What does an economy that is leaning on its agriculture sector need? Hint: it’s not low quality cheap tractors. That is what the debate is on lately where the government may be contemplating allowing used tractors to be imported. Some, of which majority are auto manufacturers, vehemently oppose the idea. Apart from their own vested interests, though, they may not be wrong.
From the demand perspective, it is true that farmers tend to be very price sensitive, so they will be open to used tractors, no doubt. In the past, each time the government raised GST on locally manufactured tractors, which was frequent and disruptive, sales for tractors fell. But do farmers need cheap tractors, or do they need better quality tractors with affordable financing options at their disposals to procure these tractors?
And it is not just tractors, but implements too. Several stakeholders have highlighted the importance for agri-technology simply because without modernization, Pakistani farmers will continue to be less efficient and productive, unable to introduce innovation in the agriculture production chain needed to become globally competitive. Farmers need modern farming technology and means to learn methodologies and farming techniques through the different stages of crop cultivation that are globally used to raise farm efficiency. These are necessary to reduce crop losses, and increase grain quality.
From the supply side, the tractors manufacturers obviously do not want competition from used variety as they fear loss in business. Used machinery often is the bane for local manufacturers. The industry is dominated by two local tractor manufacturers that are more than 90 percent localized. Industry based numbers suggest 300 auto vendors are involved in making tractors parts. The industry is also an exporter to countries like in Central Asia, Middle East and Africa.
The tractors made locally are the cheapest in the region compared to India and other peers. And with three OEMs and 300 auto parts makers, the industry is also a huge employer. In FY18, tractor sales grew from some 55,000 units to 71,000 units—the market is fast growing so local manufacturers will have a lot to lose if zero duty used tractors are brought into the country.
The argument however should come down to standards and quality, rather than anything else because over the years farmers have also complained about the quality of local tractors. The tractors manufactured locally as well as those imported need to adhere to strict standards of quality before being allowed to be sold. News reports suggest that the Pakistan Standard and Quality Control Authority (PSQCA) may have formulated standards for tractor manufacturing and developed the Agricultural Tractor Performance Test Code; good!
These should extend to all kinds of imports. There is no use importing shoddy, unchecked machinery which doesn’t help the farmers much, and most certainly does not help local parts manufacturers and thousands of employees of OEMs. The government would also have to think about tractor parts as well—it is unlikely that local vendors will be able to supply repair parts to the imported variety since they are built to cater to local players alone.
Competition or threat of competition sometimes can be a valuable motivator. So far, the local manufacturers have strong backward integration but moving forward, they need to think about forward integration in terms of tractor add-ons and bringing globally innovative technologies to Pakistan.
It can be argued that if local manufacturers are providing high quality, standardized and innovative equipment to farmers, and farmers can afford them through financing, any kind of imports must bring something more to the table—they should be adding to the productivity of the farmers or providing a tech that is not locally available, instead of just costing the economy foreign exchange. Otherwise, what’s the use?
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