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Agricultural Machinery Industry in India: a Study of Growth, Market Structure, and Business Strategies

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Agricultural Machinery Industry in India: a Study of Growth, Market Structure, and Business Strategies CMA Publication No. 230 Agricultural Machinery Industry in India: A Study of Growth, Market Structure, and Business Strategies Sukhpal Singh Centre for Management in Agriculture (CMA) Indian Institute of Management Ahmedabad (IIMA) Ahmedabad-380015 April, 2009 Foreword The Centre for Management in Agriculture (CMA) at the Indian Institute of Management, Ahmedabad has been actively involved in applied, policy, and problem solving research on management in agriculture and allied sectors since its inception. It has conducted studies on various aspects of the agricultural and rural economy like WTO related issues, food quality, contract farming, fisheries, organic farming, agricultural marketing, marketing of agricultural inputs, forestry, irrigation, agricultural finance, dairying and rural development programmes. The research efforts span various functional areas of management like production, procurement, processing, marketing, strategy, and monitoring and implementation, including policy analysis. The CMA has been doing studies on the marketing management and policy issues in agricultural input sector for quite some time now. But, the agricultural machinery industry as a subsector was not studied more recently despite the fact that it has witnessed many new players and policy changes. Therefore, it is important to examine the nature and dynamics of the agricultural machinery industry, including second hand tractor markets, from multi-stakeholder perspective i.e. manufacturers, dealers and farmer users. The present study ”Agricultural Machinery Industry in India‘ by Dr. Sukhpal Singh examines this industry comprehensively by taking up the three major subsectors i.e. tractors, combine harvestors and micro irrigation equipment. It not only examines company level issues and strategies but also dealer level issues and farmer level purchase and use of the machines and equipment including sale and purchase of old tractors. It takes a case study approach and focuses on new players in the tractor industry especially those who have graduated into tractors from threshers and combines. It examines the organisation of marketing in three products and analyses the problems being faced by various players in each of the product chains especially farmer owners and users. In combine harvestors, it examines the operations of somewhat small scale and localised manufacturers in the major pocket of this industry in Punjab. In micro- irrigation, it examines dealer and farmer user level issues besides assessment of company performance and policy issues. I am sure the study will prove useful to policy makers in supporting the various players in the industry and in finding out ways to promote mechanisation for sustainable agricultural development. Ahmedabad Samar K Datta April 23, 2009 Chairman, CMA ii Acknowledgements Mechanisation has an important role to play in Indian agriculture. Given that levels of mechainsation in Indian farming are low per se, there is scope to improve level of mechanization. The nature and degree of mechanization varies across crops and regions in India. Some regions and crops are over mechanised given the labour surplus nature of the agricultural economy and the other regions have not achieved even a minimum exposure to mechanization. In this context, it is important to understand the nature, growth and functioning of different segments of the agricultural machinery industry so that constraints to mechanization and appropriate measures to direct mechanization could be identified. This study attempts an analysis of the growth, structure and business strategies of major segments of the industry i.e. tractors, combine harvestors and micro irrigation equipment. These account for bulk of the agricultural machinery industry in India and are high cost machines and equipments. These are also relatively new in that they are either newly emerging sectors like micro irrigation and combines or have attracted new players like in tractors which has changed the nature and degree of competition in the industry. The tractor industry has witnessed the entry of many new players who have upgraded themselves from thresher or combine manufacturers to the manufacturers of tractors and have carved a niche. Due to this, these players as against traditional players are the focus of this study. An attempt has been made to understand the completer dynamics of the three industries œ tractors, combine and micro irrigation by understanding the various links in their chains like manufacturing agencies, dealers and farmers from their own perspectives to gain a complete understanding of the growth, constraints and opportunities in the sector. That has helped to identify various policy measures to encourage mechanisation and orderly growth of the various sub-sectors of the industry. Many people have assisted in the successful completion of the study. It is important to mention who have played a direct role in it. I am grateful to Mr. Satish Kumar for collection of data from tractor dealers and farmers in Punjab, tractor dealers in Gujarat and combine manufacturers in Punjab and tabulation of the same. Mr. Jayesh Talati assisted in the collection of data from micro irrigation agencies, their dealers and farmers in Gujarat and processing and analysis of data. The Ministry of Agriculture, Government of India provided financial support for this study. I also acknowledge the support provided by the administration of the IIMA and the CMA for this study. I am grateful to the managers and the owners of the tractor, combine and micro irrigation equipment companies including the GGRCL for providing relevant information for the study about their operations, and to the dealers of these companies and the farmer owners and users of the machines and the equipment. I am extremely grateful to Dr. Mohanana Pillai of CDS, Thiruvananthapuram, Dr. Surjit Singh of IDS, Jaipur and Dr. Lakhwinder Singh of Deptt. of Economics, Punjabi University, Patiala; for very insightful and timely comments on the report which has helped in making the report more focused. the I hope that the study will generate adequate debate and discussion on this very important agricultural input industry i.e. agricultural machinery industry so that the industry can contribute its iii might for the growth of Indian agriculture which is crucial to the livelihoods of millions of producers and workers. (Sukhpal Singh) iv Contents Chapter Title Page Foreword ii Acknowledgements iii 1 Introduction 1 2 Growth and Use of Agricultural Machinery in India 26 3 Indian Tractor Industry: growth, structure and dynamics 60 4 Distribution and Marketing of Tractors: Dealer perspectives 84 5 Purchase and Use of Tractors 110 6 Combine Harvester Companies: profile and business strategies 127 7 Purchase and Use of Combine Harvesters: A farmer level perspective 146 8 Marketing of MIS Equipment in India: Case Studies from Gujarat 189 9 Distribution of Micro-irrigation Equipment: Dealer level analysis 213 10 Purchase and Use of Micro-irrigation Equipment in Gujarat : Farmer perspectives 228 11 Conclusion and Recommendations 249 References 255 v Chapter 1 Introduction 1. Background Agricultural machinery industry is an important segment of the agribusiness sector in India and plays a crucial role in furthering agricultural development. In the organised (ASI) sector, agricultural machinery industry accounted for 0.6% of all factories, 0.26% of fixed capital, 0.43% of employment, 0.76% of inputs, 0.79% of output and 0.98 % of value added in 1997-98. In foreign trade, it accounted for 0.03% of exports and 0.01% of imports in 2001-02 with more than 50% of the exports being to Nigeria, USA, and Bangladesh in 2002-03. The growth rate of imports in the nineties had been higher than those of exports. Haryana, Punjab, Tamilnadu and Maharashtra accounted for bulk of the factories (Kaur, 2004). There have been some studies of the impact of liberalisation on this industry and its adjustment strategies (Pillai, 2000). Agricultural machinery and equipment industry comprises of a large number of segments even in the organised sector. Tractor industry is one of the most capital intensive industries in agricultural machinery industry with more than half a dozen major players in the market at present. In combine harvesters which got manufactured in India in 1970 for the first time, Punjab occupies a dominant place with more than 87% of the units located in the state. They were producing two types of combines- self-propelled and tractor operated. The other major parts of the industry are electric motors, diesel engines, pump sets, power tillers, drip and sprinkler systems, and tractor driven implements. Many of these industries are characterized by subcontracting and ancillary systems where small units work for the larger parent units supplying components or performing specific tasks in manufacturing process. In 2000-01, there were 2226000 tractors, 127000 power tillers, 151000 combine harvesters, 3090000 threshers, 109000 planters, 2740000 seed drills, 2812000 cultivars, 2881000 disc harrows, and 311000 power sprayers (Venkateshwarlu, n.d.). 1.1. Tractorisation in India At present, the level of mechanisation in India is quite low compared with other countries. India was the largest tractor market in the world but ranked 8 th in terms of 1 tractor population. By 2003, the tractor density in India was 12 tractors per 1000 hectares of GCA compared with world average of above 50. But, tractor density in Punjab was about 100 tractors. Punjab which had more than four lakh tractors in 2003 accounting for 25% of total tractors in the country (Singh, 2000), it is said, needed only 1.5 lakh going by its area and was thus over-tractorised. On the other hand, tractor industry in India experienced a slump in sales during this period (EPW, 2003). This raises issues related to the viable farm size for tractor ownership and the bank lending policy for such costly agricultural machines and alternative uses of such finance for other inputs which may be more suitable for small farmers. This is so as the price of the tractor is very huge and this makes credit an important determinant of tractor sales as 80-90% of the total tractor sales are due to bank credit.
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