Demand Forecast of Tractors

Managerial Economics Assignment-I

Submitted By: Anant Jain (TRN: 40) Page 1

Demand Forecast of Tractors

Objective:

To provide demand forecasting for Tractors for the XYZ company and design a short term

Marketing strategy.

Introduction:

Higher productivity and greater output are the two major contributions in farm mechanization.

Tractors form an integral part of farm mechanization and have a crucial role to play in increasing

agricultural productivity. Tractor is a highly versatile piece of machinery having a multitude of uses

• used in agriculture both for land reclamation and for carrying out various crop

cultivation and also employed for carrying out various operations connected with

raising the crops by attaching suitable implements and to provide the necessary energy

for performing various crop production operations involved in the production of

agricultural crops.

• Tractors are capital intensive, labor displaying used as a mode of transport, in electricity

generation, in construction industry and for haulage operation. It has now become an

integral part of farm structure.

The application of tractor for agricultural activities which swept India during the last twenty

years has erased the problem of farmers. Use of tractors has witnessed an increase of more than

78% since 1994. About 20% of world tractor production is carried out in our country only. The arable

land in India is high as 12% of the total arable land in the world. Tractor market in India is about Rs 6000

crores. On an average around 400000 tractors are produced and their sale is 260000. (www.ficci.com)

Drivers of Tractor Growth:

Many of the factors affect the demand of tractor industries. Primary demand emanates from

agriculture growth and secondary demand is due to its usage as a transport and load carrier. These two

can be broadly classified in below categories

1. Income of the previous year.

� This factor takes into play the income of the farmer from the previous year. If the

income is high the farmer can think on expanding his land for the cultivation of which he

needs more tractors.(www.ficci.com)

2. Price Index of the tractor.

� Price of the tractor is another factor that affects the demand. If the price is

comparatively high then the demand gets reduced.



3. Export/ foreign country demand

� Many multinational tractor manufacturers have made India an export hub. Hence the

export is driven by the companies like L&T John Deere and New Holland.

(www.ficci.com)

4. Fuel Cost.

� Fuel cost is one of the big concerns for transport industries. Diesel is fuel used for

agricultural equipments so if the cost is high the demand for the tractor goes down and

vice versa.

5. Expansion and extension of agriculture land.

� Since the past 20 years the arable land has not been increased so there is a need to

convert the wasteful land into arable land. This conversion can affect the demand of

tractor.

� Value addition farming: The area of land India has is limited so the aim is to get

maximum yield from every acre of land. The use of Tractor can help in achieving this

target which indirectly affects the demand of tractor.

(Indian Tractor Manufacture Association)

6. Credit and money availability.

� This has been a big factor in tractor industry’s and mechanization’s fortune. The

government must initiate long term policy of zero interest rates to enhance the use of

mechanization in agriculture.

7. Rural Infrastructure.

� This includes the connectivity, proper irrigation facility, power supply etc. The tractors

are used for transportation purpose where the connectivity is good also it is used

extensively where the irrigation facility is good so that the cultivation done is efficient.

Demand equation:

Q= ��, �, �, �, �, , ��

Q=Demand I=Income of previous year.

��=Expansion of land. P=Price index of Tractor.

C=Credit and money available. E=Export demand.

R=Rural Infrastructure. F=Fuel Cost.



The Demand Equation can be transformed into linear equation as shown below.

� = � + �� + �� + �� + �� + �� + �� + ��

� =Coefficient of Income. �!"=Coefficient of Expansion.

�#=Coefficient of Price. �$=Coefficient of Credit and money available.

�%=Coefficient of Export. �&=Coefficient of Rural Infrastructure.

�(=Coefficient of Fuel.

Coefficient has simple interpretation. If the values of the other independent variables

remain unchanged, each coefficient represents the change in quantity per unit change in associated

independent variables.

Methodology:

To collect data we can use various methods which include

1. Survey 2. Experiments 3. Historical Data

For the variables which affect the growth of tractor demand we can use any of the above method to

collect data

• Income of the previous year: Survey method can be applied to collect such data.

• Price Index of the tractor: Survey can be done to get cost of the competitors and also Historical

Data can be used to decide the Price Index.

• Export/ foreign country demand: This data can be collected by Historical Data.

• Fuel Cost: Survey to collect Fuel cost (mainly diesel) in different states which the Company is

targeting.

• Expansion and extension of agriculture land: Survey method can be applied to collect such data.

• Credit and money availability: This data can be collected from government sources which can be

categorized in Historical Data. This includes government policies and subsidies which

government provides.

• Rural Infrastructure: Historical Data can be used to get the information on Rural Infrastructure.

This data is hugely affected by the annual budget.

Once the data has been collected we need to analyze it for forecasting.

Here we can use Barometric Forecasting. Barometric techniques examine the relationships

between causal or coincident events to predict future events. This approach assumes the key

developments can be identified, measured and recorded as a statistical time series.



Marketing strategy:

Once we have forecasted the demand we can develop the short term Marketing Strategy for the

next 1-2 years. As we have done the market surveys and also considered the Historical data we have got

the idea about what the market is like and also what are the factors that affect the demand. So we need

to design a strategy keeping in mind all these variables.

� Important factors are the price index and also the income of the previous year of the individual

so we need to cost the tractor which fits these two criteria.

� We should be more economic comparatively to other players in the market.

� As Fuel Cost is another factor we need to improve the design so that it is more fuel efficient

then rest of the available Brands.

� We also need to consider the different Terrains that are present in Country and make the

product which is very effective in such terrains.

� The areas where Tractors are not widely used, those areas must be targeted and the population

there must be convinced about the benefits of tractors.

Submitted By:

Anant Jain

TRN: 40

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Demand Forecast of Tractors