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Farm Worker Shortage Drives Up Tractor Sales

19 October 2011

INDIA - As the shortage of farm hands turns into an epidemic across India, an unintended consequence: faster mechanisation of agriculture, leading to a rapid growth in sales of tractors and farm equipment.

Low-power tractors, such as the 15 hp Mahindra Yuvraj, and some horsier ones used for infrastructure, are flying off the shelves, as it were. The traction is so good, analysts expect volume growth in tractors to be a robust 15 per cent this fiscal, the second year in a row when it has been strong, even as other denizens of Motown struggle to make do, reports Daily News & Analysis.

Sanjeev Goyle, senior vice president, Mahindra and Mahindra (M&M), the world's No. 2 tractor maker after John Deere of the US, said there has been a significant impact of National Rural Employment Gurantee Act (NREGA) on farm mechanisation as this scheme (launched by the central government during the UPA I regime) prevents labour migration to agri-rich states.

"Instead, they find enough employment opportunities in their own states through NREGA. So, most of the farmers who were earlier dependent on labour from states like Bihar and Uttar Pradesh are opting for mechanisation."

Goyle said his company has seen a significant growth in farm equipment segment in past few years. "Our mechanisation division saw a growth of 40 per cent, while tractors are growing at a stable pace of 12-15 per cent. We see a robust growth going ahead in the next 2-3 years on the back of government policies and availability of agri credit.

"The company sells a range of farm equipment like rice transplanters, sugarcane cutting solutions, harvesting machines, besides tractor-attached equipment like rotavators etc.

"Apart from shortage of labour and NREGA, there is more awareness about mechanisation in the hinterland today. Plus aspiration levels are rising. For long, we had seen farm mechanisation growth stagnant around 7% levels. Today, it's in double digits," said T R Kesavan, senior vice president, marketing and product strategy, TAFE India, the No. 3 tractor maker in the world with sales of over $1.5 billion expected this year.

Shashanka Bhide, senior research counsellor at the National Council for Applied Economic Research, agrees NREGA is affecting the supply of labour for other uses, including agriculture.

"The additional employment demand would mean that wage rates would be up and supply would also be less at the same wage rate for agriculture," he said.

What would be interesting to watch is the use of land under mechanisation, he said. "The impact on farm productivity can increase if there is consolidation of land holdings for optimal mechanisation."

Aditya Makharia and Ritesh Gupta, analysts with J P Morgan, said in a note last week that NREGA has helped break rural wage inflation.

"The numbers are truly striking between 1999 and 2005. Pre-NREGA, nominal wages in the rural economy grew at an average annual rate of 2.7%. Post NREGA , average wage inflation almost quadrupled to 9.7% between 2006 and 2009," Gupta said.

TheCropSite News Desk

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