THE tractor industry is showing signs of revival after a difficult period of five years, which saw sales plunge by almost 80 per cent.

In the first seven months of the current fiscal year, tractor sales surged 45pc year-on-year to 38,173 units, according to data of the Pakistan Automotive Manufacturers Association.

The lion’s share went to two main sellers, ie Massey Ferguson and Fiat, which sold 23,263 and 14,776 tractors, respectively.

Industry experts point out two major reasons behind rising sales: the revival of the crop sector in the last three years, and the massive road infrastructure development under the China-Pakistan Economic Corridor (CPEC).

An industry manager, who did not want to be named for professional reasons, says, “If the crop resurgence has contributed 70pc to the revival in sales, the remainder certainly came from infrastructure development.”

In the crop sector, rice and sugar cane have particularly helped the tractor industry.

In September 2015, the federal government had to come up with a package of Rs340 billion after rice prices fell to Rs700 per maund (40 kilograms), which, according to farmers, were Rs100 below the cost of production. The package also included a per-acre cash subsidy of Rs5,000 for rice growers.

Infrastructure development can sustain the industry for years even if the agriculture sector suffers a temporary shock, experts say

In April 2016, the Punjab government also chimed in with a placatory package of Rs200bn. The rice crop recovered as a result, with its production rising from 3.39 million tonnes to 3.5m tonnes in Punjab alone while prices increased by more than 100pc. This additional money is now being used for farm mechanisation.

As for sugar cane, the acreage has increased by almost 25pc to over 2m acres in the last three years. Yields have also risen from 550 maunds per acre to 635 maunds. The sucrose recovery went up to 10pc against earlier 7pc.

Apart from the current year when farmers have suffered varying levels of price crash, the last two years have relatively been financially good for farmers. And farmers buy tractors whenever they can as they are the only means of transporting cane to mills during the four-month crushing season.

Other factors that helped the industry include federal and provincial policies. In 2016, when the industry’s sales and production fell 80pc, the federal government slashed general sales tax by 5pc. This made tractors cheaper by Rs32,000 to Rs50,000, depending on the model and horsepower. It is for this reason that tractor prices are still sustaining the level of pre-tax regime.

Moreover, the Punjab government has done away with its much-trumpeted tractor subsidy regime for the last few years. This subsidy regime, which was providing around 20,000 tractors every year on balloting, would attract around 250,000 applications, removing as many potential buyers from the market and putting them in queue for the subsidy. With the subsidy balloting gone, these buyers are back in the market again.

Both these factors — agriculture sector’s revival and official policies — are now putting the industry back on its feet. The industry now expects production to cross 50,000 units this year and attain the pre-recession level of 60,000 to 70,000 units next year if the agriculture sector does not relapse into a crisis.

As for CPEC’s impact on the tractor industry, experts believe that the more than 1,800-kilometre-long network of new major highways and expansion of old ones at a cost of over $8bn have helped the industry like never before. If approach roads are included as well, the length could multiply many times. This presents a new reality for tractors.

“In Pakistan, the industry has always suffered inherent problems owing to the underutilisation of tractors amid the absence of implements for different agricultural activities, including primary (soil preparation), secondary (agronomic practices) and tertiary (harvesting) activities,” says the marketing head of a tractor manufacturing company.

That is precisely where the new reality of CPEC fits in: using tractors’ power without implements.

All along the CPEC routes, contractors and sub-contractors need them for a range of activities during construction. They either have to purchase new machines or hire them from local owners or farmers. In either case, the industry benefits from the megaproject.

Even if the agriculture sector suffers a temporary shock, as it is experiencing right now owing to issues in sugar cane pricing, infrastructure development can sustain the industry for years, if not decades.

The industry now expects production to hit 80,000 units in the coming years.

“It sounds correct,” says Rao Azhar, a farmer from Okara, the most mechanised area in Punjab. He says that earlier the agriculture sector did not have this kind of money or activity that could help push tractor sales up by 45pc. Part of it must have come from other sectors, he agrees.

“It has certainly opened a new venue for tractor owners, especially those falling on and around the roads being constructed, but it is hard to calculate the total impact,” says Khaled Mahmood, a tractor owner from Kamalia, a central Punjab town which falls on a highway being constructed right now.

Many of our machines have been hired by a local contractor, who is building both the road and bridges. Many tractors, along with trolleys, are with the contractor for months now, and it may go on for another year or so, he says.

Published in Dawn, The Business and Finance Weekly, February 26th, 2018