Why poor rains won’t hit tractor sales

The correlation between rains and tractor sales has weakened considerably over the past decade

Tractor sales have usually been driven by good rains and bumper harvests, but the link between rains and tractor sales has weakened considerably over the past decade, a Mint analysis of tractor sales shows. Over the past 10 years, tractor sales have typically expanded at a double-digit pace in the years when rains have disappointed.

In the 11 years between fiscal 2003 and fiscal 2013, rains fell short by 5% or more on six occasions. In four of those six years, tractor sales grew at a double-digit pace. In fiscal 2005, for instance, when rainfall was 9% below normal, tractor sales grew 28.8%. Similarly, in fiscal 2010, when rainfall deviation was -19%, tractor sales jumped 32%.

As the accompanying chart shows, tractor sales moved in tandem with rains till the 1990s, but began decoupling from rainfall in the 2000s even as rains continued to drive agricultural performance.

There are four key drivers behind this decoupling:

First, rural incomes over the past decade have been less dependent on rains than earlier because of increased diversification in the rural economy. As the latest National Sample Survey Office (NSSO) employment survey in 2011-12 showed, for the first time, more than half of India’s workforce is employed in non-farm jobs. Incomes from non-farm sources, therefore, form a major component of rural incomes today.

Second, the past few years have witnessed an unprecedented increase in farm support prices, which have acted as a buffer for farmers in years of scanty rains. The minimum support price for paddy and wheat grew at a compound annual growth rate (CAGR) of 10.9% and 8.6%, respectively, between 2007-08 and 2012-13, according to a Commission for Agricultural Costs and Prices (CACP) discussion paper by Ashok Gulati.

Third, unlike yesteryears, users increasingly deploy tractors for non-farm applications such as to carry goods and people. Roughly 40% of tractors sold are put to such uses.

Fourth, even when rains are scarce on aggregate, tractor sales are not dented as long as key tractor markets such as Uttar Pradesh, Maharashtra, Rajasthan and Haryana witness decent rains. The rainfall distribution across the country rather than the overall quantity of rains impacts sales.

Tractor sales in India, the world’s largest market for such implements, have been increasing at a CAGR of 6% since 1997, growing nearly three-folds to 634,151 units in fiscal 2014. Such growth is unlikely to be dented because of poor rains alone.

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