Tractor sales: fostering mechanisation
For a developing country like Pakistan, farm mechanisation holds the key to the resolution of a host of issues plaguing the local agricultural production. In this lieu, local manufacturing of farm equipment and machinery required for mechanisation is of the utmost importance, not only because it leads to an enhancement of agricultural output, but also because it brings advancement within the reach of a farmer who has limited capital to spare. The local manufacturing of agricultural machinery in Pakistan had a late start; with major farm equipment and tractors being imported into the country up until the 1960s. Subsequently, strict government policies led to a rise in localisation within the industry and indigenous manufacturing of tractor parts and various other implements began to rise. Currently, Millat Tractors and Al-Ghazi Tractors Limited are two of the largest producers of tractors and other agricultural implements within the country, with their total production of tractors standing around 65 thousand units at the end of FY11. With an annual installed capacity of 75 thousand units, the tractor manufacturing industry has been performing relatively consistently over the last few years contributing towards the upgradation of local farming practices. With the number of tractors in agricultural use in Pakistan rising from 5,500 in 1961 to 470,000 in 2007 according to World Bank data, the number of local producers engaging in selective mechanisation has also been on a consistent rise. However, the start of the current fiscal year brought bad news for both manufacturers and farmers as a hike in GST on tractor sales brought down production by a staggering 70 percent resulting in negative growth of 2.2 percent in production during this period. With tractor sales dipping as low as 78 percent month-on-month at one point and just 771 units being sold in December 11 as compared to the 3,625 units sold during the previous month, the industry faced a severe crisis with thousands of unsold tractors parked at factories and dealership networks across the country. The government subsequently announced a cut back in GST to a modest 5 percent in January 2012, following which sales have risen up sharply once again. With total units sold jumping from a dismal 369 in January to 8,906 in February following the tax cut, the sectors productivity is on the rise again. Further abetments have been provided in the form of incentives provided to small farmers aiding them in tractor purchases through different schemes such as the Sindh Tractor Scheme where the government distributed six thousand units to farmers at subsidised rates during April-May12. Moreover, the future for the tractor industry looks robust in the future with Millat Tractors already having booked 25 thousand units for the next six months, according to a report compiled by IGI Securities. This news bodes well for all stakeholders as the net return of these investments into mechanisation of agricultural machinery has always been positive in terms of crop output. What is essential at this point is to reiterate the importance of long-term policy commitments by the government to ensure that upgradation of farming practices is made within the reach of the average local producer. In a country where demand for increased food production follows logically from an ever increasing population, facilitating primary producers in obtaining machinery to increase output should be of consummate importance. Consequently, with the terms of the current Auto Industry Development Programme expiring at the end of June 2012, it is suggested that the Government should undertake new initiatives to foster dissemination of tractors and other farm machinery in the country.