Upward Traction

Written by Shweta Bhanot | Malabika Sarkar | Malabika Sarkar | Updated: May 19 2009, 06:13am hrs
Picture this: A bright and sunny day at a village in Punjab. Farmers are gathering at an empty plot of land demarcated by colourful flags and banners. No, it is not an election rally, but a consumer contact programme organised by a tractor manufacturer for the potential buyers. Free demonstrations and test drives are offered with a smile, while the trained field staff showcases its prowess in engaging farmers with a well-orchestrated product spiel and with details of the financing options available, if they choose to buy a tractor from its wide range.

At Rs 14,000 crore, India has the worlds largest tractor market, with a total sales volume of 3,04,000 units in 2008-09, up from 1,60,000 tractors in 2003. Comparatively young by world standards, it has expanded at a spectacular pace in the last four decades. In the last six years itself, the tractor market has grown 89%. The industry is expected to grow between 5% and 8% in financial year 2009-10.

And such consumer events are not one-offs. They are regular and an integral part of the marketing strategy of tractor manufacturers.

A tractor is among the three most important investments made by a farmer in his lifetime, with a marriage in the family and a house being the others. Ironically, India has less than 10% tractor ownership. At the same time, the usage is as high as 35%. Which means, a large number of farmers use tractors on rent. Little wonder that tractor marketers, big and small, are trying out all the tricks in their books to woo potential buyers.

Interestingly, Indian tractors are the cheapest in the world . By some estimates, the cost of a tractor produced in India is as much as the cost of its gear box in a developed country. The scope for exports, therefore, is tremendous.

Back to India, the tractor market is broadly classified into four segmentsmachines with less than 30 hp (horsepower), the 30-40 hp, the 40-50 hp and the 50 hp-plus segments.

India has been predominantly a 30-40 hp market. Of the total number of tractors sold last year, an overwhelming 2 lakh were in the less than 40 hp segment and the remaining in the 40 hp-plus segment. The industry estimates that the 40 hp-plus segment will come to represent 38% (1,10,000 units) of the industry by 2015.

Indeed, the whole industry is at the threshold of a revolution, says Gopal Krishna, head, marketing and exports, Same Deutz-Fahr Group (SDF). He says that more sophisticated and powerful tractors are making their way into the market. This is courtesy a large exodus of farmers into urban areas, which in turn makes labour scare and costly in rural areas. The dependence on machines is increasing everyday. With leasing gaining in importancebecause the future is expected to lie in co-operative farmingpowerful tractors of over 50 hp will be in great demand, he observes. This is also driven by a growing demand for tractors from the infrastructure sector.

Anjani Kumar Choudhari, president farm equipment sector and group management board member, Mahindra & Mahindra (M&M), is equally upbeat. We see the fastest growth in the 50-plus hp segment and plan to introduce tractors in this range, he says. We have tractors up to 75 hp. Also, we are modernising and improving our range of 30-40 hp tractors, and working on launching sub-30 hp tractors which offer good value for money.

M&M sold 92,000 units last year in the domestic market and exported 8,000.

The small and marginal farmers who own less than 5 acre of land and comprise 82% of the total farming households in the country, have a minuscule 1% tractor ownership. Yet this is not the segment marketers and financiers are pinning their hopes on. The reason is obvious: Co-operative farming is the way to the future. Overall, the industry not particularly hopeful about the performance of the below-30 hp segment, and expects it to remain at the current levels with no appreciable increase in demand except from the non-mechanised and semi-mechanised states. The growth in this segment will largely depend on the availability of credit to farmers with lower land holdings.

Tractor manufacturers, aware of the vast and diverse nature of demand, are putting a lot of effort in getting the spadework right. Regular surveys of the villages to find out the farmers land holdings and setting up large distribution networks with a web of touch points are among the first things a manufacturer has to get right if he hopes to make a dent in the market.

For instance, Escorts agri machinery group has a distribution networks comprising over 1,500 dealerships and 800 retail service outlets, apart from 29 marketing offices spread across the country. This is supported by a field force of over 300 employees.

One also needs to be constantly on ones toes to make a mark. Says AK Srivastava, general marketing manager, HMT, We have adopted a no-frills, grassroots approach comprising field demos at doorstep, direct interaction of our trained field staff with potential customers and participation in rural fairs and exhibitions.

In addition, manufacturers try to identify the farmers who have purchased tractors three to five years ago and are looking to replace them with new ones. Around 70% of the tractors in the country are believed to be reaching the replacement stage, says SDF groups Krishna.

M&M, a leader in the market with a share of around 42%, is not willing to give the low hp segment a go by. It is field testing an 18 hp Chinese tractor from its Mahindra China Tractor Company (MCTC) range. Escorts is also hedging its bets. Rohtash Mal, executive director and CEO, agri machinery group, Escorts, says, For us, the sub-30 hp segment is no less interesting. But he is unwilling to discuss his companys plans for the segment in any detail.

Typically, tractors are used for farming operations for about four-six months in a year and the rest of the time, it is used for transportation and other applications. Today, tractors are used at construction sites, airports and large infrastructure projects such as the metro rail, says Mal.

Considering their importance, there is much consultation and ground work that goes into buying a tractor. Factors such as reliability of the machine, after-sales service, financing options and resale value remain at top of a farmers consideration set. Mind you, you can also land a desirable bride if you have a handsome machine parked at your doorstep, but thats purely incidental. Price, interestingly, is not the main consideration for a farmer, explains LD Mittal, chairman, Sonalika Groups. Before making up his mind, the farmer consults his fellow villagers who are using tractors and their feedback becomes a guiding factor for him, he says.

At present, credit availability is the big issue facing the industry. The year 2008-09 started well with commodity prices going up, a lot of high minimum support prices and big credit waiver announced by the government. But the global meltdown dampened the general economic sentiment despite a third consecutive good monsoon last year. Banks clamped down on credit, and since 85% of the tractors are bought on loan, making credit available at affordable interest rates will be key to category growth, say observers.