John Deere Opens Factory in $500M Russian Initiative

U.S.-based tractor maker John Deere opened a factory in Domodedovo on Tuesday, in the first step of its plan to invest $500 million in the country.

John Deere is betting that Russia, with a rapidly growing supply of cultivated land, will become a key market for its agricultural equipment and other capital goods. Much of that land has lain fallow, however, since the fall of the Soviet Union left many farmers unable to develop the land.

Russia will be able to bring an additional 20 million to 30 million hectares back into production in the coming years. The country "has potential to become one of the world's breadbaskets," said CEO Samuel Allen, who recited a famous Russian poem.

"Russia cannot be understood by the mind alone. … In Russia one can only believe," Allen said, quoting poet Fyodor Tyutchev, in an opening ceremony that featured a tractor rolling out in a dramatic fog and light show.

The Domodedovo site will include production lines, where it will build tractors and combines to start with, and a parts distribution center for regional operations, the company said.

John Deere will assemble tractors and other agricultural, forestry and construction machinery from imported knockdown kits, but will increase its level of localization by doing welding, metal fabrication and cab assembly on-site once demand picks up, Allen said. "Once volume goes back to 2008 levels, then localization will happen," he said, adding that he does not expect low demand to last for many years.

"We would like to do more manufacturing here, as long as it's cost effective," Allen said. Once volume increases and production is further localized, John Deere will look into exporting from Russia to other countries in the Commonwealth of Independent States, he said.

Although he declined to provide any production figures, Allen said the company already has orders for tractors and combines this year, and plans to assemble motor graders, four-wheel drive loaders, back hoe loaders, as well as forestry equipment on its Domodedovo lines within 12 to 24 months.

John Deere is the first tenant at South Gates, a 575,000-square-meter warehouse facility developed by Canada's Giffels. Giffels is leasing 47,000 square meters of the 76,550 square meters already available on a long-term basis, or at least five years, said vice president Ruslan Suvorov, who declined to give any other details of the deal.

Giffels bought land in 2006 from Coalco, which has stayed on as a partner and is currently building a railroad track to the complex, Coalco said in a press release.