Pakistan is basically an agricultural country and its almost 70% of the economy is based on agriculture. Today tractors and agricultural equipment's play a major role in mechanised farming instead of conventional way of ploughing lands.
Due to shortage of water resources, input prices of agricultural seeds and fertiliser, lack of research and development and having no advisory services to farmers, the total sand utilisation could not be significantly increased.
In 1991 it was 21.82 MHa and till 2006-07 it is 23.13 MHa, despite the fact that tractor units has increased over the last 10 years which is 500,000 today. The tractor sale in the year 1999 was about 20,000 units whereas today it is 70,000 units per annum.
Major role to finance the agricultural machinery and inputs has been played by the State Bank of Pakistan with substantial allocation of mandatory funds for agricultural development and its disbursement through commercial banks, ZTBL (Zarai Traqiatti Bank Limited) and other financial institutions which enabled the farmers to get easy loans for purchase of agri inputs.
At present there are two tractor companies in our country which are involved in manufacturing of indigenized tractors. A local company which produces Massey Ferguson tractors under franchise from AGCO and the other company, is an entity of a foreign UAE based Group Al-Futtaim purchased under privatisation in 1992 and are manufacturing Fiat New Holland tractors.
The production capacity of each company is 15000 tractors per annum. Both the companies had failed to meet the supply against increasing demand and the limited capacity of production resulted in abnormal delay in deliveries to the farmers.
Both the companies could deliver 49,500 units against the demand of 77,261 units in 2007. Approximately 35,000 units are yet to be delivered which were booked with 100% advance payment and the farmers would have to wait for a minimum of 8 to 10 months for MF and 16-18 months for Fiat to get the supply.
The farmer has not only to pay the markup to the banks till delivery but also has to bear the rental cost of tractor which he uses to plough the lands during the period between booking and delivery. Both the companies are enjoying billions of rupees taken with advance bookings from the farmers and reinvesting this amount to earn profits.
One company earns about two billion rupees profit per annum and the major share is taken out of the country by Al-Futtaim. They had also imposed condition of non-refundable advance money in case of delay in delivery; no markup is paid to the farmer.
It is also worth mentioning that one company purchased the other company under privatisation in 1992 for only 160 million rupees. Despite earning billions of rupees thereafter they did not make any further investment for updating technology or expansion in plant capacity.
As a matter of fact the running capital is met with the mark-up only coming from advance bookings. In 1998, the then prime minister Nawaz Sharif, offered support price to the tractor manufacturing companies in order to give relief to the farmers.
Approximately 100,000/- PKR per unit price was reduced and waived off custom's duty and sales tax as compensation for the support price, but both the companies had been able to get the prices de-linked from the Government yet enjoying all the previous concessions in duties and rebate of taxes. Taking undue advantage of the interim government both of them increased prices of tractors approximately 100,000 PKR per unit with an average increase in price by 22%.
The increase in prices further add to the miseries of farmers as they would have to face difficulty in getting loans form banks due to their existing land limit and unit index price. The banks will also have to revise their limits and unit price of land to match the new prices.
The local companies were allowed to import CBU tractors to fill the gap in demand and supply with the condition that they would establish tractor plant to manufacture tractors in Pakistan. Particularly, one group had acquired fully equipped tractor plant in 2004 with intent to manufacture Tumosan Tractors in collaboration with the Turkish company and John Deere Tractors were being imported by Agro Tractors from China respectively.
But meanwhile the vested interests exerted their influence and the then government introduced TBS (Tariff Based System) in year 2006-07 Budget. By Implementation of TBS the new entrants have to achieve 90% localisation of parts to avail the concession in Custom Duty and Sales Tax.
Otherwise they will have to pay 35% custom duty on import of CKD components. Our neighbouring country India has 10 major tractor manufacturing companies who are manufacturing over 300,000 tractors per annum and the government facilitates any foreign/local investor who likes to put up any industry in their country. Two well-known local groups had signed technical licensing agreement with renowned foreign companies for transfer of technology into Pakistan.
Deletion programme of one group is pending since two years for approval by the government. It has already completed all the requirements under SRO 656 (1) 2006 but the approval has been abnormally delayed due to unscrupulous objections.
There is an acute shortage of food in the country and due attention is required to increase the yield per acre at par with neighbouring country as their average farmer gets 80 maunds/acre of wheat whereas we have less than 40 maunds/acre. There is an annual demand of 15 million tonnes of wheat in the country.
This means that more land needs to be rehabilitated with conformity to timely sowing and harvesting. This can be done when timely availability of agricultural machines including tractors and farm equipment is ensured to the farmer at reasonable terms.
In order to encourage the investment in this sector by the local or foreign companies the present elected Government should undertake steps to facilitate the investors which shall in turn establish industrial base, generate employment opportunities, develop OEMs, reduce reliance on imports and save foreign exchange rather than to protect vested interests of those who want to enjoy monopoly forever against the national interest. The present Government should provide level playing field to the new comers in all respects, particularly Tariff Based System (TBS) should be reviewed.
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Model Horse Ex-Factory Pric Ex-factory Price % Increase
Power In 2007 (PKR) In 2008 (PKR) 2007 to 2008
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MF 240 50 HP 320,000 419,000 31%
MF260 60 HP 399,000 509,000 28%
MF375S 75 HP 499,000 629,000 26%
MF385 85 HP 599,000 769,000 28%
Fiat 480 55 HP 320,000 367,000 15%
Ghazi 65 HP 349,000 399,000 14%
Fiat 640 75 HP 459,000 510,000 11%
Fiat 640S 85 HP 469,000 550,000 17%
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AVERAGE PRICE INCREASE 22%
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