A moderation of the strong growth seen in tractor sales over the last few years is now expected in 2011-12, with the current quarter (January-March) posting a drop in demand across the industry. An improvement is only expected with the harvest season around April.
The poor pick-up has been attributed to lower farm incomes on the back of increased agricultural supply, while both tractor prices and other costs such as labour have steadily gone up. Higher interest rates, which finance 80 per cent of purchases, have also been blamed.
“Though tractors sales have been low for a few months, it has become bit of a concern from February. Farm incomes have reduced while costs have gone up, especially in terms of labour,” Dr Pawan Goenka, President, Automotive and Farm Equipment Sectors at Mahindra & Mahindra (M&M) said at a meeting recently.
Sales outlook
Sales in the current fiscal are estimated at 6.05 lakh units — an 11 per cent growth, according to rating agency ICRA. This is compared to an over 20 per cent rise seen in both 2010-11 (4.80 lakh units) and 2009-10. In fact, tractors sales have more than doubled in the six fiscals since 2004-05 (2.26 lakh units).
Higher raw material costs have led to a 10 per cent (Rs 40-50,000) rise in tractor prices over the last 2-3 years. Agricultural labour costs are also up on increased inflation and the Government's rural job guarantee scheme (MGNREGS) offering assured alternative employment.
Adequate inventory levels due to low demand has led M&M, the largest tractor maker in the country, to shut its three tractor plants at Rudrapur, Nagpur and Jaipur for up to two days a week from the rest of this month. Market leader M&M's February tractor sales saw a 21 per cent dip (14,341 units), even as April-February sales rose 12 per cent (2.05 lakh units).
“A softening of agri-product prices over the last six months have hit tractor purchases, especially with an export ban on some commodities like cotton,” said an industry expert.
However, Mr Kumar Kandaswami, Manufacturing Practice Leader at Deloitte India is hopeful of a bounce-back by the harvesting season in April-May.
“Like trucks, tractor sales are discretionary and access to credit is the biggest issue. I think the sales dip is cyclical and temporarily dry. With labour costs going up, more farmers will be looking at mechanisation,” Mr Kandaswami said.