Tractor demand stutters, outlook bleak as well

Nearly 25,000 villages in Maharashtra are reeling under drought with Marathwada being one of the worst hit. Low output and poor price for the yield has resulted in substantially lower incomes across the state.

The situation is not unique to this western state. Neighbouring Madhya Pradesh, Uttar Pradesh and Haryana are also witnessing similar conditions where farm output has come under pressure largely due to a deficient monsoon.

While last year despite a lower yield prices of agri products remained stubbornly high, this year prices have remained low and so has the yield. All these factors in addition to erratic weather conditions have proved fatal for tractor demand.

Pawan Goenka, executive director , Mahindra & Mahindra, said: “Last quarter there was a degrowth. We do expect this quarter too there will be a degrowth in the region of 10-11 per cent and perhaps we will end the year with a degrowth of 8-10 per cent which is far from the expectation with which we started the year at 8-10 per cent.”

As per the Tractor Manufacturers Association data domestic sales of tractors stood at 488,227 units during the April-January period as against 541,795 units sold in the same period last year, a fall of 10 per cent. The decline, however, has been steeper in the last three months with a reported fall of nearly 30 per cent.

While the kharif crop had been lower than expected, unseasonal rains and hail storm have ruined rabi agricultural produce as well especially in Uttar Pradesh and Maharashtra. “We have not seen a more sharper drop in tractor sales since 2005”, added Goenka.

M&M, which has a market share of around 40 per cent in the domestic tractor market , saw sales decline 38 per cent to 10,267 units last month as against 16,553 units sold in the same month last year hit by negative sentiments.

Further, non-agricultural use of tractors (for hauling) has also marked a dip say analysts. “Non-agri demand pull has also remained subdued with slow pick-up in pace of infrastructure and construction activity,” said research and rating agency ICRA.

Further, tractor makers are also grappling with a new kind of threat that can potentially upset the tractor demand. With tractors being available on rent (organised and unorganised), manufacturers claim farmers are finding interest in other areas.

“Ten years ago a farmer would save up all his life to buy a tractor and that was the biggest purchase for him. Now there is a higher desire to buy other essentials for the house like cell phones, television, two-wheeler or even a car. So these items are taking a priority over the tractor”, added Goenka.

No major relief from the current downswing insexpected at least in the coming two quarters. Tractor demand will be defined majorly by monsoon pattern and minimum supply price (MSP). As has been the case in earlier years the second half of next year is expected to be better than the first half.

“We don’t expect any major turnaround happening in the first quarter of this year because any turnaround will happen only after monsoon. Monsoon holds a significant sentimental value for farmers. We are expecting sales to pick up in the second half. Overall we are expecting a 5-7 per cent growth next year”, said a top official of a tractor-making company.