Millat Tractors gears up for export as local sales slump
After years of struggle, Millat Tractors will start exports in a few weeks in what will be the first time such value-added engineering goods made in Pakistan are sold to foreign customers, officials told The Express Tribune.
Millat is already selling some tractor components in India but a deal with Massey Ferguson will soon lead to export of complete tractors to Afghanistan and some African countries.
“A team from Massey Ferguson was here to see our plant and process,” said Sikandar Mustafa Khan, Chairman of Millat Tractors. “They have asked us to rectify a few things. Quality has to be spot on and we have to meet those international standards.”
Millat manufactures tractors in Pakistan under licence from Massey Ferguson, which is part of American farm instrument maker AGCO.
The Pakistani company, with over Rs20 billion in sales, remained under licensing restriction on export. However, it finally struck an agreement with AGCO earlier this year to start selling tractor components and semi-knocked down units in foreign markets.
“Let’s see how much of a big success this turns out to be for us,” said Khan who has been leading the company since an employee-buyout placed it in private hands in 1992.
Tractor sales have been hammered in the past two years after the government imposed new taxes, industry people say, adding to the pressure on Millat to explore other markets at the earliest.
Khan said industry sales have dropped tremendously from 70,000 units just three years ago. “I suspect sales will go even down this year.”
The government had increased sales tax to 10% from the previous year. It will go up to 17% from January 2014. Until 2008, the industry was exempted from sales tax.
“Agriculture depends mostly on small farmers who own 10 to 15 acres of land. So when sales tax pushes up prices, these farmers can’t afford and tractor sales take a hit,” said Khan.
Instead of subsidising sales through cash distribution schemes for purchasing tractors, which are often misused, the government must do away with the tax, he said.
Like other developing countries, Pakistani government also considers increasing use of tractors as a step towards mechanisation of agriculture that enhances farm output and cuts losses.
Tractor sales fluctuate with agricultural income as farmers are able to spend more on farm inputs after reaping benefits of a bumper crop. But the tractor industry has steadily expanded over the years.
From production of just 13,841 tractors in 1991, the output touched a high of 71,730 in fiscal year 2009-10, according to the finance ministry’s Economic Survey. Production dropped to 36,121 tractors in July-March 2012-13.
According to the last Economic Survey, the price of a basic 50 or 55 horsepower tractor ranged from Rs650,000 to Rs715,000. A 5% increase in sales tax would have added Rs32,500, an amount that doesn’t appear large for someone already spending in six figures.
“But it does matter a lot,” says Asim Ali Zaidi of Taurus Securities. “Economic condition is not good. Power tariff has gone up, the price of diesel has also gone up and then the schemes for financing these tractors are erratic,” he said.
Farmers who were buying tractors have probably reverted to the pool system where they share a machine among themselves, he said.
Published in The Express Tribune, November 7th, 2013.