Business Standard

Tractor industry sees lower demand due to MSP freeze

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The Indian tractor industry, which has been hit with low sales due to a host of issues ranging from insufficient monsoon, mining curbs, delays in infrastructure projects, etc., may face a further slowdown in demand with the decision of the Commission for Agricultural Costs and Prices (CACP) to stick to last year’s minimum support price (MSP) of wheat at Rs 1,285 per quintal for 2013-14 as well.

But this is not the case only for tractor making companies. If wheat, a major rabi crop in north and central India, remains at last year’s level, farmers might keep away from purchasing farm equipment. This is because farmers incur much higher costs on various other heads and will be left with much less money to spend for mechanisation.

While the has recommended wheat at last year’s level, the agriculture ministry is pushing for an increase. A decision, however, is yet to be taken.

Growth in tractor sales
year In %
2009-10 30
2010-11 22
2011-12 11
2012-13 (P) -5
P= provision
Source: Tractors Manufacturers Association

When the Cabinet met last month, the food and finance ministries also opposed MSP revision in the wake of rising subsidy bill.

Although the CACP has proposed a bonus of Rs 40 per quintal with a pre-requisite of offloading of 15 million tonnes of wheat from government godowns either in domestic or exports markets, the farming community is not happy.

With new tracts of land in Madhya Pradesh, Bihar, Chhattisgarh and Rajasthan also being brought under wheat cultivation, the tractor industry has been eyeing potential markets for the agriculture implements and tractors. However, the freeze in MSP may play a spoilsport for the industry.

Talking to Business Standard, Jagtar Singh Mehma, a progressive farmer at Bhatinda in Punjab said that the new technologies and machinery are indispensable for the farmers to raise the yield and cut the labour costs. He explained that from a farmer’s perspective, if a farmer sows wheat in a 10-acre field having a yield of 20 quintals per acre, a revision of Rs 100 per quintal of MSP means an increase in income by Rs 2,000 per acre. He could, then, have earned Rs 20,000 more on 10 acres. This definitely would have helped in better mechanisation. But with no rise in MSP forthcoming, farmers will now have to defer the plans for the field mechanisation.

A consistent fall in the sales growth over the last three years and a negative growth in the first two quarters of this financial year have put the tractor industry in jeopardy. The industry was hoping a revision in MSP would reverse its fortunes.

Sanjeev Goyale, senior vice-president (marketing and AppliTrac), Mahindra & Mahindra Limited, the market leader in the segment, said that the MSP drives the sentiments of farmers. “The tractor industry registered growth in the years when the farmers got revised minimum price of commodities.” According to Shenu Agarwal, head of marketing at Escorts Agri Machinery, monsoon and assured price of commodities are the major factors that drive farmers’ sentiments. While a higher MSP may not necessarily increase farmers’ purchasing power, it does create an outlook for upgradation of farming practices. “A freeze in MSP may dent the sales,” he added.

B D Bijola, general manager (marketing) at HMT Tractors, said that a revised MSP would have boosted the sales. The tractor companies were eyeing the markets of north, central and eastern states to push sales as the states in south and west were facing draught-like conditions due to insufficient rains. The decision on wheat MSP may affect the demand in these states.

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