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Thursday, October 01, 2020

Tractor industry should be facilitated to use digital tools to benefit small farmers

The “Uberisation model” could make tractor services perfectly divisible, accessible and affordable even by small holders without owning the machine.

Written by Ashok Gulati , Ritika Juneja | Updated: August 31, 2020 9:11:13 am
India farmers tractors, India tractors productions, India tractors cost, India tractors, india farmers income, Indian expressThe history of tractors in Indian agriculture goes back to the introduction of steam tractors in 1914 for the reclamation of wastelands in Punjab.

Bountiful rains and the news of tractor sales shooting up by 38.5 per cent in July have triggered quite a buzz in the market. It is being claimed that agriculture will be the saviour of the economy this year. There is no doubt that while most of the other sectors are likely to see negative growth, agriculture will deliver a reasonably healthy positive growth. With water storage in reservoirs in good shape, not only is the kharif harvest likely to be good, there is also hope for a robust rabi crop.

Let us focus a bit of on tractors. Yes, July showed an extraordinary increase in tractor sales. But one must not forget that during the lockdown period, for the quarter April to June, tractors sales dropped by almost 14 per cent over the same quarter last year. For the investor community, therefore, it is important to have a long-term vision and not get swayed by monthly sales numbers. Here, we dive deep into the evolution of the tractor industry in India, the challenges it faces, and its growth prospects.

The history of tractors in Indian agriculture goes back to the introduction of steam tractors in 1914 for the reclamation of wastelands in Punjab. After Independence, the Central Tractor Organisation (CTO) was set up to promote the use of tractors in agriculture. In 1951, the tractor industry was included in the “Core Sector” of planned economic development, and was also placed under the “licence raj”. Interestingly, even until 1960, the demand for tractors was being met entirely through imports. It was only in 1961 that two companies, Eicher Tractors Ltd. (in collaboration with Gebr, Eicher Tractorenfabrik of West Germany) and Tractors and Farm Equipment Ltd. (TAFE) (in collaboration with Messey Ferguson of UK), started manufacturing tractors in India. In 1965, Mahindra and Mahindra jumped in the fray in collaboration with the International Tractor Company of India. As a result, domestic production of tractors rose from 880 units in 1961-62 to 5,000 units in 1965-66. But in 1967, the government imposed a statutory price control on domestically-produced tractors to protect farmers from high prices. This price control was revoked only in 1974.

The Green Revolution gave a fillip to the demand for tractors to meet the pressing need of completing timely operations in agriculture. So, the government decided to invite additional entrepreneurs into tractor manufacturing in 1968. In 1971, Escorts Tractors Limited was established and started manufacturing Ford tractors in collaboration with Ford, UK. Several other domestic manufacturers, such as VST Tillers and Tractors Ltd, also invested in the industry. Interestingly, in 1974, Punjab Tractors Ltd became the first public sector company to manufacture tractors with indigenous technology. It produced the first agricultural tractor — “Swaraj”. With the arrival of many new players in the tractor industry, production crossed the 30,000-mark in 1974-75. In 1982, the indigenous Mahindra brand of tractors was also launched.

However, it was only in 1991 that tractor manufacturing was completely de-licenced in India. This was a landmark event — it increased competition, improved quality, and offered more choices to the farmers. Today, India is the largest manufacturer of tractors (excluding sub 20 horsepower (hp) belt-driven tractors used in China), followed by the US and China. Tractor production in India shot up from 139 thousand in 1991 to almost 900 thousand units in 2018-19 (see graphic). Mahindra & Mahindra (M&M) has emerged as the largest player with a 40 per cent share of the market (FY 2019) followed by TAFE (with Eicher Motors) — 18.4 per cent. In 2018-19, India exported almost 90,000 tractors to various countries ranging from the US to African nations. This speaks of an “atmanirbhar” and competitive industry.

What contributed to this success of the tractor industry? First, the de-licencing of 1991 was a harbinger of major change in the industry. Second, the availability of bank credit for buying tractors helped the market to grow. Remember, almost 95 per cent of tractors are bought on bank credit.

But over time, this success is also brewing a problem. Micro surveys reveal that tractors are not being used very efficiently — their use in most states hovers around 500-600 hours per year compared to a benchmark figure of 800-1,000 hours for efficient utilisation. This is leading to “overcapitalisation of farms” in some parts of India, especially Punjab/Haryana belt.

If India has to ensure continuous growth in the tractor industry, and its efficient use on small farms, it has to undertake innovative solutions like “Uberisation of tractor services”. The digital economy offers an opportunity to cut costs, increase profitability of cultivation, and thus not only expand the tractor market but also reduce drudgery in farm work. The “Uberisation model” could make tractor services perfectly divisible, accessible and affordable even by small holders without owning the machine. The government is incentivising custom hiring centres through capital subsidies — better keep their management and operations under private entrepreneurs, if India is to innovate and achieve farm efficiency with inclusiveness. But the real challenge for innovators is whether individual farmers who own tractors can also avail of this platform to render tractor services to others and earn some money. Agri start-ups and innovators of the digital world need to enter this field and promote efficient utilisation of farm machinery.

The future of the tractor industry will soon include combining tractor services for ploughing and sowing seeds to using sensors, cloud computing and artificial intelligence for precision farming. Dovetailing the digital revolution with farm machinery has already started in the US and Europe, ushering in what Howarth Buffett (a farmer and brother of billionaire Warren Buffett) calls the “Brown Revolution”. India can surely do it at a lower cost and serve the 550 million small holders around the world.

Gulati is Infosys Chair Professor for Agriculture and Juneja is Consultant at ICRIER

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