The budget 2008-09 has been termed incentive oriented for development of agriculture. It has provided Rs20.30 billion for food, agriculture and livestock projects and fixed the farm credit target at Rs200 billion.

For this year, agriculture growth is targeted at 3.50 per cent, up from actual expansion of 2.50 per cent in 2007-08. Pakistan has total farm area of 22 million hectares, whereas area under cultivation is 20 million hectare, which is planned to be increased to 24.60 million hectares by the year 2010. These targets seem difficult to achieve, given the present conditions of high price increase in agricultural inputs including electricity and diesel.

Extensive farm mechanisation however can possibly bring in the desired results. Agricultural machinery-including tractors and farm equipment- is an important input contributing to higher production. Unfortunately, the use of agricultural tractors, while increasing manifold in the last two decades or so, remains limited.

In fact, tractor density, or penetration level, is very low compared to the world standards. According to the Agricultural Machinery Census, there were 157,310 tractors in 1984, 252,861 in 1994, 401,663 in 2004. Presently, there are an estimated 500,000 tractors.

The domestic tractor industry has shown a steady growth over the years, and has assembled and manufactured tractors of international quality meeting national demands. It has achieved over 80 per cent deletion level through a robust vendor industry. There are two industrial units- Al-Ghazi Tractors Ltd (FIAT/New Holland tractors) and Millat Tractors Ltd (MF/AGCO tractors)- producing a wide range of 55 HP to 85 HP tractors, with an annual installed capacity of 30,000 units at each plant.

Initially, five companies were licensed to undertake local assembly and progressive manufacturing. The other three companies, assembling Belarus, Ford and IMT tractors, could not finally establish manufacturing facilities.

Nonetheless, due to continuous surge in demand, the production capacity has become inadequate, and the two companies are unable to deliver tractors in required quantities. For example, during 2006-07, a total of 49,500 tractors were delivered against demand of 77,261 units; Al-Ghazi having delivered 26,364 and Millat another 23,136 tractors. Obviously, these companies are overbooked with orders that are finalised on their own terms and prices.

To bridge the demand-supply gap, the government had allowed last year the duty-free import of tractors, but, again, the two companies emerged as major importers too, thus earning windfall profits year-on-year, without implementing any plans for capacity expansion. Responding to the potential large market, only few investors showed interest in setting up assembly-cum-manufacturing plants but failed in seeking government’s approval.

The revival of Green, or Awami Tractor Scheme is on cards, which will lead to higher demand of tractors in near future. The government of Punjab has already announced to provide 10,000 tractors to the farmers in a year, extending a subsidy of Rs2lakh on each unit. Understandably, small and medium farmers are main focus of the official efforts, since they hold 65 per cent of total cultivated area.

The tractors available in domestic market however are large, powerful and costly for small farmers with about 12-acre land holding, in particular. Thus there exists a potentially large market for affordable small tractors, of the size of 10,000-15,000 units per year.

Farmers world-over employ small agricultural tractors of 25-35 HP, and a large number of multinationals are engaged in manufacturing of the small-power tractor and its compatible accessories and attachments, in many countries including Japan, China and India. Two versions of these modern diesel engine operated tractors are available—2-wheel drive and 4-wheel drive--with a wide gear range.

These are suitably employed for all farming operations, from mowing, grading, tilling and ploughing to loading, digging, lifting and transportation. In India, 51 per cent of total market is captured by tractors falling in the range of 31-40 HP, with a sales volume of 148,000 units recorded in 2006.

Likewise, tractors of 20-35 HP are very popular in China. In the early 1990s, Chinese were interested to introduce here the 20-HP tractor with plans to manufacture locally in collaboration with public sector, having prepared a sound marketing feasibility study. Tests and trials of demonstration models were carried out in Sindh province for some time and the then Agricultural Development Bank of Pakistan also consented to the proposal. This however did not materialise because the price of a 25-HP tractor in international market is 66 per cent of the 45-HP tractor, whereas operational cost is higher.

Though the government’s declared policy was for undertaking the indigenous manufacturing of tractors in the range of 45-65 HP, the two tractor companies have developed over a period of years, a market for big tractors up to 85 HP.

Many of the big size models are being imported either as CBU or in SKD condition for local assembly. The manufacturers have simply remained indifferent to the demand of small farmers, whereas product range of their foreign collaborators includes models of 25-35 HP too. The current trade policy also allows duty-free import of tractors.

The government needs to seriously consider devising a prudent policy and preparing a medium-term plan for the rapid promotion of tractor industry, with focus on manufacturing of 25-35 HP standardised tractors, allowing new entrants in the sector a level-playing field.