BUENOS AIRES (Dow Jones)--Argentina's government said Friday that farm equipment maker AGCO Corp. (AGCO) has agreed to invest $140 million in a new factory that will produce tractors and motors in the South American nation.

AGCO agreed to open the factory as part of the government's policy of requiring companies to match their imports and exports, the Industry Ministry said in a statement.

"Argentina will need 250,000 tractors during the next 10 years. We can't give away that kind of demand," Industry Minister Debora Giorgi said.

"We are promoting investment and an increase in the local production of agriculture equipment to satisfy that growing demand," she added.

The ministry said the new factory will have a production capacity of 3,500 tractors a year, allowing AGCO to increase its output 50% from current levels.

President Cristina Kirchner has made the substitution of imported manufactured goods a key part of her economic program.

The automotive industry, Argentina's largest manufacturing sector, has come under increasing pressure to source more of their parts locally, as well as export goods like chicken feed, wine and olive oil.

Agriculture-machinery makers have also started to come under similar pressure to make their equipment in Argentina or risk being shut out of one of the world's biggest farming nations. Argentina is No. 1 in global soymeal and soyoil exports, and second in corn exports.

Kirchner's carrot-and-stick approach has so far worked with a number of manufacturers announcing plans to open new factories.

Earlier this year, Deere & Co. (DE) said it will start making tractors, combines and parts in Argentina, while Italy's Fiat SpA (FIATY, F.MI) said it will invest $100 million in a factory to make Case IH and New Holland brand combines and tractors.

Besides creating thousands of blue-collar jobs, Kirchner's import-substitution policies are aimed at arresting the decline in Argentina's trade surplus.

The surplus is expected to shrink to about $8 billion this year on the torrid growth in imports, compared with $11.63 billion in 2010.

-By Ken Parks, Dow Jones Newswires; 54-11-4103-6740, ken.parks@dowjones.com