Indian Agriculture and Tractor Industry Update : January 2013
The Tractor Industry remained flat in 2012 vis-a-vis the previous years when it had recorded handsome double digit growth.
The overall negative economic sentiment in the country was aggravated last year by the delay in monsoon across India and shortfall in the monsoon in some of regions. Even though the late surge in monsoon helped in some recovery in terms of the overall rainfall during the year viz-a-viz the normal expected rainfall, the delayed rains in some of the key Northern States impacted the Kharif Crop crop, even the Rabi Crop (Winter crop) sowing has been marginally below the normal average sowing levels. Hence there would be impact of the same on the Agriculture crop output in the coming months.
As per latest information (till December’12 end) released by Govt. of India on sowing of Rabi crops, ~85% of the normal area under Rabi crops have been sown. Area sown under all Rabi crops taken together is 421 lakh hectares at All India level; compared to 419 lakh hectares in corresponding period last year.
- Gram – Area sown higher by 1.9 lakh ha.
- Urad – Area sown lower by 1.3 lakh ha.
- Wheat – Area sown lower by 4.0 lakh ha.
- Rice – Area sown lower by 1.1 lakh ha
While the tractor sales in Agricutlure has been impacted by rainfall, a slowdown in the Infrastructure development & Mining Industry resulted in a similar flatter growth for Tractors in the Non-Agriculture sector.
- There has been regular increase in MSP for major crops by the Government to support the Farmers, the MSPs have almost doubled in the last 7 years.
- But despite better MSPs, increase in the input cost (Labour, Power, Seeds, Fertilizers) at a much faster rate has resulted stagnant growth/decline in the income/profit per acre for the farmers. The income level for the farmers have remained stagnant in the last 4 years, putting pressure on his economic conditions. The government interventions through loan waivers, low rate of interest, subsidies, etc. have helped the Farmers to some extent only.
- The Indian Tractor Industry has been witnessing contraction in demand since November 2011, after having experienced robust growth over the period FY10 till H1 FY12. Tractor volumes (domestic +export) declined by 3.4% (YoY) in Q4FY12, and posted modest 2.8% growth during Q1FY13.
- The demand-side economics in the tractor industry however continue to find favor from structural and long-term drivers such as –
- Support from the Government of India (GOI) towards rural development and agri-mechanisation, Scarcity of farm labor especially during the sowing season
- Increase in credit flow to agriculture
- Growth in high and low power segments, moderate penetration, shortening replacement cycle; besides healthy exports.
- The general election for Indian Parliament (Lok Sabha) are scheduled for 2014 which means in the coming year that Government will continue to offers soaps for the large rural population in the hope of getting another term.
- In the short term the Tractor market is expected to remain stagnant to low growth mode, there is not much scope that the Government can increase the MSPs at a faster pace then what they have done in the past 7 years. The input costs are also not expected to go down, there will be fiscal pressure on Govt. of India to tighten the belt.
- India has sufficient production capacity for the basic food grains (Wheat & Rice), it is only the storage and transportation of food grains as well as other perishable crop which is going to remain an critical area of concern.
- There is still no consensus on the impact the recently announced approval of FDI in retail will have on Farmer’s income. Either Foreign or Domestic, the Investment is required critically in developing the infrastructure which will ultimately lead to an increase in income/ profitability for the Farmers.
- Efficiently transport the produce from Farms to End Customer
- Reduce the Agri-losses
- Better incentive for Entrepreneurial Farmers to focus on Cash crops and enhance productivity through Farm Mechanization
Tractor Industry – HP Wise, Region wise Performance
Tractor Industry – Long Term Growth Outlook
- In the long run some agencies have projected the growth for Indian Tractor industry to continue till 2030. Which is very much logical considering the low level of tractor penetration, lower horse-power tractor usage and much lower yield per acre by the Indian farmers. There is tremendous scope for farm mechanization in India.
- India lags far behind the global averages and more specifically to China in terms of agriculture produce yield per hectare for various crops.
- There is tremendous room for growth for Indian Farmers in terms of Agri-product export, we lag behind China even though we have more arable agriculture land.
- As per rough estimate by some experts of tractor requirement in India to till the complete arable land through mechanical means would indicate that there is a need for 16.4m tractors in India, whereas the current number of tractors available in the country are less than 5m.
- Which would indicate that tractor Industry in India would continue to grow, in medium to long term basis over the next two decades, 2030.