Episode 52 - Lachlan Monsborough on when the Chinese Tractors are coming

This podcast is with Lachlan Monsborough; he’s the Ag and environmental lead for Rabobank here in Australia. We pretty much exclusively spoke about the Chinese Machinery market and their ambitions to start exporting Machinery to the leading Ag countries worldwide.

Lachlan said it’s just a matter of when, as they are quickly developing the appetite and are showing signs that it’s all starting to happen.

Lachlan used BYD's move into Australia as an example of how they gained traction really quickly, and he outlined how quickly they have grown in just 10 years.

He is giving the Machinery guys a timeline of around 10 years before they become mainstream here, and he said that once they fully focus on the export market, look out.

He said the Chinese are fully aware of the cost that Westerners are paying for more traditional European and North American Machines, and they see an opportunity to offer equivalents at a much lower price. He said the John Deeres and CNH's of the world will come under great pressure.

He sees the advent of competition from different continents as a positive and urges early adopters to give these Machines a go and be a little patient to pave the way for others. He said current Machinery prices are stifling innovation and hurting the Farmer in the hip pocket. It’s a fascinating look to the future.

I hope you enjoy - End of message.

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Transcript

SPEAKER_02 0:21

Welcome along, Loughlin. Thanks. Dwayne, how are you? Yeah, going very well, thanks. Um just tell us a bit about your background to start off with.

SPEAKER_01 0:38

And uh went from uh there to New Guinea and uh I was in an Australian government program for my first year out of college and uh really enjoyed it up there and so then came back a couple of years later and and and worked on a plantation for a while and then and then ran a commodity trading business for for e com. Um that sort of that was the co the commodity was cocoa.

unknown 1:06

Yep.

SPEAKER_01 1:06

And and then I went to um and that sort of took me through to uh Mexico and and then I worked for a company called Barry Calibert, which is one of the large industrial chocolate manufacturers of the world, and I worked for them for four years, and then I came back to Australia and and joined Brabo Bank.

SPEAKER_02 1:25

There you go. Um cocoa's got very expensive of late, hasn't it? Is that right?

SPEAKER_01 1:31

No, well, it did for a short time, but now it's back to where it was.

unknown 1:36

Um so basically the price of cocoa quadrupled in um a couple of years ago. Yep.

SPEAKER_01 1:42

And uh but it's it's back where she started.

SPEAKER_02 1:44

I don't know if chocolate prices have gone down or anything like that.

SPEAKER_01 1:48

I'm sure the uh the fast moving consumer goods companies of the world have not missed that little opportunity.

SPEAKER_02 1:55

No, fair enough. And just give us a rundown of your role at Rabobank.

SPEAKER_01 2:00

Yeah, so I I work in what we call the global rural team, yes and that that um spans where Rabobank banks large-scale farmers internationally outside of Holland. So Rabo Bank's a Dutch cooperative. Um we look like from the outside in Holland, like the big four banks here in Oz.

unknown 2:19

Yep. Um, but internationally we we do uh corporate finance and then we yeah, we have this rural division where we bank about 13 or 14,000 large-scale farmers across the Americas and Australia and New Zealand.

SPEAKER_01 2:33

And in that, in that I am I'm the agricultural and environmental lead, so I do a lot of work on on around farm data, so non-financial data. Yep. Um, and then also do work on what our product suite looks like um for green lines, sustainable finance, that sort of stuff as well.

SPEAKER_02 2:53

Yeah, fair enough. And what do you like? Rabo Bank's been a bit of an institution for a long time now. What do you put its success down to? Because it wouldn't be hard coming in here and you know trying to get market share.

SPEAKER_01 3:06

I I think I think it's it's probably a long-term view, right? We're an old sort of clunky conservative um Dutch cooperative.

unknown 3:17

Um we we we don't distribute profits, so everything gets reinvested. That that in itself takes a very long-term view. Yeah and I think ag in general um needs a long-term view.

SPEAKER_01 3:31

Seasons come and go, input prices come and go, commodity prices come and go. So the yeah, I think I think our our roots, if you like, uh suit us well to to banking in in markets like Australia.

unknown 3:47

Yep.

SPEAKER_01 3:47

Um and and and that resonates with um with the farming community as well.

SPEAKER_02 3:53

And correct me if I'm wrong, but and some people probably wouldn't know this, but DLL are a big player now, they're a subsidiary of Rabobank, is that correct?

SPEAKER_01 4:00

Oh uh 100% owned by Rabobank. So that's our leasing company. Yep. Um so the business um the business is is based on sort of either direct leasing through DLL or we do a lot of the vendor finance deals that um that you see in the dealership when a dealer says, okay, um 2% for four years on on your tractor or your sprayer or whatever it is, uh DLL's one of the one of the leasing companies behind that what we call vendor finance.

SPEAKER_02 4:34

Yeah, very very good. Um we've been uh we've we've got a newsletter business that we send newsletters out to farmers, and we've been talking about the Chinese uh machinery market a lot and and what's you know what we're expecting is gonna come our way and and what the opportunities are. What what are you sort of seeing with on the on the Chinese front?

SPEAKER_01 4:58

Oh look, I think it's the question is just when. Right? If we're if we're talking about um when are farmers going to start to be using Chinese equipment and uh and heavy Chinese equipment for want of a better word, um the question to me is just when. And that's the when is probably a matrix of uh reliability, serviceability, and confidence. Now, um I don't because I don't think there's going to be a problem with price, it's going to be cheaper. So I think you tick that box if you're a farmer. Um the question but they're the three things that farmers have in mind. All right, if it um if something goes amiss um at a critical time of the year, can I get parts? Can someone fix it? Um if I can't, and um and and and do I trust that it's that it's that it's a relatively short turnaround? Um and I think that's probably still the the question, if you like, in the market. Uh that's um, but the more of the people on the on the bleeding edge who try things, um, the closer we get to um the closer we get to people on the leading edge saying, hey, this makes sense. And I think if you look at I was thinking in preparation for this podcast, if you look at sort of how long, let's say, Chinese youths took to um sort of evolve. I can remember in oh I think it was 15 and 16, yep. Um taking a trip through the middle of the ivory coast in a Chinese youth, yeah. Right, and thinking, oh, this is this is this is edgy, right? This is this is um a driving experience in itself. Like she was a bit chonky in the back end and a few things like that.

SPEAKER_00 6:55

Like a super grumby.

SPEAKER_01 6:57

Yeah, it was it was rugged, it was rugged, and then the roads over there don't help. But then you look at you look at the youths getting around um Melbourne, Sydney, and it's sort of starting to creep into rural areas as well, coming out of China. The BYDs and everything, I'd be I'd be shocked if there's much more of a a difference in the user experience between them and an Amarok or a Hilux or or whatever. So that's probably a 10 to 15 year evolution. Yep, yep. Um I I wouldn't be surprised now in the sort of the larger equipment sizes in in Chinese machinery, if that if if that evolution's sort of going to be going to be similar. We'd probably be somewhere between five to ten years away for it being, let's say, mainstream. Yep. Right. Um but but that's that's only on, let's say, anecdotal examples. I think I think the the the key driver could be price if the Chinese decided to get super competitive. Yes. Um I don't know if they want that or not. Whether they just want to sort of say, okay, we know we can produce it for maybe 80% of what a European or a US can, or 80% less. But whether they want to eat into the um to that margin too much to gain market share in a hurry, uh, yeah, obviously that's the at the commercial discretion of the Chinese.

SPEAKER_02 8:23

Yeah, it's interesting. I uh spoke to someone the other day who's got a BYD Ute, and he drove the latest model, which has just come out apparently, and he reckons it's absolutely net next level compared to it other Australian U or other Utes we get to access to out here. So yeah, we we shouldn't really have any hang-ups about what they might present to us um in the not too distant future.

SPEAKER_01 8:48

Well, I think I think every farmer's probably just thinking, how much is the uh colour of paint really worth to me at the end of the day?

SPEAKER_02 8:57

Exactly. And you know, when it all boils down, they're they're actually looking for something, you know, because uh the a lot of the prices have got become out of reach, which you'd know about. And I we run another business which sells a lot of um used machinery, and we we reckon there's something like 20 to 30 percent have you know put a rule in place that they've taken themselves out of the new market and just going to buy used down the track. So it's it's definitely something that's probably pretty timely if it gets here, probably couldn't get here quick enough, really.

SPEAKER_01 9:30

Well, I think as as farms rationalize in Australia, more and more of them, more and more farmers, especially in cropping, are either quasi-diesel mechanics themselves and or um basically have the ability to almost employ someone full-time, if not part-time, or be or or have run such a fleet that they can they can organise fairly good um fairly good service agreements with their their local dealership, irrespective of and so yeah, that ability to get instead of getting, I don't know, seven or eight thousand hours out of a out of a machine, you may get um you may get twelve to fifteen if you know how to um if you know how to manage it through its life. And I think I think some some some farmers just looking at the cost of new equipment and saying, hey, I think that's the better economic option.

SPEAKER_02 10:34

And that's sort of the earth-moving mindset, they usually go that to those sort of hours, and and it's not in agriculture, you know, as as we speak, but it it might go that way.

SPEAKER_01 10:47

Well, if if it's if it's let's say serviceable, yes, um at uh and it's cost efficient to service these things, um, then yeah, you can you can you can maybe you the maybe the future is 15 to 20,000 hour machines.

SPEAKER_02 11:03

And I I've heard that they're they most of the machinery adopt the hybrid model, so they've got a a a motor and an electric motor, and the the electric motor runs the you know, there's other electric motors that run the you know the transmission or the or the four-wheel drive wheels or things like that. So apparently there's a lot of less moving parts. Is that is that what you're hearing?

SPEAKER_01 11:26

I don't know that side of the the mechanics, if you like. Um I I don't know. Um what I what I did think about pre-con uh pre pre-podcast was uh at the moment with Chinese machinery, you're seeing sort of a lot of engines that are Chinese, but then you see in the Chinese earth-moving equipment and things like that, they're just using cummons, Kubota, um, things that every farmer's quite familiar with.

unknown 11:54

Exactly. Um when when will those when will those blocks and I'm sure there's equivalent in transmissions as well, when will those blocks start to to move into some of the Chinese brands? Um I think I think that that will also build confidence as well in the market.

SPEAKER_01 12:12

If it's a Cummins engine or a Kubota engine or a or yeah or Perkins, then um there'll be there'll be confidence in um in in those in those engine brands. Yeah. Yeah.

SPEAKER_02 12:27

Um how come we don't we haven't heard in the past much about um the Chinese machinery? You can't find much about it on the internet, and I don't know whether you're at Agri Technica this year, but it was a a quite a big Chinese influence as far as display was concerned. Um how come we haven't seen much on the internet and have you seen some of these machines live?

SPEAKER_01 12:50

Yeah, I have. Um I I've I've I've been to Agri Technica in Asia, Agri Technica in Hanover. Uh I I've seen one of the the large 350 horsepower tractors live in uh in Australia. I I I think it's I think it's well we do have it's not a pure oligopoly in the machinery market in Australia, but there's a very strong presence and a and a very strong um let's say direct service network with the with with the current brands and and and farmers in rural locations, right? And that's that's hard to break into uh from a Chinese perspective. Um you'd need to sell to set up one of those businesses in, let's say, Mori or Wagga or Dubbo or Horsham or sort of the key machinery hubs from a grain a grain point of view, um, you'd you'd really be breaking paradigms in those markets. Um and I and I think they're probably, and I don't think the existing dealers will probably let you in, right? Um as much as they can. So I think I think there's it's probably going to be a capital city market to start with. Um and then then yeah, people on the people are who are prepared to experiment and who are probably really mechanically savvy and who are prepared to take that risk and think they can manage that risk, um, they will yeah, they will they will probably um have some sort of redundancy in terms of parts and on farm. And and and then and and and as that volume from the capital cities grow, uh, then you'll see then you'll see uh dealers start to experiment um in the in regional centres. That's that's the way I think it's evolving already. There are a few dealers in in Melbourne already selling up to about 150 horse. I think I don't know if they're in Brisbane or Sydney, so I apologize for listeners in those areas who are thick. Um but the yeah, that's that's probably how I see it evolving. I think the other thing is that um if if from a mechanical point of view, from an engine and a transmission point of view and hydraulic point of view, if they're simple enough, the the ability to order things online quickly, cheaply, etc.

unknown 15:27

etc.

SPEAKER_01 15:28

Um is is also what what um what what some farming businesses will look for as well and what probably will need a dealer.

SPEAKER_02 15:38

So it's feasible that they could come to the market with uh with a new a brand new model compared to what the dealer model as we know it now.

SPEAKER_01 15:48

Oh, I I think I think it's I think it's probably not brand new. That's probably just a hybrid of what works, and it probably depends on the complexity of the equipment at hand and how much how much of the actual tech is in terms of autosteer, um uh variable rate technology, all the all the basically the electronic consensus-based stuff, how much of that is the aftermarket in the tractor, and how much of that is is is um let's say factory, right? And depending on the balance, the balance will probably determine the serve model. That would be my that would be my view at this stage, but it could be who knows, it could be completely different.

SPEAKER_02 16:34

So you know of um businesses out of Melbourne that are already selling Chinese stuff. I know I was talking to a guy the other day and he's bringing in some stuff and he's gonna start going to the field days in the first week of August with a with an offering, a tractor, and a few other offerings. So you know of a couple in Melbourne that are already selling stuff, is that right?

SPEAKER_01 16:56

Yeah, but this is just through my own um sort of browsing on the internet. Yeah, yeah. Um this is not uh because I uh have uh have been approached by them or anything like that. Um, or yeah, this is just having a look what's out there. Um so yeah, I I I know there are dealers in Melbourne who are selling stuff up to I think it's about 130, 140 horsepower now. Um the big question is when does when does that have a two and a three in front of it? I think that probably most grain farmers are asking themselves if they're if they're looking.

SPEAKER_02 17:33

And apparently they had one of those Zoom lines um 400 horsepower models up at Farmfest at Toowoomba just recently, about a month or a month or two ago, and it was um apparently are five deep looking over it. So it's it's going to create a lot of interest.

SPEAKER_01 17:51

It's fascinating because I I think as you alluded to before, the um the costs of of of um of the European and the US brands uh are really starting to be a stumbling block um if you if you're looking to purchase new equipment. So you you've got to be um you've got to treat your your tractor like a football team if you're not looking at other options. Exactly, exactly.

SPEAKER_02 18:20

Um I had a mate to ask you how are they going to be compliant with Australian standards? Is that is that such a big thing or they can do that?

SPEAKER_01 18:28

Yeah, it is. Yep. It is, and there was a couple of tractors at Agri Technica in Germany that didn't arrive because they didn't meet EU emissions targets. Right. Right, and so that isn't that is an issue, but I think that um really the Chinese have got in terms of the big markets Australia, Canada, the EU, um maybe larger scale farming in Russia. That's not going to probably matter though to them in terms of emissions and things like that. But if you look at Canada, Australia, and the EU, if they want to break into those markets, they're going to have to take this seriously. Yep. And what I'm what I'm actually hoping is that that forces them to actually just use the blocks of um Cummins, Perkins, Kodo, etc., the established caterpillar, etc. Caterpillar might be a problem because it's US. But that that though those blocks, because at the end of the day, that means that they will they will meet um compliance requirements. Um where if they continue just sort of developing their own stuff as they go to meet either a cost target or uh an engineering target, who knows? Um what they see as good, they might they might fall short.

SPEAKER_02 19:54

And I think we got talking about it before we got cut off a little bit, but um what did you see at Agri Technica and and what were the sort of what what was the the comments that you were hearing and things like that?

SPEAKER_01 20:07

Well, I've been I've been to Agri Technica over the last in Germany over the last 10 years, I think. It's getting close to 10 years, or the la three out of the last four.

SPEAKER_00 20:19

Yep.

SPEAKER_01 20:20

And what I would say is that we haven't really crossed in the larger tractor space into a new frontier. Like the tech that was being demonstrated in 2017 is similar to what's being demonstrated today, if I'm fair, right? So back in 17 they had some sort of swarm farm with drones as John Deere, that was their main thing with the concept uh 100 horsepower utility tractor, yep. Um, that was fully electric. Um we're just starting to see the release of those. I'm not even sure that it's from Vent in the market, so electric full fully electric tractors. There's a bit more on the automation space, so basically retrofitting an automation kit into existing tractors and then being able to control them remotely. Um that was that was there was more of that in the last in the last year, in November last year. But really, there's there hasn't been sort of a um a massive leap in um in in tech or um or or who's exhibiting. I think yes, the Chinese have increased their presence over the last 10 years, and there are more brands, they're uh they're getting bigger. Yep. Um, but they're but it's not it's not taking technology or anything like that into somewhere where it hasn't been, right? Um especially uh especially like In passenger cars where it's basically all electric, all hybrid, heaps of gadgets, etc., like that. You're still a tractor that the average farmer will be very familiar with.

SPEAKER_02 22:12

And we get like um talk to a lot of farmers, and they actually say we want a lower tech machine. We don't necessarily need a lot of the tech that's uh currently going on the these European and North American machines.

SPEAKER_01 22:26

It's interesting. I think what what's sort of the the missing piece there or that needs to be nuanced is that is the tech enables very low cost of data collection. Yep. Now in Australia, we're only one year into mandatory sustainability reporting, right? Once that filters down the classes of businesses, the tiers of businesses to lower thresholds, this is actually going to be a big help for farmers, right? The fact that you can get data into a spreadsheet at zero cost, right? Or zero additional cost to what you've already paid for your capital equipment. If you have to go and actually manually input that data, etc. etc., and then run it through a software system or something like that, that that is that's your time, that is cost, right? So I think probably some of let's say the sense technology and the data collection ability of some of the platforms that the big machinery firms uh offer when you buy a new bit of kit, yep. Um they're probably not being fully utilized, right? Simply because we don't have the regulatory environment that makes sure. Now in Europe they do.

SPEAKER_00 23:49

Yeah.

SPEAKER_01 23:50

Um how much how much is that actually translating to lower cost of administration? I couldn't tell you, right? But the fact that it's there and it's an option is probably better in future state than it not being, because to do it manually is expensive.

SPEAKER_02 24:07

Yeah, it makes sense.

SPEAKER_01 24:08

What what all I was going to say is so whether you'd get the same efficiency from retrofitting some of this sense technology and measurement technology on a um on essentially four wheels transition, hydraulic pump and an engine, right? Um, I don't know, right? But that's that's uh that's something that I think farmers should will will need to consider in the future.

SPEAKER_02 24:37

And you mentioned about automation. I've heard their their automation offering is next level. Have you heard and heard anything the same?

SPEAKER_01 24:45

So at this stage, at this stage, what I hear is is a group of anecdotes on pilots, right? I don't hear that I this the 10% of this sector or 10% of this crop is now fully automated or anything like that. I think it's still um farmers and and some early innovators um mucking around, mucking around's probably a bit loose, but um trialing things on uh on a on a pilot scale rather than converting everything. Um but the those advances I think are significant, and I think the the cost savings are very, very obvious when it comes to um activities like cultivation, um uh stubble management, things like that. I think for spraying, fertilizing, harvesting, etc., um that's the the automation, the full automation of that is is probably years away yet. Um but certainly on the more rudimentary and crude tasks, um then it's it's quite close.

SPEAKER_02 25:58

I'd be interested in your thoughts. We've sort of seen automation go three ways. So um either we can do it within the current setup with the current tractors, etc., headers, etc. Or there's um the swarm farm ones, I don't know whether you know the swarm farm uh machines that they have the basic tractors that pull machines and do it all automatically, that's automation, or are we gonna see humanoids sitting in cabins and doing it that way? Which which way do you reckon it's gonna head or is it too early?

SPEAKER_01 26:30

Well it'll be it it'll be a combination of the first two, yep, I d I believe, because I don't think you actually need the humanoid, right? Maybe maybe that's five to ten years down the track on on more let's say nuanced activities like spraying where you have to make decisions on the go and be in tune with um what what what's what's actually happening around you but I see sort of real real um let's say ability for um one person to manage multiple machines remotely and either that person at a desk, yep, right, and then as the um has the farmer on speed dial to say hey there's um there's a tine broken or a rock in whatever it is um and and you've got the cameras set up to basically identify um identify problems uh and yeah the farmer's basically becomes a a mobile servicer to about six machines. Now in the big setups he he probably is anyway if he's if he's managing a uh a team of backpackers driving um driving his gear, right? Um so yeah, I see I see that being actually a real possibility, yeah. Uh and one that's not far around the corner. Um and and then sort of more on the swarm stuff, um, I I think yeah, there's there's a lot going on in that space. I think it just what what risk appetite probably the farmer has for um and sort of how far does it take him outside their comfort zone of control is probably where they land. Um the other thing that I think is a is a real sort of blocker at the moment and is that where drones are applicable for either nutritional pest and disease management.

SPEAKER_00 28:27

Yep.

SPEAKER_01 28:27

Um the current CASA regulation of one operator for one drone means that the the efficiencies of one operator for five or ten drones can't be gained. And so that that's probably holding that technology back at the moment.

unknown 28:42

Yeah.

SPEAKER_01 28:43

Um, because you know, if if if you can imagine um somebody, let's say, filling a hopper on a drone for six drones or seven drones and and managing them automatically on flight paths, um, that's far more efficient than one person for one.

SPEAKER_02 29:01

And it's interesting, like getting back to the swarm farm setups, like you know, a lot of farmers have got them now and they're rolling them out, and people are starting to buy their second and third ones, and they're doing doing lots of work, but it's you know, they've still got to have their self-propelled sprayer or their toe behind sprayer from a spraying perspective. So you can't just change over cold turkey, you still got to have a bit of both.

SPEAKER_01 29:27

Well, I think I think you've got with with spraying, even if even if the drone um or drones does a uh a job which is um identical in efficacy, yep. Um the the the thing is just the timing, yep. Right? So much of of spraying relies on timing. Now self-propelled sprayers just give you incredible reach in terms of the coverage you can do in the timing window, yeah. Um having that capacity with drones um is is probably quite difficult.

unknown 30:04

For things that aren't as time critical, um and you can in and with drones if you can uh uh uh uh um cover the hectare slowly, yeah, then that works, right?

SPEAKER_01 30:18

But yeah, that's that's the beauty of a self-propelled sprayer, the the the the the country that you can cover with um one or two units.

SPEAKER_02 30:27

And you mentioned before about the sort of monopoly or duopoly that the Europeans and the North Americans have got. How do you how do you think reckon they'll respond to the once you know someone comes in eating a bit of their lunch?

SPEAKER_01 30:43

Well, I sort of I think the the only thing we've got to go on is um about what was it, Duane, 20 years ago when Kubota and uh back then it was Daydong before they were coyote, um entered the market. Yes. And what we saw in that smaller tractor class was suddenly we got John Deere, Brazilian tractors in the market.

SPEAKER_00 31:08

Yep.

SPEAKER_01 31:08

Right. So they were quickly able to, and I think we got um Indian Massie Fergusons, right? So I think we they were quickly able to adapt to new pricing points to meet to meet the market in particular classes. I'm not sure if they've got that flexibility if it gets super competitive in the let's say the 200 horsepower plus um uh market. Um well I don't know for sure, but I think that's that's going to be the let's say the the challenge. Like if if if the Chinese really want to have a crack on price, they do have that really low cost of manufacturing and and distribution. And and you'll what do what do the established brands have to compete with that? I think that's that's that's the question because I'm not sure that there's a uh a pivot to a um to let's say a uh another um another machine within that within that same brand that has a lower cost of production.

SPEAKER_02 32:11

Yeah. Um what sort of brands are you seeing like as far as mainstream brands in China? We've we mentioned Zoom Line before, and they're the ones we're really only hearing about. There's a I know there's a couple of others been bandied around, but what are you hearing? Is there any sort of is there like is there a dozen of these things or is there two or three?

SPEAKER_01 32:33

It's probably not a dozen. There's another company that's called Hanlo. Um they they're producing, I think, up to 350 horsepower. They had a they had an 80 horsepower tractor at um at the Melbourne Agri Technica last year, which was a might have been in two years ago and even now, um, which was a uh basically a copy of an old Kubota M8200. Yep. Um and and that was exceptionally competitively priced, like unbelievably sort of like uh what would it be, landed in Australia? Um four or five hundred bucks of horsepower is everything. Yeah. And and so Hanwo, oh there's another one that's blue that I can't remember at the moment, but they're the ones that are being sold down in um southeastern Melbourne at the moment. Yeah. Um I think UHI will do up to 150 horsepower now. Um, yeah, so there's I I'd say there's half a dozen, Dwayne, um, that are starting to enter into the bigger game. Um what I think will be fascinating in China over the next um let's say 20 or 30 years, is how these groups of um machinery manufacturers, whether it be passenger vehicles, um passenger vehicles, tractors, earth-moving equipment, etc., how they rationalise themselves, right? Because you look at company like Mercedes-Benz, or you look at a company like um uh AgCo or CNH, right? These are all amalgamations of companies that have happened over the last 50 years. Yep. Will will China go down the same route and and and build the synergies out in quality?

unknown 34:28

Um or will um or will they stay as a let's say a uh a group of let's say multiple brands? So I I think that's going to be fascinating to watch, like because we've got I don't know, 10 or 15 Chinese car manufacturers.

SPEAKER_01 34:46

I think Japan's back down to four, right, over the last 60 years. So we'll will will China take a similar route and how some of the car manufacturers add um heavier equipment to to their to their portfolio of manufacturing. I think that's going to be fascinating to watch. And if it does, I think that will really speed up their um let's say their distribution into markets, um, because then you've already got some sort of dealer network locally, um, and you've got a huge amount of, let's say, comfort and tech that you can you can apply from um passenger vehicles into heavy equipment as well.

SPEAKER_02 35:27

And how big is their appetite for this, you know, for and what sort of markets are they looking to enter? I've I've heard it's you know parts of Europe, um Australia, you know, perhaps some of parts of um South America, but what what's their appetite and what what what are they what's their actual aim of where they want to land?

SPEAKER_01 35:48

Oh look, I think it's I think their appetite's everywhere. Yep. I mean I don't I I like the cars and the youth. Yeah, talking to colleagues in Brazil, um they're at the major agri shows there now. Yep. Um and that's that's a huge market with domestic manufacturing in in Brazil, so they're not afraid of that. Um they yeah, Africa, they're they're everywhere as if if and when large-scale agriculture develops in Africa, um, they'll be at the forefront of that market just purely on cost. Um and I and I also think in in emerging markets that the low-tech model, the the low-tech model suits, uh, especially in the tropics, electrics in the tropics. You ask any any banana farmer up in Israel, do they want tech?

unknown 36:39

And the answer is no, right? Um those tropical environments um where there is sort of real room for um larger horsepower and um some forms of automation, I see them being very well positioned. So I think, yeah, their appetites everywhere.

SPEAKER_01 36:58

I also think though they're going to it's a it's a real, it's sort of the it's the epitome of the of the the broader global sort of trade war between the US and China is what's happening in heavy machinery. Um, because you've got just sort of iconic US brands, John Deere, Caterpillar, um, Case, etc. Um, they're they're under they're under real threat. And um and and the tariffs and everything that are going on, they're they're iconic brands that um that the US wants to protect. So I I can't see them maybe the probably the last market they break into is the Chinese market because of because of that, um because of the politics.

SPEAKER_02 37:44

It's fascinating. And should we be looking also at the Indian market? Is there anything coming out of there that um you like?

SPEAKER_01 37:54

I mean Mahindra are um Mahindra uh a massive company, yes and they're part and I think most farmers will be familiar with them because of the the smaller Suzuki's and and things like that. Um they they produce they have huge market share in India already. I I haven't seen them enter into the larger scale machinery. I think the most I've seen at the various Agri Technica is about 80 horsepower, 100 horsepower coming from from India. I I I really don't know in terms of what their their plans are, whether they see that market. The only thing I did pick up from uh Agri Technica in Bangkok was that um I think it was class sold 200 or two three two two to three hundred uh three hundred horsepower uh tractors into sort of the Punjab region of India. So wheat wheat farmers in in that northern northwestern part of India are starting to use um larger machinery. Um do they look for a lower cost um locally produced alternative? Is there is there is the market big enough to um to to to use them and will they use them? I think that's probably what uh companies like Mahindra, Tata, the like the big manufacturing conglomerates of India are looking at.

SPEAKER_02 39:20

And is there anywhere else in Asia we should be talking about as well? In terms of manufacturing or use? No, manufacturing um I don't I don't see it.

unknown 39:32

Right.

SPEAKER_01 39:32

But that's not to say it doesn't exist, but I just don't see it at any of the trade shows, or and I don't see it, I don't hear it talked about. I don't think oh let's say they have the heavy machinery sort of manufacturing aims, uh or the maybe maybe there's some startups in Thailand because they have such a large automotive industry. Um Ford has factories there, Nissan has factories, Mr. Bishi does. Um maybe there's um maybe there's uh ambition there, but I I haven't seen it.

SPEAKER_02 40:05

It's a very interesting space, and you've given given us a great rundown of you know what what might be coming and what people can expect because um as I said earlier, farmers are looking for alternatives and it's and it's of great interest to them. So um just thank you. I actually think it's a hugely positive.

SPEAKER_01 40:23

Yes, I agree. I think there's there's probably a lot of fear um that's that's being generated, but I actually think it's hugely positive because the costs of machinery at the moment um are probably limiting in innovation in other spaces as well.

SPEAKER_02 40:44

Yeah, and they're holding the farmers you know back financially as well. But something um, and you've probably you've been to China, I know, but you know, the the fast train network they've built in comparison to we can't get a track that goes beyond Forbes, you know, like we're struggling to struggling to do that. So you really got to trust them as far as manufacturing's concerned.

SPEAKER_01 41:06

I I think that the maturity will come. Yes um when uh how can I say this when they're actually manufacturing purely for an export market. Yep. Right? I don't think they are yet. I think it's still, hey, what do we need for larger state-owned farms in China and private owned farms in China, like the big dairy farms, the big some of the big farms that have developed and been consolidated over the last 20 years there? I think they're probably primarily looking at their European North American gear and saying, okay, what what can we copy, what can we replace, what can we do? I think when I think similar happened with the the Utes and the passenger vehicles, when they actually said, Hey, let's get really serious and and and compete solidly in um in in export markets, and we we have we can't we can't compromise on quality. Once they sort of get their uh get their attention on that, they're going to be very formidable.

SPEAKER_02 42:16

No, it's no, it's uh something that's pretty exciting, as you said, and we should be um all looking forward to it. But thanks for your time, Lachlan, and and it's been great chat. And we'll watch this. We might have to get you on in 12 months' time just to see where it's at if things change a little bit.

SPEAKER_01 42:32

Yeah, look, I think I think on the other side, um geopolitically, it's it's very hard to predict where we're going to be at um in six months, let's and and how much it impacts the um let's say the the development of uh of these markets. So uh yeah it's it's very easy to be wrong on the faces of geopolitics. Exactly. Exactly.

SPEAKER_02 43:04

Very good, Loughlin. Thanks for very much for your time.

SPEAKER_01 43:07

Thanks, Dwayne.

SPEAKER_02 43:09

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