Report on farm machinery supply practices and problems in Colombia

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Report on farm machinery supply practices and problems in Colombia
Chacon, Pedro J.
Hildebrand, Peter
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South America -- Colombia

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Prepared by

Pedro J. Chac6n, Rural Credit Advisor

Peter Hildebrand, Agricultural Economic Advisor

March, 1968


The following report on farm machinery and equipment is the re-

sult of a brief survey conducted as a means of investigating how this

important phase of the agricultural field operates in Colombia, both

with the farm machinery dealers, and the farmers.

Several dealers were contacted, and several small, medium and

large farmers were interviewed. Some of the local farm machinery manu-

facturers were also included in this survey. This report compiles their

views and some of their recommendations for the improvement of farm ma-

chinery services in Colombia.

Our appreciation is extended to the Caja de Credito Agrario, In-

dustrial y Minero (Caja Agraria), Colombia's largest and most important

agricultural bank, Colcaribe, Casa Toro, Velez Angel y Cia., and all

those farmers who contributed with valuable information, and made this

report possible.


The Farm Machinery Division of Caja Agraria is composed of Pro-

vision Agrfcola (Agricultural Supplies), the Maquinaria Emprestito Sec-

tion (Machinery Loan) and the Administrative Section.

Maquinaria Emorestito

Among the various activities of Caja Agraria, a system called

"Maquinaria Emprestito" (Machinery Loan System) has been in operation

for more than 10 years. This system was established to facilitate the

purchase of desired tractors and equipment by farmers and farm machinery

dealers on easy terms. At the present time there are 29 dealers duly re-

gistered in Caja Agraria's "Maquinaria Emprestito" with offices or stores

in all major areas. The factories assign the territories or Sale Zones to

the dealers.

To be eligible to import farm machinery through Caja Agraria, the

dealers submit an application which is studied by a Financial Committee.

If the dealers comply with the requirements set forth in the convenants

of Caja's contract, and the Financial Committee approves the application,

they can immediately put in an order for importing farm machinery. No

minimum or maximum ceiling has been established, but Caja assigns the "cupo"

or quota to each individual dealer. The amount granted each dealer depends

on the dealer's financial backing. Caja Agraria carries all the expendi -

tures of importation to the time the farm machinery reaches their "Almace-

nes de Depdsito" (storage shops). The dealers are then notified and they


sign 90-day drafts which haVe t6 be.paid off whenever the tractors and

farm equipment are removed from the storage shops.

Sales tax (3%), custom duties (2%), consular fees, transportation,

and insurance (2-3%) are paid by Caja, and charged to the price of farm

machinery. In addition to the above charges on the total value of the

farm machinery imported F.O.B., Caja charges 12% to take care of the ad-

ministrative expenses involved, storage and other expenditures encountered

within the country. Dealers are authorized to charge an additional 25%

which are broken down into: 13% to pay commission fees and other local ex-

penses and 12% net profit (see page ).

Sales through Caja Agraria

The majority of farm machinery dealers uses Caja Agraria's facili-

ties to import their tractors and some equipment. Practically, they are

importing tractors alone since the majority of farm implements like plows,

disks and diskharrows, weed cutters, etc., are being manufactured locally,

and no import licenses are issued for this type of equipment.

Sales of imported equipment to the farmer through Caja Agraria have

the following percentage markups.

- 4 -

Farm Machinery (F.O.B.) 100%

Custom Duties 2%

Transportation, Insurance 2.5%

Sales Tax 3%

Sub-Total 107.5%

Caja Agraria (on value of Sub-Total) 12%

Dealer's Commission (on value of Sub-Total) 25%

Total Price to Farmer 147.3%

The price at which the dealers sell their machinery is controlled

by Caja Agraria. If they go above the established price they will have

to reimburse the excess to the farmer. The dealers sell their farm ma-

chinery through salesmen who contact the farmers and help them in filling

out the application for financing with Caja. These farmers can purchase

tractors and other farm equipment by making a down payment of 25% of the

value. The outstanding balance is financed by Caja at 13% per annum for

36 months. Installments are scheduled according to the purpose for which

the machinery will be put to use: 6 months for seasonal crops, 1 year for

annual crops, etc.

During 1966 the Board of Directors of Caja Agraria raised the loan

ceiling for farm machinery from Ps.$180,000 to Ps.$270,000. The Monetary

Board later authorized loans up to Ps.$350,000. These measures were taken

in response to the tremendous increase in the price of farm machinery and

equipment. Loans for farm machinery during 1966 totalled "s.$72,171,000,

while in 1967 loans for the same purpose only reached Ps.$57,033,000 or a

- 5 -

decline of 21 percent over the ptevi6is year.

All farm machinery dealers agree that the services rendered by

Caja Agraria are very good, and seem to be satisfied with the way the

Machinery Loan System operates. However, they agree that the only draw-

back in the whole process of importing farm machinery is obtaining the

respective import licenses. Import licenses are obtained directly by

farm machinery dealers. It is a long, tedious, process, and many times,

for no good reason, or for some reason the dealers find unjustifiable,

the licenses are denied. On the average it takes seven months to process

an import license.

Provision Agricola

Under the "Maquinaria Emprestito" system, Caja Agraria imports 60%

of its farm machinery. The other 40% is accounted for by imports through

"Provision Agricola" (Agricultural Supply). This equipment is sold direct-

ly by Caja Agraria to its own customers through its "Almacenes de Provisi6n

Agricola" (Agricultural Supply Stores).

Caja Agraria's Administrative Section distributes and controls the

sales of farm machinery in the 12 zones under which more than 400 agricul-

tural supply stores have been grouped throughout the country.

All agricultural implements sold by Caja Agraria are identified

under a code. This system enables Provision Agricola to control monthly

sales, to establish the annual demand, and to project future purchases in

order to keep a permanent stock.

- 6

Provision Agricola sells small implements like horse drawn plows,

cultivators and rakes; drilling equipment for water wells, electric fences,

hay balers, milk separators, manual corn sellers, overhead irrigation e-

quipment, wind mills, motor-pumps, diesel motors, grass choppers, hydraulic

rams and trailers, and others. Provision Agrfcola also imports heavy e-

quipment, especially Caterpillar tractors and tawners.

Sales are either cash or credit. On credit sales the customer fills

out an application which is submitted to the Credit Department of the local

branch of Caja Agraria. Once this application is approved Provision Agri-

cola collects 25% as down payment; the Credit Department finances the re-

maining 75%, and grants a 36 month term. Only heavy equipment which costs

more than Ps.$500,000 at the present time, is granted a 48 month term. In-

terest rates go from 8% up to 13%. The longer the term the higher the in-

terest rate.

On imported farm machinery Provision Agricola charges 25% on the

price of the equipment placed in the respective zone. The 25% is divided

into 20% for administrative expenditures and 5% profit. On nationally pro-

duced products they charge 15% divided into 10% for administrative expendi-

tures and 5% profit.

Provision Agricola has repair parts and maintenance for much of the

farm equipment sold. If the respective zone does not have the repair parts,

a radio order is sent to the Machinery Division in Bogota. In the latter

case all expenditures are born by the customer.

- 7 -


As was stated in the previous chapter, 29 dealers are duly re-

gistered in Caja Agraria's Machinery Loan System. The exact number of

farm machinery dealers in Colombia was not established, but it proba -

bly exceeds 100. Dealers who either sell or import water pumps for a-

gricultural uses, equipment for overhead irrigation, etc., are also con-

sidered farm machinery dealers.

In Colombia practically all U.S. manufactured tractors are re -

presented by some important farm machinery dealers. European brands

are also represented, but the number of tractors and equipment is re-

latively small as compared to the large number of American tractors al-

ready in operation or for ready sale in the open market. Farmers pre-

fer U.S. tractors because they are well represented, they have been long-

er in existence in Colombia, and they are of good quality which means that

they are highly efficient.

Direct Sales

Some dealers directly import tractors and equipment. These im-

ports are financed:

1. Out of their own resources,

2. Through commercial banks,

3. Through manufacturers.

Very little or no credit is obtained from the manufacturers, and

then only under special circumstances.

When dealers have their own financial resources they prefer to

import directly since they make more profit that way.

To obtain financing from a commercial bank the dealers must fur-

nish the bank the following requirements:

Balance statement,

Commercial references,

A co-signer.

When they sell farm machinery to the farmer from direct imports

they help the farmers obtain credit from commercial banks (Law26) at

18% interest p.a. and up to 36 months. The dealer will be the cosigner

and will hold a reservea de dominio" (reserve of ownership) on the e -

quipment until it is paid in full. In this particular case the farmer

must pay 40% down on the date the transaction is closed.

On direct sales the following are the percentages charged the


Farm Machinery (F.O.B.)

Custom Duties

Transportation and Insurance

Sales Tax


Dealer's Commission

Total price to Farmer









The dealer's commission in this case includes both the 12% of

the Caja and the 25% of the dealer. Hence, the farmer pays the same


Used Equipment

The dealer sells tractors with or without farm implements. Some-

times they accept an old tractor as part of the down payment on the new

equipment. The price is agreed upon between the dealer and the farmer

but, logically, the dealer has the last word on this type of transaction.

The price fluctuates between Ps.$5,000 and $25,000 depending on the con-

dition of the old equipment.

Some of the farm machinery dealers have been wanting to start the

sale of used equipment, specially tractors. Their main problem has been

the customer himself. If the tractor breaks down, and used tractors are

not guaranteed, the farmer either wants his money back, or he just tells

the dealer that he won't pay the balance and that the dealer can send for

the tractor whenever he sees fit.

Maintenance and Repair Parts

All local dealers have to comply with the manufacturer's stipu-

lations to maintain a stock of repair parts for 80% of their customers.

A guarantee of one year on manufacturing imperfections should be stipu-

lated in the sales contract. Wherever they have a center of operation

the dealers must keep a farm machinery maintenance service.

- 10

The cost of mechanic's service is relatively high. This is par-

ticularly true for farmers located a considerable distance from the

dealer's office. The dealer charges the mileage as well as for the mech-

anic's service from the time they leave the dealer's office. The mech-

anic's services are charged per hour. Many farmers do their own re -

pairing or privately hire a local mechanic to do the repair work.

Repair parts are more of a problem to the farmers than they are

to the dealers. The dealers, according to Caja Agraria's regulations,

must import 18% in repair parts. They comply with this regulation when

the import licenses are approved, but, in many instances the licenses

are denied or delayed pending the availability of divisas (trade funds).

Dealers consider the life span of new machinery to be up to five

years. Farmers consider it to be more than five years. Both of their

reasons are obvious, especially with the steady rise in prices from one

year to another. (See page 19)

Stipulations and Regulations Governing the Sale of Farm Machinery

Caja Regulations

When the dealer imports through Caja Agraria the following sti-

pulations must be complied with:

1. Application for registration as importer of farm machinery,

2. Caja will assign the corresponding import quota,

3. Dealers are allowed a 25% profit (not counting the 12% charged

- 11 -

on imports by Caja)

4. Dealers must keep a stock of repair parts (equivalent to 18%

of value imported)

Manufacturers' Stipulations

1. Maintenance of repair parts for 80% of their customers

2. One year guarantee on manufacturing imperfections

3. Maintenance service wherever the dealer has established its

offices or branch offices.

Government Regulations

1. Import license

2. Duties

3. The dealer must buy locally manufactured farm implements such

as plows, disks, planters, rakes, etc.

Manufacturers of Farm Equipment

Equipment such as light and heavy plows, disks, cultivators, trail-

ers, subsoilers and others are locally manufactured. There are not very

many manufacturers of farm machinery in Colombia. A few like Agromet, Ma-

nagro and Apolo are highly specialized and their technique is satisfactory.

However, they buy many of their raw materials from local manufacturers.

These materials vary in quality and resistance. Due to this condition the

quality of the finished product is not constant; this is one of the main

problems encountered by the manufacturers. Not all the parts that go into

- 12 -

the manufacturing of these implements are produced locally. Imports

comprise about 30% the finished product. Lamina and rolling parts are

usually imported.

All the equipment produced locally is sold through farm machinery

dealers. Dealers are allowed a 25% profit on these farm implements and

are given a six-month guarantee on manufacturing imperfections.

The Colombian Government has encouraged the establishment of fac-

tories of farm implements by granting a 100% exemption on taxes. This

exemption will expire on December 31, 1969.

The manufacturers produce only the necessary equipment to match

the number of tractors imported, this is a limitation they have to face

since they say they are in a position to satisfy any demand.

Local manufacturers are financed by local commercial banks, the

Finance Corporation and also use their own financial resources. However

they find credit to be scarce and difficult to obtain and interest rates

high, especially those of the corporation.

The Farm Machinery Importers and Distributors Association

ADIMAGRO, the Farm Machinery Importers and Distributors Association

has been in operation a little over a year. This is a non-profit organi -

zation of persons or societies dedicated to commercial activities related

to the importation and distribution of farm machinery and implements, in-

cluding those locally manufactured.


At the present time, it has it$ headquarters in Bogota. Future

plans are to enlarge activities and to establish other offices in Co-


The principal objectives are: (1) to protect and represent the

general interests of its affiliates, (2) to promote the development of

agricultural activities by using mechanized equipment that will increase

productivity, (3) to conduct the necessary studies to assist the National

Government, private and public organizations, associations or private en-

terprises with respect to the development of agricultural activities in

the country.

The Association is ruled by the General Assembly of Affiliates,

a Board of Directors, a President, one Secretary and those employees au-

thorized by the Board of Directors for the better functioning of the As-

sociation. It also has an Auditor. The Board of Directors, elected by

the General Assembly for annual periods, meets at least once every two


At the present time it supports itself from ordinary and extra -

ordinary contributions from its members. Dealers with more than Ps.$

10,000,000 worth of business, per year, pay $1,250 pesos monthly. Other

members pay $750 pesos monthly. There are 24 members. MANAGRO is the

only local manufacturer of farm machinery to belong to the Association,

but it is expected that other local manufacturers will eventually join.

ADIMAGRO considers import licenses for farm machinery as one of

the greatest barriers in the importation of farm machinery. The problem

- 14 -

is not only the delay in issuing the license but turning them down for

minor details not justifiable in their judgment.

From 1000 to 1500 individual units worth from 6 to 8 million dol-

lars were imported by farm machinery dealers during 1967. It is consider-

ed by the Association that annual imports could go easily up to 4,000 in-

dividual units or to 24 million dollars. Actually there is a shortage of

farm machinery as every unit imported during the year is sold without dif-

ficulty. Local manufacturers produce as many farm implements as tractors

imported and are prepared to increase production. Even though listed in

the "Arancel Aduanero" under No. 8425A1, farm equipment like combines are

hard to import chiefly due to their high cost and to the scarcity of funds


- 15



Financing of farm machinery does not seem to be a major problem.

Caja Agraria has been a great link in facilitating the importation of

farm machinery. Caja pays for all expenditures until the equipment reaches

the storage shops. Then the dealers are notified of the arrival of the

farm machinery and they sign 90-day drafts which are payable the day the

machinery is taken out of storage. In the meantime the dealer sells the

machinery to the farmer and helps the latter in obtaining credit facilities

from Caja Agraria.

Some dealers prefer to import farm machinery directly when possible.

The reason for this preference is that they make more profit on their sales

since they obtain a 37% profit instead of the 25% which Caja Agraria allows


Import Licenses

Obtaining import licenses seems to be the dealer's major headache.

Seven months is the average time to process a license, and sometimes the

dealer's application is turned down for minor details.

Because some farm implements are being manufactured in Colombia,

there are other implements like riceplanters which are not manufactured

locally, and yet the "Oficina de Control de Cambios" (The Exchange Con-

trol Office) does not approve the import license. It is felt that the

- 16 -

persons in the Exchange Control Office who handle the licenses for im-

porting farm machinery do not realize the country's agricultural needs.

Spare Parts

Following Caja Agraria's regulations and the manufacturers stipu-

lations, farm machinery dealers try to keep their supply of spare parts

up to date. However, they have some problems in obtaining import licenses

to maintain in stock enough spare parts to comply with the stipulations

set forth by Caja Agraria and the manufacturers.

Price Changes

The price of farm machinery has been going up steadily for some

years. Monetary devaluation and the increasing cost of producing farm

machinery are mainly responsible for this phenomenon. This increase in

prices causes certain resistance on the part of the farmers who think

the dealers are speculating.

At the present time the Colombian Government has established

price ceilings for farm machinery (since November 1967). However, a

new rise in prices is expected since the "siderdrgicas" (foundries, etc.)

have increased the price of the raw materials by 25%. Several dealers

have received notice from the manufacturers in the United States that

the price of tractors has been increased by 4 to 5 percent starting this


17 -

Other Problems

As was stated by the dealer's association, Colombia could import

more than 4000 tractors annually. At the present time they are import-

ing between 1000 and 1500. Even though financing has not been a major

problem, the availability of additional funds to import the additional

equipment has been a handicap to the dealers and to the mechanization of

important agricultural regions of Colombia.


Even though only a limited number of farmers were interviewed in

the Departments of Tolima and Meta, some interesting conclusions can be


1. The majority of the farmers find the life span of a tractor

to be more than five years. Dealers consider the life span

to be 5 years.

2. Farmers claim that their main problem is spare parts. Dealers

claim some difficulty with spare parts. The main objection

on the part of the farmers is that spare parts are too high

in price, and very difficult to obtain. Sometimes they have

to wait several days to buy the piece of equipment so badly

needed. Then they are charged more for it than the original


3. Combines are limited by the high price. The smallest combine

costs $300,000 pesos. Not even the very large farmers want to

get indebted for that much money knowing that they are going

to need additional capital for operating costs, which are go-

ing up steadily.

The following table gives an example of the rise in prices

of farm machinery and some other agricultural commodities

between 1966-1967.

- 19 -

- 19 -



Cultivator Tractor (N)

Cultivator Tractor (X)

1 Gallon of Gas

Transportation per ton from Armero

to Cartagena

Tire for Tractor

1 Gallon of Methyl-Parathion

1 Gallon of Toxaphe DDT

1 Gallon of Sevin



















SOURCE: Revista Nacional de Agricultura, No. 752 January 1968

4. Custom work is carried out by quite a few. Some farmers like

it because they don't have to invest in equipment or have to

hire a permanent tractor driver needed only during certain sea-

sons of the year. Other farmers complain about the lack of

responsibility on the part of the farm equipment renters because

they very seldom do the work when the farmers need it -- that is,

at the proper time. Custom workers claim that sometimes they

can't meet their obligations because of the lack of spare parts

which are hard to get at their local dealer.

5. The cost of custom work varies. Some charge on an hourly basis,

- 20 -

other charge per hectare. One plowing and two diskings cost

from Ps.$400 to Ps.$600 depending on soil conditions, how

clean the field is, or how far they have to travel from their

headquarters, and the type of equipment used. Planting, cul-

tivating, etc., are charged separately.

6. Farmers find farm machinery prices high and hard to amortize

in addition to the cost of the crop they are going to plant.

7. The amount of capital a farmer needs to initiate the growing

of 50 hectares of cotton is as follows: (cotton is generally

grown during the first semester in Tolima, and during the second

in Meta):


Tractor (small cultivator) Ps.$ 70,000

Farm equipment: 3 disk plow, 4 row

cultivator planters, etc. 70,000

Operating cost (50 has. at $4,000 each) 200,000

TOTAL Ps.$340,000

8. Only farmers with less than 50 hectares will have to resort to

custom work. The great majority of farmers, if they were given

a chance to buy farm machinery on good terms, would like to buy

it mainly because of the timeliness of their farm operation.

- 21 -

9. In Meta, the Llanero prefers to clear land by machete, burn

the plot, and allow the stumps to rot in the field. After

two or three crops mechanization is justified. They claim

it is too expensive to clear land with farm machinery. Only

the well off farmers consider mechanization from the beginning.

10. Farmers are always willing to work more land if they had e -

lastic credit facilities both for land and farm machinery.

11. Few farmers complained about dealers who wanted to sell them

machinery they did not use. All farmers agreed that they try

to sell them tractors with more horse power since they would

have to enlarge their farming operation sooner or later,

12. Tires and fuel did not seem to be any problem, unless for those

who live too far "inland", as is the cane in the Llanos. This

causes a considerable rise in prices because of the distances

travelled, and the various means of transportation used: car,

mule, canoes, etc.

13. Maintenance is carried out 90% by the farmers. Dealers charge

too high a price for many repairs.