Vanraj Mini Tractors

Is Small Beautiful?

Case Analysis Rural Marketing

Date February 6, 2010 Submitted By Group 3 Abhinav Raj | Amit Pant | Bhavya Negi | Ishu Kumar Under the Guidance of Prof. Pratik Modi

IIM Indore

DEVELOPMENT OF THE MINI TRACTOR VANRAJ

Vanraj 10 HP Mini Tractor was an innovation from a small farmer, Bhanjibhai Nanjibhai Mathukia of Kalawad village in Junagath district of Gujrat. He and his three brothers were sharing a tractor which was not enough for their needs. They could not use bullocks because of hilly terrains. Also the bullocks could be attacked by the nearby lions in the Gir forest. He got inspiration from the design of Chhakdo a motorcycle engine converted into a three wheeler taxi, to make a three wheeler tractor of his own. He bought a junk jeep and mounted a 10 HP engine to try and form a basic tractor. The iterations to improve the design went on for few months where many benefits were incorporated into the tractor. This innovation was spotted and taken up for commercialization by the Grassroots Innovations Augmentation Network (GIAN) and the Society for Research and Initiatives for Sustainable Technologies and Institutions (SRISTI). In a study for the feasibility for commercialization of the tractor, factoring in the soil type and small landholding size, the tractor was found commercially viable. GIAN brought funding for the project from Technopreneur Promotion Program. They hired a reputed technical consultant to improve the technology and National Institute for improving the design and aesthetics of the tractor. Three technopreneurs: Jagdip Trivedi, Jayantibhai Patel, and Pragnesh Patel acquired the technology in October 2004 to manufacture and market this 10 HP tractor in Gujarat, Madhya Pradesh, Maharashtra and Uttar Pradesh under the brand name Vanraj. They floated a small-scale company M/s Pramal Farmatics (P) Ltd for this purpose. M/s Pramal Farmatics, with the help of a technical consultant, further refined the technology to make it suitable for commercial production and to comply with the regulatory requirements. They prepared three prototypes and did extensive field trials to weed out any loopholes still remaining in the technology and finally received satisfactory results. Finally the tractor was developed into a versatile machine which could serve the purposes of not only agricultural needs but also transportation and industrial requirements. It had a payload capacity of 1 tonnes which increases to 2 tonnes on metaled roads. With minor modifications it could be used in the material handling applications in industries, warehouses, construction work, and airports. It could also be used by Municipal Corporations in narrow streets of cities and towns fro waste collection and disposal.

ADVANTAGES OF THE VANRAJ TRACTOR

ADVANTAGES
OVER

BIG TRACTORS

There were many advantages that Vanraj had over the bigger sized tractors: Affordability: This was the biggest advantage of Vanraj. The tractors between 30 and 50 HP capacity cost in the range of 2.5 Lakh to 4 Lakh. Vanraj was expected to be launched in the price of about 1.9 Lakh. Both the bigger tractors and Vanraj have an equal life span of about 8 to 9 years. Moreover Vanraj could perform all the functions of a bigger tractor.

Lower cost of Operation: On an average Vanraj consumes 1.5 liters of diesel per hour in comparison to consumption of about 4 liters of diesel an hour for bigger tractors. A small farmer growing two crops a year uses the tractor for atleast 180 days a year with a use of 5 hours a day. Therefore a tractor utilized for 900 to 1000 hours a year would result in huge savings on fuel costs for the farmer. Ease of repair and maintenance: Vanraj is a single piece casting tractor with simple design which would help in the repair and maintenance of the tractor. Even a local mechanic could repair and service the tractor. The lifetime service and repair cost for Vanraj is expected to be 10% - 15% of the selling price which is lower than other tractors. Smaller Wheelbase: Due to the smaller wheelbase of Vanraj tractors, it has a smaller turning radius as well as ease of maneuverability during farm operations or industrial operations. It could reach small corners of the land that are inaccessible by large tractors. This feature makes Vanraj more attractive to farmers with small land holdings. Adjustable wheelbase: Vanraj is the first tractor with the three-wheel convertible feature for which M/s Pramal Farmatics have applied for patent in U.S. Three wheel convertibility is useful option in interculture operation where weeds are removed and soil mulch is created. Interculture operation is required in growing of cash crops like cotton groundnut, sugarcane, banana and the like. Power take-off (PTO) point: Vanraj was the first mini-tractor to have a tested power take-off point which enables the alternate use of tractors engine as a power generator. The power from the tractor can be used to run rotavator, thresher, water pump for irrigation, floor mill etc.

ADVANTAGES

OVER OTHER MINI-TRACTORS

In the mini-tractor market, Vanraj had competition from three other brands of 10 HP tractors and imported components of Chinese tractors assembled in India. The three Gujrat based brands of tractors were Field Marshal, Trishul, and Captain. These were assembled tractors with chassis mounted engines and cost about 1.7 Lakh rupees. In comparison with these tractors the Vanraj tractor was sold at a higher price of 1.9 lakh rupees but had the following advantages: Handling of vibrations and shocks: A tractor bears a lot of vibrations and shocks in farms, which might create problems such as loosening of fasteners, misalignment of components, higher maintenance cost, and greater chances of failure in assembled tractors. Vanraj was a single piece casting tractor and had worked well in trying conditions in field tests. Power take-off point: Vanraj was the first mini-tractor to have a PTO point and also had variable power take-off speed with gear selection. Three wheel convertible feature: In comparison to other tractors, Vanraj had a three wheel convertible feature which enabled it to be use in interculture operations.

The mini tractors assembled from imported components of Chinese mini-tractor brands had further disadvantages that they were ill-suited for the hot conditions of India. They would often break down because of overheating, belt failure, clutch failure in hostile Indian conditions.

ADVANTAGES

OVER

BULLOCKS

Vanraj was a viable option even when compared against bullocks. Even though a bullock pair costs 25,000 to 30,000 rupees, they require tending by a person for their fodder, cleaning and shed maintenance work throughout the year and even during the seasons when the bullock is not in use. Further a bullock pair consumes fodder worth 15,000 to 20,000 rupees yearly. They also have an operating life span less than a tractor as they can be used for agricultural activities only after they reach an age of 3 years, and till and age of about 8-10 years.

INDUSTRY AND MARKET SITUATION FOR TRACTORS

Tractor manufacturing in India started in 1962 with a set aggregate annual licensed capacity to manufacture 11000 tractors. Since then the Tractor industry had grown to 2.5 lakh units in the year 2004-2005. India has emerged as the worlds largest market for tractors and the Indian tractor industry emerged as the second largest manufacturer of tractors in the world. Currently the size of the Indian Tractor industry was estimated at 650 crore rupees. The growth potential of Indian tractor industry was still huge as India had only eight tractors per 1000 hectares of land compared to a world average of 19 tractors per thousand hectares of land. Industry experts believed that with the increase in the total irrigated area, demand for tractors would shoot up. The tractor industry was one of the most competitive industries in India. It comprised of 12 major national players, 4 major multinationals, a few major assemblers of Chinese made tractors, and numerous small-scale firms who manufactured or assembles the small tractors to suit local requirements. However none of the big players, national or international had any interest in mini-tractor segment. Despite the robust industry growth in recent years, many big players suffered from low capacity utilization at about 50%. It had created downward pressure on their margins leading to an increased rivalry in the market. Even though the raw material cost of materials like steel had gone up in recent times, the manufacturers could not increase the prices of tractors in the buyers market. Many companies had introduced promotional schemes such as exchange of old tractors, longer credit period, credit sales etc., to generate more demand for their products.

SEGMENTATION

OF THE MARKET

The horsepower of the engine has been used since ages as a basis for segmenting the market and designing the product portfolio. The tractor market can be divided into five segments on the basis of horsepower. The less than 20 horsepower was considered mini-tractor segment, which contributed to less than 1% tractor sales in India. Only recently HMT had expressed its desire to enter mini-tractor segment with an 18-20 HP tractor priced in the range of 1.8 -2 Lakh rupees. Tractors between 21 to 30 HP represented the small tractor segment, contributing 26% to the total tractor sales. The less than 30 HP tractors received government subsidy of 30,000 rupees per tractor under the program to modernize agriculture. The market segment for medium sized tractors between 31 to 40 HP was the largest, contributing 55% to the total tractor sales in India. The large tractor segment of 41 to 50 HP accounted for 15% share in the total tractor sales. Big farmers of Punjab and Haryana were the main buyers in this segment. Punjab tractors and HMT dominated the high-end market segment of more than 50 HP tractors, and accounted for about 4.5 percent of the total tractor sales. Multinational companies like New Holland, John Deere and Renault focused on the 50 + HP tractor market as they traditionally operated in US and European countries where on an average the tractors had more than 100 HP capacity. The 50 + HP capacity segment was also the fastest growing segment with a growth rate of 17.88%

FACTORS AFFECTING TRACTOR DEMAND

The tractor industry is heavily dependent on agriculture, and therefore the tractor sales are affected by all the factors that had a bearing on agriculture. The Indian agriculture is largely dependent on good monsoon, and the tractor sales would take a severe beating during a drought period. The level of agricultural production and Minimum Support Price (MSP) declared by the Government influenced rural prosperity and thus has a positive effect on tractor sales. Another factor in the sale of the tractor is the horsepower which is one of the most important considerations by farmers in tractor purchase. Some other factors important in the decision of tractor purchase are price, fuel efficiency, availability of spares, easy maintenance, and tractors compatibility with various farming implements. Tractors were used for rural transportation and hauling of agricultural produce to the markets. Tractors are a symbol of power, masculinity, prosperity, and a sign of having arrived for the Indian farmers. The ease in availing the tractor finance is one of the most important factors for the spurt in tractor sales in recent years. A small farmer with as little as 3 acres

of land could avail tractor finance from banks which led to increased demand of tractors as well as a higher default rate on such loans. Nearly 90% of the tractors were sold on credit. Many studies had reported gross underutilization of tractors in India, even below their break-even points, leading to a higher default rate. Higher horsepower tractors required more hours of usage per year than lower horsepower tractors to achieve break-even. Farmers were renting out their tractors for farm and non-farm activities to increase capacity utilization and earn extra income. The tractor hiring charges varied from 200 rupees to 300 rupees per hour, but the cost of diesel was borne by the owner of the tractor. Such custom work accounted for more than half of the total utilization of the tractor. Earning potential in custom hiring of tractors was driving farmers to purchase higher horsepower tractor.

THE MARKETING DILEMMA AND SUGGESTED SOLUTION

Mr. Jagdip Trivedi, the founding partner of M/s Pramal Farmatics believed that small and marginal farmers were the most appropriate target market for Vanraj and is an alternative to bullocks. But the other two partners were not fully convinced that they should target that market. M/s Pramal Farmatics planned to sell Vanraj at 1.9 lakh rupees or less which was half the market price of a big tractor. The other two partners wanted Trivedi to give an elaborate thought to the issue before targeting any particular market segment.

THE

SUGGESTED

SOLUTION

We believe that the as proposed by Mr. Jagdip Trivedi, targeting the Vanraj tractors towards the small and marginal farmers segment would be appropriate strategy. This is because of the following reasons: Many studies had shown that tractors are being underutilized with higher horsepower tractors requiring more hours of usage per year. Therefore buying Vanraj would help the small and marginal farmers to break-even with less hours of tractor usage. The lower selling price of Vanraj would lessen the default rate of the farmers. The tractor also is a symbol of power and masculinity among big farmers. The small and marginal farmers are more likely to buy a tractor for meeting functional needs rather than ego needs of power and masculinity. Thus small farmers are more likely to prefer the small tractor in comparison to large farmers. The need of a generator can also be satisfied through the power take-off point present in Vanraj tractor for the benefit of the small farmer. The

large farmer is likely to already own a generator for use in water pumps, thresher etc. These tractors also have an advantage over the most obvious substitute bullocks as they do not need constant tending throughout the year. They also have a larger operating life span when compared to bullocks.

What is currently observed in the tractor market is that the less than 20 HP tractor market is contracting at the rate of .37% per annum. The reasoning could be that even the small and marginal land farmers are opting for the bigger horsepower tractors and financially straining themselves. Therefore there is a need for educating the farmers on the availability and the capabilities of less than 20 HP tractors. Farmer education programs could be organized by M/s Pramal Farmatics in association with Indian Farmers Fertiliser Cooperative Limited (IFFCO) and National Bank for Agriculture and Rural Development (NABARD). The level of competition that would be faced by M/s Pramal Farmatics is expected to be low because all the big players are focused on serving the large farmer market segment. Initially positioning of the Vanraj tractor should be done towards the small and marginal farmers as these represent the most appropriate segment. Later on it can also be positioned to meet the needs of horticultural farmers as well as industries. The reasoning is that horticulture segment is the fastest growing segment with a growth of more than 100 percent in Gujrat and Maharashtra. The industrial sector is a similar high growth sector and could represent opportunities for this tractor in material handling operations.