Tractor demand stutters, outlook bleak as well

Adverse weather and farm conditions in major states cripple sales; no relief likely for some months

Adverse weather conditions and their effect on the agricultural economy have hit tractor demand.

Nearly 25,000 villages in Maharashtra are hit by drought. Low output and poor price for the yield has resulted in substantially lower incomes across the state. Madhya Pradesh, Uttar Pradesh and Haryana are also reporting pressure on farm output from a deficient monsoon.

Last year, despite less yield, prices of agri products remained high. This year, prices and yield are both low. These and erratic weather conditions have hit tractor demand hard.

Pawan Goenka, executive director (Mahindra & Mahindra), said: “In the last quarter, there was degrowth (meaning, a fall in sales). We expect it in this quarter, too, of 10-11 per cent. We will perhaps end the year with degrowth of eight to 10 per cent, far from the expectation with which we started the year, of eight to 10 per cent growth.”

Data from the Tractor Manufacturers Association show domestic sales were 488,227 units between April 2014 and January 2015, the first 10 months of this financial year, as against 541,795 units sold in the same period last year, a fall of 10 per cent. The decline has been steeper in the past three months, a fall of nearly 30 per cent.

The kharif crop was less than expected. And, unseasonal rain and hail have hit rabi produce, especially in UP and Maharashtra. “We have not seen a more sharp drop in tractor sales since 2005,” added Goenka.

M&M has a market share of around 40 per cent in the domestic market. Its sales dropped 38 per cent last month over a year before, to 10,267 units as against 16,553 in February 2014.

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

Tractor makers are also grappling with a new problem, of the machines being available on rent. “Ten years ago, a farmer would save 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 cellphones, television, a two-wheeler or even a car. These items are taking priority over the tractor,” added Goenka.

No major relief from the current downswing is expected in the next two quarters. Tractor demand will be defined majorly by the monsoon pattern and the government’s minimum support price for farm products. 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 in the first quarter of this year, as any turnaround will happen only after the monsoon. We are expecting sales to pick up in the second half. Overall, we are expecting five to seven per cent growth next year,” said a top official of a tractor making company.