September 19, 2012 / 7:33 PM / 6 years ago

Europe's weak economy no worry for tractor maker AGCO

NEW YORK (Reuters) - Farm equipment maker AGCO Corp (AGCO.N) expects European sales — half its global total — to remain strong through next year, and for the euro currency to survive the continent’s recession and debt crisis, its chief executive said in an interview.

The maker of tractors, combines and other agricultural tools is betting that rising populations across Europe — and the demand for food — will continue to boost its industry and its profits.

The company raised its 2012 profit outlook in July, saying European demand remains at “normal levels” despite the recession.

“Our industry is somewhat disconnected from the problems Europe is facing,” AGCO CEO Martin Richenhagen told Reuters. “Food demand is higher than supply, therefore commodity prices are high, therefore farm income is high, and therefore farmers invest.”

Richenhagen, 59, has led the Georgia-based company since 2004. A native of Germany, he is calling for deeper integration among the eurozone nations, as well as uniform tax and regulatory policies.

“You can’t share currency without sharing fiscal politics,” he said. “In the U.S. you don’t share the dollar and then leave all the tax and financial politics to every state.”

His comments come as European leaders grapple with how to address high levels of debt among Greece, Italy and some other European nations.

Richenhagen said Europe’s debt crisis is having “no effect” on AGCO, which operates in more than 140 countries.

Richenhagen said he is confident European leaders will avert a crisis and keep the euro intact as one of the world’s major currencies.

“For business the euro is the best thing that ever happened,” he said. “You can’t prepare for a collapse of the euro. Nobody can. But it also will not happen.”

AGCO has kept its cash levels low in troubled European countries in case some leave the EU, Richenhagen said, adding that these regions aren’t important to the company in any event.

Greece, for example, is not a big AGCO market. “They do have a little bit of farming, but it’s more in niche spaces like olives and wine,” he said.

In a wide-ranging interview with Reuters Insider, Richenhagen also touched on how China's recently announced stimulus would help farmers, and offered his views on U.S. President Barack Obama's leadership. For the interview, click on: link.reuters.com/dum72t

QE3 & “FISCAL CLIFF”

In the United States, Richenhagen said he does not believe the latest round of fiscal stimulus announced by the Federal Reserve, a measure known as QE3 on Wall Street, will succeed.

The Fed launched the potentially massive monetary policy-easing effort last week to try to help the struggling U.S. economy. Under the program, the Fed will purchase $40 billion a month in mortgage-backed debt - until the outlook for the labor market improves substantially.

“If you measure it by the previous programs, the effect will be very low and very limited, so I don’t understand exactly why we waste tax money again,” said Richenhagen, who is a board member of the U.S. Chamber of Commerce, and will meet with fellow CEOs as part of the Business Roundtable later this week.

It’s not clear how the “fiscal cliff” - a potential for end-of-year U.S. spending cuts and tax hikes, unless the White House and Congress reach a deficit-reduction deal to avert them - would affect AGCO or the economy, Richenhagen said. Bush-era tax cuts also expire at year’s end.

He did call, though, for an updated tax and regulatory policy, as well as a budget for the U.S. government.

“I wouldn’t be in a position to run my company without a budget,” he said. “But obviously the government can do that.”

Reporting By Ernest Scheyder; Editing by Patricia Kranz and Gunna Dickson

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