January 24, 2019: Pakistan Association of Auto Parts and Accessories (PAAPAM) requested secretary of Ministry of Industries (MOI) for a meeting of the tractor industry stake holders, to deliberate upon the solutions to jump start the tractor industry, and look at ways to eliminate the phenomenon of boom and bust that has plagued this vital sector for 2 decades.
The tractor industry representatives, during a meeting in Islamabad on January 23, informed the Secretary that the industry stopped its production for 7 weeks due to no orders caused by delay in payments of sugar cane farmers and low prices for the potato crop. The house was also informed that the volumes of tractor production that touched 70000 units last year will achieve half that volume this year, and this is typical to the tractor industry which goes through a 5 year cycle of boom and bust.
The industry representatives also informed the house that on average the tractor demand stands at 50000 units per annum and there is a need to stabiles the boom and bust demand cycle of tractor sales by strengthening tractor financing through ZTBL and commercial banks.
Currently only 5% of the tractor sales are through bank finance where as in neighboring India this percentage is as high as 90%. The financing rates are also as high as 15% which very few farmers can afford. Bank lending to the agriculture sector is around Rs 400 billion of which a paltry 3 billion goes to the tractor sector while fertilizer plants and sugar mills take the main chunk. Commercial banks also shy away from financing tractors to farmers.
Tractor industry proposed that around Rs 25 Billion per annum be allocated for tractor financing at single digit markup rates, so that at least 50% of the 50000 tractors are financed through the banks each year. These loans should be dispersed at the dealership networks of the tractor manufacturers there by making it convenient for the farmer. This will give much needed stability to the tractor industry, improve quality and reduce the price of the tractor that the farmer pays due to the involvement of the investor who books and stocks the tractor in the off season to sell at a premium to the farmer during the demand season which comes after the harvest time of major crops like sugar cane, wheat, cotton, and rice.
The Secretary instructed the stake holders to formulate a proposal to be taken to the cabinet.