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Stalled growth in tractor manufacturing

Published on 28th Sep, Edition 39, 2015

 

Agriculture to suffer, farm mechanization stagnant

The subsidized tractor imports from Belarus to be made up and assembled in Pakistan as indicated by the government policies is feared to threaten the growth of domestic tractor manufacturing industry. The Belarus state-owned company will initially assemble 500 tractors per year and with the increase in demand it plans to enhance production facility to more than 20,000 units per annum.
Tractor industry experts have been appalled by pain took at the highest level to bring in a foreign competitor when the local manufacturers are producing the cheapest tractors with localization of over 92 per cent.

Successive governments in Pakistan have encouraged Belarus tractors through incentives and concessions but failed to dent Pakistani manufacturers hold in domestic tractor market, the Prime Minister’s recent visit to Belarus was quite symbolic in this regard. “They have done this in past with the local auto industry, and did not get the desired results. And now, they are again trying to hurt the local tractor industry and along with it local vendors and employment base,” said industry experts.
The tractor industry through localization has achieved a stage where its products are even cheaper than much trumpeted neighbor India, Pakistani tractor costs around US$7,000 while international prices of same product are around $14,000.

They said during the last PPP regime in 90s’ the federal government allowed import of tractors at zero duty and the Sindh government even offered a subsidy of Rs300,000 per imported tractors. They pointed out that record reveals that even then only 1,860 Belarus tractors were sold while the local tractor sales crossed 60,000 units. They said it was a callus move to favor imports over the domestic industry, however, the industry survived because it produces cheaper tractors than even China and India that produce low priced tractors.

They added that tractor industry is already in hot waters due to decreasing demand and sales for tractors and instead of promoting agriculture and usage of technology in the sector to boost the output, the government is only damaging the local industry by allowing even more new entrants without building a market for them.

 

“The local tractor industry faced drop in sales in the last 2 years as the industry has not yet recovered from the 17 per cent GST imposed by the government sometime back and then after losses to industry brought back to 10 per cent they reminded the planners,” they added.

They said that the local tractor industry has the production capacity of 60,000 units but by stretching shifts it produced over 70,000 units for two years before imposition of sales tax on tractors. They said currently the sales are around 40,000 units, compelling the industry not to achieve their production targets to witness growth.

“Sindh and Punjab governments announced subsidized tractor schemes this year but it still looks like a mere lip service, which is already damaging the industry and farmers are holding the tractor purchase in anticipation of subsidy,” they said adding that the government is proving itself insincere to the plight of the industry and instead of helping it contemplating allowing new entrants.

They said that the tractor industry in Pakistan is in the forefront of localization levels with over 92 per cent localization and there are a big number of companies serving as vendors to the tractor industry, so any step to allow new entrants would disparage them.

Mr. Zeeshan Afzal, Head of Research, Taurus Securities Ltd said, “although, lower incentives by the government on purchase of tractors have hampered the demand of tractors to some extent during FY15 but we believe that this is more linked to reluctant behavior of farmers to shift towards farm mechanization as the high numbers during FY14 were mere the reflection of lower GST by government. We believe that the demand cannot grow to a sustainable level until the government takes steps to introduce technology into farming. We believe that prices are the major factor behind the purchase criteria for tractors as the product is largely linked to agriculture industry and poor class. Therefore, international players who sell at much higher prices in other markets would need to reduce prices to compete with local players which seems difficult”.

He further said that rapid shift towards farm mechanization is indeed necessary to bolster agriculture sector of Pakistan, which has not been seen in the past few years. However, as the technology is progressing we remain optimistic on Pakistan agriculture sector and expect that it would shift to more mechanized methods compared to conventional method used currently. Consequently, tractors demand would also increase.

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