Bounty for tractor makers as farmers benefit from open-market sale of wheat

The bounty earned by farmers from the sale of wheat in the open market to private traders has given tractor makers in India one more reason to cheer.

Farmers used the proceeds from the windfall to purchase tractors, leading to a sharp 44 per cent spike year-on-year (YoY) in the first two months of the April-June quarter — the highest in four years for the comparable period — reveals the data from the Tractor and Mechanization Association.

Farmers may have earned an additional Rs 5,994 crore this year.

They achieved this by selling their wheat crops to private traders at higher rates rather than offering the grain to the government at the minimum support price (MSP), according to the food ministry.

Tractor sales in India increased to 171,141 units in the first two months of the June quarter, against 119,031 units in the corresponding months a year ago. This is the highest jump in the comparable period since 2018-19, shows the data from the tractor industry body.

High food prices and the forecast of a favourable monsoon may set cash registers ringing at tractor firms in the months to come, albeit at a slower pace, said T R Kesavan, chairperson, Federation of Indian Chambers of Commerce & Industry (Ficci) National Agriculture (Agri) Committee.

An expected decline in the current month — which comes on last year’s high base and expected lower billing at dealerships owing to sufficient stock, among other factors  —   may moderate growth to around 15 per cent for the June quarter of 2022-23, said Kesavan.
 

“Thereafter, if the monsoon is good (arriving on time and leaving on time), it can be higher than the estimates,” he added.

April sales saw a spill-over effect of a lower billing in March. A price increase in early May also enhanced volumes. This is likely to enfeeble billing in June, leading to a 10 per cent YoY decline over last June which was a bumper month, observed Kesavan.

“The on-ground demand has been very positive in the past two months,” said Hemant Sikka, president-farm equipment business, Mahindra & Mahindra (M&M).

Tractor sales at M&M have advanced 50 per cent in this period. This high-paced growth of 50 per cent will see some moderation in the next few months before picking up in the festival season, he stated.

“With forecasts of a normal monsoon for the fourth year on the trot, the kharif crop is likely to see bumper production. This will support tractor industry growth in the months to come,” said Sikka.

Good realisation of the rabi crop has played a significant role in rural recovery. Crop production, its falling share notwithstanding, still constitutes around 38 per cent of the monthly average income of an agriculture household in rural areas, shows the National Sample Survey Office data.

Prices of most food items have been ruling above their state-mandated price or last year’s levels since the past few months, starting with wheat, which is by far the biggest crop grown in North India, going right up to cotton and vegetables.
 

A global break-down in supply chains due to the Russia-Ukraine stand-off since February 24 has only added heft.

Shenu Agarwal, president-agri and construction business at Escorts Kubota, said the industry is “experiencing favourable conditions for tractor demand”.

The availability of credit, better rural income, and prediction of good monsoon helped. It was further buoyed by a jump in wheat prices because of increased export demand in April and May. He expects the trend to continue up to the festival months of September and October.

“The only dampener right now is inflation. Tractor prices have increased substantially in the past six/seven quarters. There is still a large unrecovered input-side inflation. We have little option but to take phased price hikes. Some correction in input prices is a crying need,” said Agarwal.

Data sourced from various market agencies and traders showed that among the crops that were grown in the ongoing rabi season, barring chana, most were selling above their MSP. For instance, wheat prices have been hovering around Rs 100-300 per quintal more than their MSP of Rs 2,015 per quintal since the start of the season. Mustard, which is the biggest oilseed grown during the rabi season, is being sold at Rs 1,000-1,500 per quintal more than the MSP of Rs 5,050 per quintal.

Even crops from the preceding kharif season, namely cotton, soybean, groundnut, sunflower seed, and non-crop items, such as milk and meat, have been selling at prices higher than either their respective MSPs or the corresponding period last year where benchmarking isn’t available. The spike has been steeper since Russian armed forces launched an offensive against Ukraine.

Farmers reportedly sold their produce at an average rate of Rs 2,150 per quintal, thereby earning more on selling their produce in the open market, in contrast with MSP value, said a statement from the food ministry on Saturday.

“Accordingly, on the estimated procurement quantity of 44.4 million tonnes, on average, farmers may have earned around Rs 95,460 crore at the rate of Rs 2,150 per quintal instead of Rs 89,466 crore at the MSP of Rs 2,015 per quintal. Thus, wheat farmers may have got more than Rs 5,994 crore, compared to the MSP,” read the statement.