BackProlonged downturn for tractors
The downturn cycle, which is normally about nine to 10 months, has prolonged to almost 18 months this time round
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There is no sign of a revival yet. Until October, tractor sales continued to fall for the 13th consecutive month. For the seven months of 2015-16, tractor sales fell by 19.5%.
The weak monsoon is the primary reason. Apart from being 14% lower than average, the southwest monsoon was also erratic. Even the minimum support prices for crops have not been remunerative to farmers. World food prices are at a seven-year low and have a bearing on domestic prices, too.
The performance of some tractor makers in the September quarter mirrors that reality. Mahindra and Mahindra Ltd’s (M&M’s) farm equipment sales dropped 26% from a year ago. Another prominent firm, Escorts Ltd, saw sales fall 20% year-on-year. The situation worsened in October for most firms. Even foreign companies such as John Deere and New Holland are facing the heat.
A few weeks ago, a report by ICRA Ltd said demand rising for haulage purposes was also subdued in rural and semi-urban areas due to a slow pickup in infrastructure activities.
Some like M&M were able to offset weak volumes through improvement in realizations. Along with benign commodity prices, especially rubber which is used for making tyres, it shored up profitability. Fortunately, exports to neighbouring countries Sri Lanka, Bangladesh and even parts of Africa were stable, although on a small base.
However, following a poor kharif harvest, hopes are now bleak even for the rabi season, too. Therefore, the recovery in tractor and farm-equipment sales that was expected in the second half of 2015-16 looks unrealistic at this juncture. Analysts’ estimates have turned grim. They forecast a decline in tractor sales from a year ago, compared with the earlier estimates of a marginal growth. The downturn in the cycle has been prolonged from what is normally about nine to 10 months, to almost 18 months this time round.
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