Farmers benefit from open-market wheat sales, a boon for tractor manufacturers

15 Jun 2022 , 10:19 AM

Higher cash flow from robust rabi crops made it easier for farmers to acquire farm equipment, and tractor sales in India hit a new high in April, snapping months of decline.

After five months of decline, sales increased by 41% in April compared to the same month last year. Tractor manufacturers expect this trend to continue, so they’re increasing monthly output by 25-30% for the next two months to keep up with demand.

Tractor manufacturers’ estimated production schedules for the upcoming quarter imply that they are aiming for a volume increase of more than 20%.

According to economists, a strong start to the year might lead to a 4-6 percent increase in the entire tractor market, following a 6% loss in FY22. After expanding by 26% in FY21, tractor industry volume fell by 6.3% to 842,000 units in FY22.

The expectation of a regular monsoon, according to industry insiders, bodes well for the approaching Kharif season.

In addition to the fact that demand remained strong, the supply situation improved in FY22, as the raw material and labour shortages that had devastated the industry the previous year were alleviated.

In April 2022, Mahindra & Mahindra sold 39,405 tractors in the domestic market, up 51% from the previous month. Lower channel inventory aided in the season’s inventory ramp-up. At the end of April 2022, industry-wide inventory was 35-45 days, up from less than 25 days at the end of March 2022.

In a post-earnings conference call, agri-machinery producer Escorts predicted a robust first half for the tractor industry, owing to better market prices for wheat and other food crops.

Farmers’ cash flow has improved in the last two months as rabi crops, including wheat, barley, and tiny millets, have shown better results. Wheat and paddy minimum support prices have risen by Rs40 and Rs72, respectively, over the previous year’s levels.

In the last six months, the average price of wheat on the domestic market has risen by 8%, significantly over the minimum support price (MSP). As a result, farmers have boosted their allocation to sell directly rather than through the government.