Lahore - Two tractor assembling plants and 200+ tier 1 vending base move towards closure as the tractor bookings has dropped sharply. This industry employs some 100,000 skilled people mainly in Lahore.
Mumshad Ali, former chairman of Pakistan Association of Automotive Parts & Accessories Manufacturers, said that the drop had come after a strong growth in the last 2 years where the industry produced between 60-70 thousand tractors annually.
The growth came at the back of PML N government support to the agri sector and CPEC. As the projects are put on hold and Rupee devalues, leading to price increase, drop in sales was eminent, he said. Tractor sales are a good indicator of the health of the country’s economy in general and agri economy in particular, he added.
Tractor demand was the only segment within the automobile sector that was facing a recession, they said, adding there were three to four reasons behind the sudden drop in sales. The deteriorating financial position of farmers due to drop in prices of farm produce and delay in implementation of tractor subsidy schemes in the past have adversely affected the industry.
Moreover, high interest rates on loans provided by Zarai Taraqiati Bank Limited have also contributed to the low sales. Among other reasons is the volatile tractor business in the outgoing years. “Tractor assemblers and about 300 small and medium-sized enterprises that produce tractor parts cannot bear the boom and bust in tractor sales that has been the result of uncertain government policies,” they said.
Owing to continuous losses, they said, many vendors manufacturing tractor parts may close this year while around 10 percent have already been forced to shut their facilities.
“While tractor assemblers are able to take the beating, the 300 odd SME auto part makers cannot carry on if such bouts of boom and bust continue,” they said. “100pc vending units associated with the tractor parts will be closing this year. So far 10pc have been forced to close down their facilities,” they claimed.
They urged the federal and provincial governments to replace the erratic short-term tractor subsidy schemes with long-term interest free loans for farmers to buy tractors.
Despite being an agri driven economy, farm mechanisation in Pakistan ranks fairly low when compared with global standards. Pakistan produces the best value for money tractor in the world with 95pc local content, creating 300,000-500,000 direct and indirect jobs, and contributing to the national exchequer.
Industry insiders believe that this financial year will close with less than 50,000 units sale compared to 70,000 + sales last financial year as investors pull their money out from this industry to invest elsewhere. Tractor sales have 2 seasons a year and investors are needed to purchase tractors year round to meet the demand surge after the rabi and kharif crops are harvested and agri economy cash cycle revolves.
They said that the industry has faced drop in demand in the past as well for different reasons, such as imposition of GST, tractor subsidy schemes, news of new and old used tractor imports, commodity price crashes, floods, and crop failures. This boom and bust cycle is a big impediment in the growth of this sector in terms of volumes and quality. The industry holds great potential for exports to Africa due to the price, design and durability of the Pakistani tractor. If the industry is to rebound back, CPEC projects have to restart again and government must support the Pakistani farmer.
Experts said that almost all nations support their agriculture with rebates and incentives and concessions. For Pakistan this type of support is of great importance as Pakistan’s economy is based on agriculture with 45 percent of the total work force associated with agriculture.