Managerial Economics Assignment-I

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.

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

 Managerial Economics Assignment-I

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.

Submitted By: Anant Jain (TRN: 40) Page 2

 Managerial Economics Assignment-I

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.

Submitted By: Anant Jain (TRN: 40) Page 3

 Managerial Economics Assignment-I

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

Submitted By: Anant Jain (TRN: 40) Page 4