturing 3,800 tractors per year with an additional assembly line able to produce about 3,700 tractors more, according to Dyukarev.

According to Oleksandr Dmytrovskyi, deputy director of the agricultural equipment and tractors department, Ukrautozapchastyna assembles seven basic models of tractors and 16 items of special equipment that could be installed in order to expand tractors' capabilities for agriculture, road reconstruction, municipal needs, forestry, drilling and construction. The company could also equip its tractors with optional amenities such as an air conditioner (UAH 12,000), radio, additional seating, tinted windows, dual wheels and other choices.

The company also developed its own design for hoods and fenders made of plastic for the 82.1 model. "Although plastic parts add about UAH 3,000 to tractor's cost, now a tractor looks better and is able to resist to corrosion. We have been exporting the plastic parts to our Belarusian partners," Dmytrovskyi said.

Using parts from Belarus, Ukrautozapchastyna first started assembling Minsk Tractor Plant (MTZ) 80/82 tractors in remodeled workshops equipped with Belarusian assembly lines at the Kyiv Leninska Kuznya shipyard in 2002. In 2004, they launched assembly of the Vladimir Tractor Plant model VTZ 2032A. The manufacture of a new model of KYI, the 14920 all-wheel-drive tractor begins this year.

The company currently has no plans to assemble foreign brands like Massey Fergusson or Case International, according to Dyukarev. Company officials plan to assemble 3,000 tractors this year compared to about 1,700 tractors sold in 2004.

The company, which currently has 32 affiliate sales and service centers throughout Ukraine, specializes in manufacturing tractors of 1.4 tractive force class. Tractive power is a measure of the power that a tractor is able to develop.

"An average private farmer in Ukraine cultivates about a hundred hectares of arable land; such a plot, in accordance with economic viability, could best be served by a tractor of 1.4 tractive force class," Dmytrovsky said.

"In 2005 the company manufactured a tractor powered by 98 horse power Deutz diesel which cost about UAH 140,000 ($28,000); the price of a basic model is about UAH 84,100 ($16,800)."

He said the company is testing a tractor equipped with a Russian device that burns a combination of diesel fuel and methane gas. While the device would add about $5,000 to the cost of a tractor, it burns a mixture that is just 20% diesel fuel (UAH 3.80 per liter) and the rest methane (UAH 1.20 per cubic meter), plus its emissions are substantially cleaner, Dmytrovskyi said.

According to Dmytrovskyi, the assembly line, which consists of 14 assembly posts, still requires a lot of manual labor. However, the entire production process is arranged to meet requirements of the MTZ, thus there is no difference in quality between tractor made in Belarus and its analogue made in Ukraine, according to Dyukarev.

"Our tractor plant has been visited several times per year by MTZ experts to check the quality, [and they are] occasionally accompanied by the representatives of the Cabinet of Ministers of Belarus, " Dyukarev said.

"Even though our tractors have been certified and won several European awards, in accordance with the agreement, Ukrautozapchastyna is restricted from exporting its tractors from Ukraine," Dmytrovskyi added.

Under the program, Dyukarev pointed out the financial incentive for buying a Ukrainian model even if Belarusian tractors are perceived to be of higher quality.

"A customer pays only 70 percent of the total cost of the tractor and the difference of 30 percent we receive from the government, while an original Belarusian tractor imported to Ukraine would cost the customer the full 100 percent."