ETAuto: Can tractor industry get rid off rural distress anytime soon?
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The turnaround already seems to be on its way with a few of the tractor makers already posting positive growth in March. Both Mahindra and Escorts grew by 20 and 28 percent respectively
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NEW DELHI: Tractor industry has been under stress for the last two years owing to the bad monsoons and weather anomalies. Almost all tractor manufacturers have seen a fall or stagnation in sales of agri machinery.
According to JD Power, customer satisfaction too has fallen for seven out of the 8 manufacturers, the exception being John Deere. "The fall in customer satisfaction for almost all manufacturers points at that there the fall in customer satisfaction has little to do with individual companies," said Gordon Shields, director, J D Power Asia Pacific.
The domestic sales of tractor industry between April 2015 and Feb 2016 fell by nearly 12 percent. The biggest tractor maker by volume in India, Mahindra, too saw its sales fall by 9 percent in FY16. Escort Agri Machinery sales also fell nearly 14 percent in the last fiscal.
However, given the huge scope present in the India and the low mechanisation in agriculture sector and rising labour cost, Gordon said that the prospects for tractor in mid to long term is encouraging.
The turnaround already seems to be on its way with a few of the tractor makers already posting positive growth in March. Both Mahindra and Escorts grew by 20 and 28 percent respectively.
"We have sold 13,931 tractors in the domestic market during March 2016, which is a growth of 34 percent over last year. We expect the revival of the Agri economy in the current fiscal year with increased agricultural support extended by the government and the hope for favourable weather conditions," said Rajesh Jejurikar, President and Chief Executive - Farm Equipment and Two Wheeler Division, Mahindra & Mahindra on the performance and industry outlook.
"The penetration of mechanisation in India is still too low in India but if you look the sector, India is ready for mechanisation. Only because of low income are farmers staying away from mechanisation," said Gordon. "However with cost of labour also increasing, farmers will have to move towards tractors to increase the productivity."
Torn between the poor demand and minimum sales targets, most dealerships are almost at the breaking point. Gordon said that many of the dealers have started moving out of the business. "Dealers' interest of being in the business is lower and the investments in infrastructure have gone down."
Not only are they unable to meet the new tractor sales, they are also unable to offload the traded in tractors, the inventory of which has been going up.
"Most dealers, for increasing the sales, trade in an old tractor for a new one. However, due to the poor market condition, we are now stuck with these as well in our stockyard," said a Gurgaon based dealer of Mahindra Swaraj tractors. "We have almost closed down the tractor dealership which has stopped yielding any profits," said the dealer.
The lower investments have led to a poorer focus on the servicing of tractors it as well. Because of this, more number of farmers are reporting breakdowns. According to JD Power survey of customer satisfaction in tractor segment, the number of customer reporting breakdown has reached 19 percent, up from 14 percent last year.
Even the rental market in tractors, which was expected to a rising trend in India, saw a fall in interest in India. Shields said that earlier, 34 percent farmers were renting out the machine, this year only 25 percent of farmers are renting out their tractors.
However, over the long term, the rental business of tractors is also expected to go up. "We are seeing the manufacturers also getting into rental space now which would increase the momentum," said Shields. "We will see a more formal structure develop in India."