After experiencing nearly 30 percent growth in sales in FY18, the tractor industry is now invariably prepared for a slowdown. In 5MFY19, sales dropped by 13 percent. Historically, the average sales over the past decade or so have remained in the 50,000 to 60,000 range, given the industry’s capacity of about 80,000 units per annum. At the current rate of slowdown, tractor sales for FY19 will fall in the range of 55,000 to 57,000, a drop of 20 percent since last year—disappointingly closer to its historic average. Tractor manufacturers are peeved, but who have they to blame? More importantly, what does this mean for agricultural productivity?
The industry demand is fairly sensitive to changes in prices, and government policies; pegged of course to the growth in the agriculture sector. Sales have most fluctuated with changes in sales tax on tractors. The introduction of subsidized tractor schemes and other promotional projects have boosted sales numbers until the time the schemes and projects expired with marginal improvements in farm mechanization, which has remained nascent in the country. This has greatly limited productivity. Small scale farmers are still sowing and harvesting their crops manually using some farm implements, and little mechanization.
Compared to other countries, the level of mechanization in Pakistan has been slow. The data shown in the graph is until 2007; since then most notable India and China have raised the bars toward bringing modern technology and techniques to their agriculture sectors. Here at home, that growth hasn’t come on. There are about 700,000 tractors in use, majority of which are old. Over 70 percent of tractor sales are in the low range of 50-65HP while the rest are 75-85HP.
Mechanization hasn’t happened due to a lack of investment in the industry, though Pakistan has three OEMs locally assembling tractors, and other farm implements. Evidently, volumes have not grown substantially. Capacity has remained more or less the same, and the technology has not developed either. Tractor manufacturers are right now grappling with the idea of competition from used tractors that the government is mulling over importing. But if it had the volumes, and the superior technology, it wouldn’t have to worry too much (Read more: “Wanted: Better tractor policies, Nov 7, 2018)
Is the demand not there for volumes and investments to come? The need is there but it is true that farmer’s weak purchasing power dissuades them from buying when machinery gets pricier (via sales tax or otherwise), when financing gets expensive and in times of overall economic slowdown. Government policies should favor smaller farmers to readily be able to and motivated enough to adopt modern technologies and innovations at different stages of crop cultivation to boost productivity and reduce crop losses. It should invite investments in the machinery market so more players can compete for the best price and best quality.
This is also where strict global standards for the industry needs to be set—whether it is locally assembled or imported machinery—without these quality standards, cheap machinery won’t be of any value. The Pakistan Standard and Quality Control Authority (PSQCA) have developed a performance code which is a start, but let’s see what the outcome is.
Local manufacturers on other hand, need to diversify their production base by exploring forward integration options into small-scale implements like threshers, diggers, front-end loaders, sprinklers, slicers and driers etc. other than tractor-add owns like combined harvesters and feed mixers. The former tend to find market space faster.
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