Agricultural Mechanization India: Tractor & Beyond ’10 Billion Dollar’ Opportunity

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Table of Contents

1.      Role and importance of Agriculture in India and its characteristics.

i) Agricultural Revolution.

ii)     Agriculture’s impact on Indian GDP.

iii) Agricultural Produce & Trading.

iv)         Investment in Agricultural Space.

v)      Indian Monsoon & its impact on Indian Agriculture.

vi) Post Harvest Losses.

vii) Take Aways.

2.      State of Agricultural Mechanization in India.

i)  Role of human labor and increased use of power.

ii)  Lack of productivity and increased thrust to improve this.

iii) First wave of mechanization with tractors and its implements.

iv) Drivers and need for high thrust on mechanization.

v) Second wave of mechanization.

3.      Govt. schemes/subsidy to promote mechanization.

i) Outsourcing of training and demonstrations of newly developed equipments scheme.

ii) Post Harvest Technology and Management scheme.

iii) Macro Management of Agriculture (MMA) scheme.

iv) Rashtriya Krishi Vikas Yojana (RKVY)

v) National Mission on Agricultural Mechanisation (NMAM)

vi) National Food Security Mission (NFSM)

4.      Value chain of farming activities.

i) Tillage and planting machinery.

ii) Interculture and plant protection equipment

iii) Irrigation and drainage equipment

iv) Harvesting and threshing.

v)      Agricultural mechanization scenario and farm power.

vi) Human power.

vii) Draught animal power.

viii) Farm machinery use and availability.

ix) Agro-Processing and Agro Industries Scenario.

x) Processing of cereals, pulses and oilseeds.

xi) Fruits and vegetable processing.

xii)        Processing of commercial crops.

xiii) Rural agro-processing.

5.      Agricultural Mechanization products: Detailed segment understanding.

i) Market development & growth in units & value.

ii) Local production development

iii) Key growth drivers & future 5 years growth.

iv)  Regional demand centers.

6.      Key products.

i) Tractors and attachments.

ii) Tractor Implements.

iii) Power tillers.

iv) Power weeders.

v) Rice transplanters.

vi) Combine Harvesters.

vii) Threshers.

viii) Reapers.

ix) Power Sprayers.

x) Gardening and Horticulture Equipments.

xi) Agriculture pump sets.

xii) Contract Hiring & Resale of Agricultural Equipment

xiii) Drip Irrigation Equipment

xiv) Sprinkler Irrigation Equipment

7.      Opportunities in Agricultural Mechanization space and key take aways.

Executive Summary:

Agricultural Mechanization industry in India is expected to grow at a rapid pace owing to the government efforts to bridge the supply and demand gap of agriculture through R & D and technology efforts in next five year plan (2013-2017). Shrinking farm holdings also demands the need for mechanization so that the agricultural yield can be maximized with optimal efforts through mechanization. Agricultural equipment sector in India has been witnessing robust demand and stands to gain maximum due to the need to use technologically advanced equipment in the farms in the future. Current market size of agricultural equipment sector in India is $x billion (FY2012) and it is expected to grow to $y billion by 2018 at a CAGR of z%. Key growth drivers for Indian agricultural equipment industry are:

  • 100 percent Foreign Direct Investment allowance in the space.
  • Increase in Investment for R & D.
  • Funding through World Bank, Indian Public and Private entities.
  • Improved availability of credit to the farmers.
  • Shortage of skilled labor supply
  • Government subsidies on farming equipment

Key product segments in Indian agricultural equipment industry are:

  • Tractors
  • Tractor’s Implements
  • Power Tillers
  • Threshers
  • Reapers
  • Combine Harvesters
  • Power Weeders
  • Rice Transplanters
  • Power Sprayers
  • Gardening & Horticultural Equipment
  • Agricultural Pump Sets
  • Drip Irrigation Equipment
  • Sprinkler Irrigation Equipment

Tractors’ Implements, Combine Harvesters and Rice Transplanters equipment are the fastest growing product categories in Indian Agricultural equipment sector and are the focus areas of this study.

Tractors’ Implements equipment sector

Tractors’ Implements equipment segment comprises of products like Rotovator, Multicrop Planter, Laser Land Leveller &Tillers & Disc Harrows. Market size for Tractors’ Implements equipment in FY2012 was $z million by value and is expected to grow to $x million at a CAGR of y% by FY2017. Market is dominated with unorganized players and has a high growth potential. Some of the key organized players in this market are Mahindra & Mahindra, TAFE, John Deere, Sonalika, etc.

Rice Transplanter sector

Rice Transplanter equipment comes in two variants, petrol and diesel. Government subsidy is a key driver behind its sales. Market size for rice transplanter equipment in FY2012 was $x million by value and is expected to grow to $y million at a CAGR of z% by FY2017. Key players in Rice Transplanter equipment market are VST Tillers, Southern Agro, Premier, Yanmar, Kubota, etc.

Extensive Government support with higher demand for mechanization due to lack of labor and increase in food demand will help these product segments grow at a rapid pace over the next few years.

Teaser Report:

Agricultural Revolution

After Independence India has seen a new wave of revolution in the Agricultural Sector. Combination of Labor, Technology and Government Policies has been the reason behind the emergence of this revolution.

In 2012, India surpassed Thailand as the world’s major rice exporter, with shipments of over 9 Million Tonnes. India is the 2nd largest producer of fruits and vegetables. It is the 3rdlargest producer of food grains. India has the largest livestock population and is the leading milk producer in the world today.

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Chart 1.y: Year on Year contribution of Agriculture & Allied Sectors to Indian GDP.

Source: Central Statistics Office, Ministry of Statistics and Programme

Note: The Revenue recorded is in Indian Currency and is reported in Millions (USD)

India has been widely known since 1600’s for its production of spices which contributed to the trade between various countries. The production and exporting of crops and spices added to the GDP (Gross Domestic Product) of India.

In 2012 – 2013 alone, the Agricultural sector has contributed around 13.7% to the Total GDP. In the 11th Five Year Plan, the average annual growth recorded by the Agriculture and Allied Sectors is 3.3% in comparison to 2.4% registered in 10th Five Year Plan.

Some of the factors behind the low growth rate have been insufficient use of technology in farming, lack of monsoon and the recession which hit the GDP hard during 2008 – 2009 periods.

Drivers and need for high thrust on mechanization

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Agriculture mechanization in India has two major drivers:

  1. Pull factor of labor shortage in rural areas
  2. Push factor from Government promotion/subsidies
  3. Pull factor of creating awareness through educating youth and farmers

As mentioned in the above sections, the percentage of rural population is shrinking leading to an immediate need for mechanization. The reason for this movement of population to urban areas has been to secure better financial stability through employment in non agricultural fields and to secure better amenities such as education and luxury.

One of the ways to curb this movement is to educate the rural youth on the benefits of mechanization. This could be done by providing training and through creating entrepreneurs through Government backed credit to facilitate interest in the youth and to act on it. Government of India has come up with an initiative of National Rural Employment Guarantee Act (NREGA) wherein at least 100 days of guaranteed wage employment is provided to every household adult volunteer in a year.

Government has thrust on agricultural mechanization to increase productivity and provides farm machinery at subsidized rates to encourage farmers to use agriculture machinery for operations. Some of the measures which Government has taken to support mechanization are listed below:

  1. Bharat Nirman & Flagship Programmes to support rural infrastructure through increasing rural water supply, irrigation, rural housing, rural electrification, rural telecommunication, etc.
  2. Minimum Support Price (MSP) to support farmers in selling their produce and minimize risk
  3. Subsidy on agriculture machinery so that farmers could afford machinery and lower their total cost of ownership
  4. Rural Infrastructure Development Fund (RIDF) to finance rural infrastructure through of channelizing of funds through banks.

Market development & growth in units & value

According to GrowthPraxis, the estimated current market size in 2013 for Agriculture Equipment is about $x Million. The Agriculture Equipment market is growing with a Compounded Annual Growth Rate (CAGR) of x%. Back in 2011, the market stood at $x million & is estimated to raise up to $x million in 2018.

The total estimated Total Export Market for Agriculture Equipment is between x% – y%. Total Import Market stands at x% – y%. Whereas, the Total Domestic Consumption is about x% – y%

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Key growth drivers & future 5 years growth

India reported a 3.6 percent growth in Gross Domestic Product (GDP) from agriculture alone during the 11th 5 year plan between 2007 – 2012. The proposed 12th 5year plan’s growth target for Indian agriculture is estimated to be around 4 percent.

The estimated increase in growth of the GDP during the 12th 5 year plan is due to multiple measures which the Government has undertaken. Some of the measures include allowing 100 percent Foreign Direct Investments (FDI) under automatic route in storage and warehousing including cold storages.

Increase in investment for R&D. Strengthening the Agricultural Technology Management Agencies (ATMA) concept through improved integration with Krishi Vikas Kendras (KVKs).

Tractors

The tractors market in India today stands over x units sold each year. The demand for tractors is driving the tractor market to grow by approximately x% every year according to GrowthPraxis analysis.

The tractor segment is a highly price sensitive segment and its growth drivers are based on factors like Government subsidiary, credit availability, monsoon, labor scarcity, non-agricultural usage, export sales, etc.

In FY12, the Indian Tractor Industry enjoyed double digit growth. The total domestic market sales was around x tractors in comparison to y in FY11, recording a growth of z%. 20 According to our estimates, the total market size of the Tractor segment is estimated to be about x Million USD. At CAGR of x% in FY2018 the total market size of the tractor market is estimated to grow up to $y Million.

>50 HP tractors will see its market share raise to x% in 2018 – 2019 according to our sources. The reason behind this increase will be due to consolidation of farm, increase in commercial usage, multi cropping, increase in power usage etc. States like a, b and c are the go to markets for tractors above 50 HP.

States such as the Punjab, Haryana and Uttar Pradesh have achieved high tractor penetration levels, thus leading to gradual decline in the rate of growth of tractor sales in northern part of the country. The region, however, continues to account for over x% of the domestic tractor volumes – partly supported by relatively high farm prosperity and shorter replacement cycle in these regions – with second hand tractors finding its way to neighboring states.

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Chart: Tractor Domestic Sales trend in India

Power tillers

The estimated market size of the Power Tiller market is over xx units annually. The CAGR for Power Tillers is at y%. Power Tillers are generally purchased with additional attachments for farming purposes. The penetration level for this product is over a units for every b Hectares. The demand for Power Tillers is driven by continued government’s subsidy and acute shortage of labors in rural area.

Petrol engine driven Power Tillers are not a hit due to the higher cost of Petrol in comparison to Diesel based fuel.  The market for Power Tillers consumption is steadily growing due to a couple of reasons subsidy granted by the Government on the usage of Power Tillers and the increased usage of Horticultural activities in India.

Local player market share in FY12 was again dominated by VST Tillers at x% and was followed by KAMCO and Greaves Cotton at y% and z% respectively. Total market for Power Tillers in FY2012 stood at xxxx units with a steady growth rate of over x%. In the Year 2018 the estimated market size will be twice the size of the current market. The market for Power Tillers in 2018 is estimated to reach a sales figure of x units at CAGR of y%. The market value at 2018 is estimated to reach $z Million.

Gardening and Horticulture Equipments

Gardening and horticulture equipments market in FY2012 is around $x Million. The market is growing at a CAGR of y%. In 2018, the market size will reach up to xxxx units with revenue recognition of around $yy.yy Million. This segment is mostly Petrol Engine Driven and lacks organized players. The power consumption of the equipment is low and the profitability margins are low too. High operational costs and dominance of local players are to be blamed. Equipments such as Brush Cutters & Chain Saw lead this market with a market share of a% and b% respectively.

Brush Cutters

Brush Cutters are mostly low powered engine devices. They operate in the power range of 1.2 – 2.5 HP and are mostly petrol driven. Most of the Brush Cutters are imported from China due to pricing reasons. The market for Brush Cutters is estimated to grow at aa.b% annually. In FY2012, there were over xxxx Brush Cutters sold and over $y Million in revenue was recognized.  In 2018, the estimated market size of Brush Cutters will be over x units & $y Million in revenue. The CAGR for Brush Cutters is estimated to be z%.

Chain Saw

Chain saws are used for cutting woods & find wide applications in the agricultural and non-agricultural industry. Major imports of Chain Saws are from China. Generally they operate in a low power range of about ab HP and are mostly petrol driven. Around x units of Chain Saws were sold in FY2012 and revenue of around $y Million was recorded.  The market for Chain Saws is growing at z% annually and is estimated to reach $xy Million in 2018 with over abc units in production. The CAGR for Chain Saw is estimated to be y%.

Agriculture pump sets

Agriculture sector consumes ~ c% of total electricity supplied. Electricity supply for agricultural purposes is free or applicable tariff is very low. Market is dominated by unorganized sector providing low cost (< $x), low efficiency pump-sets (x-y%). Efficient pump-sets are available; though at higher costs (~ $y), efficiency x-y%. The pumps sets operate in the range of z HP units.

Agricultural activities consume x% of all available freshwater resources. There is Government Subsidy on offer for irrigation purposes. Monsoon deficiency and low ground water levels are the key sales drivers.

Centrifugal pumps dominate the Indian market, with around xy % of total sales. Within centrifugal pumps, single stage radial-flow pumps and submersible pumps are market leaders.

The unorganized sector accounts for x per cent of sales in agriculture, a price-sensitive market that leaves large players have a particular disadvantage. Some of the key organized players in this space are Kirloskar Pumps, KSB Pumps, Deccan Pump and CRI Pumps.

At the end of 2012, there were approximately y pump sets sold. The current market size of the agricultural pumps sets is calculated to be $z Million. GrowthPraxis estimates that the growth of Agricultural pump sets will be in the range of x% over the next few years. The estimated market value at the end of 2018 would be $y Million.

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