According to the most recent report by Allied Market research, the global agriculture equipment market size is anticipated to reach USD 166,491.6 million in 2027. This estimate while positive does not demarcate the various underlying demand drivers that are aiding such volumes. The increase in mechanization of farming activities across the agricultural value chain such as ploughing, harrowing, planting, harvesting, and tilling are all expected to boost the demand for agriculture equipment, which in turn drives the growth of the global agriculture equipment industry.
Moreover, the implementation of precision farming in the near future will enable increased sustainability in farming activities, thereby increasing profitability, and protecting land resources. This is bound to bring in improved agricultural production essentially required to feed the growing global population and increased food cultivation. This upsurge will definitely bolster the demand for agriculture equipment and the growth in the agriculture equipment market. A fair number of studies have concluded positive outlooks and offer a wide perspective on the global market growth suggesting a CAGR of 4.6%- 10% during 2022-2027.
The Indian agriculture equipment market already seems to be making headway exhibiting a CAGR of 5.3% during last decade itself and touching about 795 billion INR in FY2021. The estimates suggest that there would be a healthy CAGR of 11% to Rs 1689 billion by 2027 (as per IMARC Group). This may however be accompanied with a decline in the share of tractors as other machines would grow at a faster pace, as per ICRA Research. Due to current share of tractors, in India, “Mechanization” is being replaced with “Tractorization”.
In case of India specifically, labour shortage, ease of financing, cultivated area under all crops, government subsidy schemes, rising incomes mainly due to change in cropping pattern and emergence of contract farming are some of the key driving factors aiding a considerable progress in agriculture mechanization. However, the mechanization level at each step of the agri-value chain shows a different scenario. It remains significantly lower than global benchmarks with tractors as major contributor.
Let’s detail out some of the demand factors that can affect mechanisation.
At present, one cannot ignore the fact that continued government procurement support through a MSP and subsidies on agriculture equipment immensely increases farm cash flows. However, this demand for equipment can come crashing down if any of these support levers are removed. More structurally though, these subsides are getting wasted because a marginal farmer is able to utilize the equipment only to the extent of 500 -600 hours yearly which rarely results in positive cash flows, due to underutilization, leading to inadequate income to repay installments/loan.
Dependency on key driving factors like uneven rainfall, delayed harvest, disparity in trends across regions & frequent price hikes consequent to the rise in commodity prices also have a bearing on the demand.
One cannot ignore the impact of climate change either. US has gone ahead and announced future trading of water considering the expected impact of climate change. Given that most of Indian agriculture is dependent on flood irrigation, the impact is likely to be visible in India too. Moreover, we are caught in a self-destructive Wheat-Paddy cycle. It’s time for us to change the cropping pattern from flood irrigation to drip irrigation. The focus could be on Pulses & Oil seeds which have traditionally only increased our import bills. This shift could further drive up the need for mechanisation.
India is committed to reducing its carbon footprint to protect the environment. New emission norms for agriculture tractors could soon be put into place too. Implementation of new norms attracts adoption of new technology i.e. CRDI engines, TC IC (Turbo Charged Inter Cooler) against NA (Naturally Aspirated) engines etc. On one hand this may bring new technology to the market, but it may dampen demand due to higher prices and affordability (in the absence of Government support).
Anyone who has remotely studied the growth of this country would be able to conclude that India's population has grown far more rapidly than the nation's agricultural production. India is the world's largest tractor manufacturer by volume, yet mechanisation levels remain disturbingly low. Tractor ownership is common among bigger farm owners for mechanisation but it has been out of reach for lots of small and marginal farmers due to small land ownership and continual fragmentation owing to economic constraints. If India is to avoid a major food shortage in the future, farming must be made a sustainable profession. SMAM (Small Mission on Agricultural Mechanization) was introduced by the Government of India in 2014-15. This program aims towards “reaching the unreached” by making agricultural machinery accessible and affordable to Small Marginal Farmers (SMFs) through the establishment of Custom Hiring Centres (CHCs).
The presence of small & marginal farmers does in fact continue to constrain enhanced adoption. But in a more real sense, small holders are not the constraint but the size of the available equipment & their related prices.
The concept of custom hiring in fact is not new, it existed in an unorganised manner in the past too, where the small & marginal farmers are availing the services on pay per use basis from the local service provider in their village. Recently, some state governments have taken the initiative of establishing CHC’s by offering subsidies on Capex. Karnataka, Madhya Pradesh, Rajasthan are some of the leading states providing farm equipment services on pay per use basis through these centres. To introduce this concept in an organised manner using digital platform, numerous agritech start-ups like Trringo ,Samunati, JFarms, Agribolo, EM3 etc. have entered to bring forth farming-related advanced technological mechanisms to help farming become a sustainable and profit-yielding enterprise by adopting the farming-as-a-service(FaaS) model, where farmers, agricultural equipment manufacturers and government policies are on one platform. New offerings like “Our tractor your diesel” have also recently been introduced in Akola (Maharashtra) for women who have lost their husbands either due to covid or suicide.
The establishment of Custom hiring centres for farm equipment rentals, as well as incentives such as capital investment subsidies, is aiding the cause. This sector will experience a digital twist that will transform mechanisation in agriculture, from offering agricultural equipment rentals through call centres and mobile apps to leveraging analytics for predictive demand generation.
However, this will require additional support from the government in changing mindsets of the local farmers. Currently these centres have not been extremely successful as SMF’s are unable to even pay the rental charges on an immediate basis resulting into their continued and forced dependency on local service providers who offer them credit. Farm equipment rentals can become a big economic opportunity for private entrepreneurs/companies and larger farmers provided a policy change; subsidised rental rates rather than capex will be a game changer.
The end all of these solutions must be that productivity and environment protection have to go hand in hand which demands for more inclusive policies tailored towards efficiency.
