New Delhi: Umesh Kumar cultivates sugarcane, wheat, paddy and mustard on about eight hectares at a village in the Shamli district of westrn Uttar Pradesh. Every year, Kumar says, farmers in his village used to purchase 8-10 tractors, new or used ones, with the income from the Kharif crop yield available from early October.
“This year so far, I have not heard any farmer in my village speak about buying a tractor. They may not buy because of several factors. Their earnings from kharif crops are down by at least 20% because of the floods earlier this year. The mandi paddy prices are down 15% since last week. Similarly, the recent export duty has made life tough for farmers,” he said.
Kumar echoes the concerns and challenges of farmers in different parts of the country this year. Irregular monsoon rains, delayed festive season and the high sales base of last year have impacted the incomes of farmers and the sales of tractors.
Data from the Tractor Manufacturers Association (TMA) show tractor sales fell by over 4% (domestic plus exports) between April and August this year. And in the first eight months of the calendar year (January-August), sales were up by a mere 1.14% year-on-year.
In its monthly state of the economy report, the RBI shows that the growth in tractor sales was a robust 24.4% year-on-year in January but has since declined – reaching a negative 11.1% in April – to 1.1% in August.
Impact of uneven monsoon
Rohan Kanwar Gupta, Vice President & Sector Head – Corporate Ratings, ICRA Limited, says that while tractor industry volumes have largely been steady in the current fiscal, concerns are emerging on the impact of a sub-par and uneven monsoon on rural cash flows.
He said, “The decline in volumes in September 2023 can be attributed in part to a delayed festive season in the current fiscal (vis-a-vis the previous fiscal). The overall monsoon precipitation remained weak (6% deviation from Long Period Average); additionally, the temporal and spatial distribution of precipitation was uneven. Kharif sowing pace was steady, even as a few major crops like pulses have seen a sharp decline; sub-par monsoon has raised concerns regarding adverse impact of the same on kharif yields/cash flows.”
” With monsoon precipitation remaining weak, sown area under pulses is expected to trail last year levels; moreover, the seasonally low reservoir levels do not augur well for a timely onset of rabi sowing. As a result, ICRA sees downside risks emerging to its forecast of a 0-2% YoY growth in FY2024, on an enlarged and healthy base, even as the government’s rural welfare schemes remain supportive” he added.
Saharsh Damani, CEO of the Federation of Automobile Dealers Association, says, “Below par monsoon is the primary reason for the falling tractor sales, which were “good” in FY22 and FY23. The high base of the previous two fiscal years is also affecting growth; a large part of tractor buying is due to replacement demand.”
Banks on October and November
But tractor manufacturers have not lost all hopes. They are pinning their hopes on the second half of FY24, pointing towards renewed rainfall in the last days of September and the beginning of the festival season. The OEMs believe that farmers’ kharif earnings will lead to better sales numbers in October and November.
“With the effects of El Niño having already been taken into account when projecting tractor sales, smart recovery in Kharif sowing with more than 110 million hectares and the start of festive fervour is expected to bring positive sentiments among the farmers. Normal rains in September have helped overall monsoon to achieve near normal levels and this will help in Rabi sowing, especially in Central, Northern and Western regions of the country. Supported by several other key drivers like robust government support for agricultural and rural growth, increase in Minimum Support Prices (MSP), and favourable terms of trade for farmers, we maintain an outlook of low single-digit growth,” Hemant Sikka – President, Farm Equipment Sector, Mahindra & Mahindra, told ETAuto.
For Escorts Kubota too, domestic tractor sales in September were lower by 12.5% to 10,114 units (11,384 units) last month. Much like M&M, Escorts Kubota is also optimistic about the coming months. The company says that postponement of the “main festive season this time to Q-3 impacted sales for the month (September).
“Going forward, with improved rainfall in September, likely good kharif harvest and with overall macroeconomic factors and farmers’ sentiments remaining positive, we expect growth momentum to pick up in the festive months of October and November and possibly continue for the remaining part of the current fiscal,” he said.
Without making projections about tractor sales, the RBI report adds to their optimism about the coming months. The central bank has spoken of rural demand for fast moving consumer goods having “swung back into positive territory after being under pressure for over a year.”
Now, it is watching out for the inflation print, with expectations of a sharp decline in September, on top of the August ebbing. RBI also says that kharif sowing till September 8 was nearly 98% of the level seen in 2022, indicating very little deficit. While area under rice, coarse cereals and sugarcane remained higher than last year, acreage under pulses, oilseeds and cotton lagged.
But ratings agency CRISIL says that the growth in tractor sales will get further squeezed. Hemal Thakkar, Senior Practice Leader -Consulting, CRISIL Market Intelligence & Analytics, sees a degrowth of up to 5% in Fy24 in domestic sales.
Thakkar points to the festive season this fiscal year being delayed compared to last year, starting by mid-October. “Hence, the industry momentum is slow at present but is expected to pick up during Q3 (October-December) and bring some cheer in the tractor industry.”
Fall in exports
Not only domestic sales but exports have also tumbled this fiscal.
Sikka of M&M says his company exports to over 50 countries and exports have been hit by the recessionary environment in the US and the EU fuelled by high inflation. Prolonged war in Ukraine and sanctions imposed on Russia are further hurting exports.
Gupta of ICRA says industry export volumes have remained sluggish this fiscal. “The industry recorded its highest-ever yearly exports in FY2022 on the back of enhanced distribution reach, expansion in dealer network and vast product portfolio. A volatile geo-political scenario led to devaluation of currencies for certain geographies; consequently, the industry’s export volumes slowed down in H2 FY2023, despite the OEMs’ efforts to enhance their distribution reach.”
The headwinds currently sweeping the Indian tractor industry may not last too long, though. Sikka says that the overall level of farm mechanization in India stands at about 40-45%, which is much lower than in the US (95%), Brazil (75%) and China (57%). Reason enough for an eventual bounce back in domestic tractor sales.
