What Influences Will the Land Circulation Have on China’s Tractor Industry

In November, 2014, the Sate Council issued Opinions on Guiding the Orderly Circulation of Rural Land Management Rights and Develop the Agricultural Moderate Scale Management (hereinafter referred to as Opinions), which made the policy deployment for China’s future agricultural development direction, land scale and intensification and diversification of new agricultural operators and opened the agricultural deep-level reform of China.

It is certain that the deep propulsion of the land circulation will have influences on China’s agricultural machinery industry and have more obvious influences on the main power machinery tractors. By means of analysis on current situation of the land circulation and China’s tractor industry, the future development direction of tractors in China can be concluded.

China’s land circulation is about to enter the mature period

It is the first year of China’s new rural land reform for 2015. After many years’ self development and practice, the land circulation has entered the policy introduction period and popularization period formally. The policy implementation and implementation of land rights determination will further promote speed of the land circulation.

All contents involved in Opinions are guidance opinions. They have not been detailed and do not have the reference mode, thus they are still in the exploring stage and test stage. Especially in some areas that will become the core power for agricultural development in future, such as financial area, insurance area and industrial capital area etc., they either are not open or are limited: such as, the macro policy is not implemented, and thus the financial and insurance industries etc. slowly and do not actively get involved in the agriculture; the nation has the strict qualification test for industrial capital and non-agricultural enterprises, so industrial capital and non-agricultural enterprises cannot enter the agricultural industry; thus, it needs to take some time to achieve overall formulation, launch, implementation and perfection of relevant policies.

With the deepening of the land reform and gradual issuance of various policies, it is predicted that China will initially form the agricultural pattern of diversification of the management operators and the land management scale in the future three to five years.

Current development situation and regional structure of the large and middle-sized tractors in China

(1) In terms of the industrial sales volume of the large and middle-sized tractors over the years in China, the stage characteristics of the large and middle-sized tractor markets: before the agricultural machinery allowance of 2004, the sales volume is maintained between 40 thousand sets and 60 thousand sets basically; sales volume increases to 300 thousand sets from 60 thousand sets after 6-year high-speed increase; the high-level operation section between 300 thousand sets and 400 thousand sets is kept for 5 years.

Since 2004, allowance for purchasing the agricultural machinery in China has increased year by year. But, proportion of allowance for tractors has begun to reduce gradually. The allowance for purchasing the agricultural machinery cannot be provided for the tractors with the power lower than 29.4 kW (40 hp) in a part of Provinces with the strong agricultural strength. From the perspective from the overall trend, the large and middle-sized tractors have kept the growth trend for more than ten years continuously and the obvious decrease trend occurs in 2014, which may forebode emergence of the industrial inflection point.

(2) For demands change of the large and middle-sized tractor products in China, the power demand of the large and middle-sized tractor products in China is increasing all the time; in main selling products during January to May of 2015, the power demand with the rapid increase speed has increased to 95.55kW (130 hp).

There are different structures in different areas in terms of tractors in China.

(1) The structure of tractor in different areas in China is analyzed now. Xinjiang Corps and agricultural reclamation area in northeast China are the example of China’s agricultural mechanization level (as shown in the table 8). The product structure in Xinjiang Corps and agricultural reclamation area in northeast China is basically equivalent to that of USA; by means of the land circulation, it is expected that the winter wheat area will reach the product structure of USA.; so far, the demand has expanded to 95.6 kW (130 hp); the parcel area is less in the paddy field. In the meantime, the main crop in the paddy field is paddy, and corn and oilseed rape are also planted in the paddy field. The power section of the tractors is mainly 36.8~58.8 kW (50~80 hp) in the paddy field.

Table 8 Structure of tractors in different areas of China in 2012 (%)

Data source: statistics data from Department of Farm Mechanization of Ministry of Agriculture

(2) The structure comparison between the China’s tractor products and American tractor products: American tractors mainly adopt the power scope of 36.8~58.8 kW (50~80 hp) and mainly adopt the medium power section of the power scope. While, China’s tractors mainly adopt the power scope of 18.4~36.8 kW (25~50 hp), and mainly adopt the both-end values. Moreover, proportion of tractors with the power above 58.8 kW (80 hp) in China is more than that in USA (table 9).

Table 9 Comparison between the power section of China’s and American large and middle-sized tractors

Data source: as per analysis on trend of the tractor markets in North America in recent years and the statistics report of the tractor industry

In China, the proportion of the tractors with the power of 18.4 ~36.8 kW（25 ~ 50 hp） is large. In USA, area of each farm is 200 hm2 (3000mu) in average, the agricultural plowing mainly adopts the large-sized tractors and the advanced supporting machines and tools to compete the joint soil preparation and the precision drilling all at once; while, in China, the area of the cultivated land per household is lower than 0. 53hm2 (8 mu) in average and the operation mode adopted is that firstly carrying out the plowing once by the large and middle-sized tractor and then carrying our seeding by the small-sized tractor. In addition, in china, the tractor with the power of 18.4~36.8kW (25~50 hp) is generally used in these links such as seeding, intertillage and fertilization etc. Thus, the proportion of the tractors with the power of 36.8 kW (50 hp) is large in China.

In China, the tractors with the large power mainly are those with the power of 58.8 ~ 88.2 kW (80 ~120 hp). In terms of tractors with the large power, USA mainly uses the four-wheel drive tractors with the power above 88.2kW (120 hp), while, China mainly adopts the tractors with the power of 58.8~88.2kW (80 ~120hp), the proportion of which is more than 90%.

After the land circulation, the parcel will become large, thus the demanded tractors will mainly be the tractors with the power above 36.8 kW (50 hp) and demanded machines and tools will be the large-sized and advanced united soil preparation machines and precision seeders.

Summary

The land circulation is a new starting point for China’s agricultural machinery industry and will also be a long-term, sustaining and gradual releasing progress for the influences on the agricultural machinery products. With the gradual completion of the land right determination work and emergence of the large-scale demonstration effect, the large-power, automatic and precision agricultural machinery products will continue to show the continuous increase trend in the future golden decade.

Main influences of promotion of the land circulation on the tractor market include:

Firstly, the influence on the product structure is larger than that on the total quantities.

The concern points of the national land circulation policy are the standardization of the circulation process, the moderation of the circulation scale and inconformity between the situation of more posts for arrangement of rural labor forces needed by the too large scale of the land circulation and the current economic situation; the moderate land management scale decides that the operators cannot use the self-owned agricultural machinery independently; the agricultural machinery cooperative association, the independent (part-time) tractor drivers and the agricultural service organizations are still the main parts of the agricultural mechanization and the land circulation cannot change the current situation of the total quantities of tractors significantly.

The high-standard farmland construction not only improves the land parcel, but also increases the actual area of the cultivated land and plays a certain promotion role in the total quantities of tractors. In the meantime, increase of area of the land parcel and increase of the land planting area of operators gradually enhance requirements for the tractor power, increase the average cultivation area of each machine and drive the product structure to adjust towards the large scale and professionalization.

Secondly, the urbanization construction scheduling determines the speed of the land circulation.

Narrowing the income gap between urban and rural areas is the purpose for China to promote the land circulation. Under the condition of the current cultivated land area per capita in China, if carrying out calculation as per two seasons per year, the average grain income is 15 thousand yuan/ hm2 (1000yuan/mu), which cannot meet the basic living demands; the land circulation will be the only way to become rick by grain planting and is also the need of China’s food security strategy. The urbanization construction provides the employment way for the transfer of the rural labor forces. The current contradiction is the insufficient employment posts and large rural labor forces transfer demand. In the process of solving this contradiction, the restorative growth of the substantial economy is needed and the new service posts need to be provided for the urban and rural areas.

The current land circulation policy is a periodical policy in China. It needs to take 20 ~30 years to achieve the urbanization construction gradually, thereby digest and absorb the agricultural population and finally form the larger-scale management.

Future trend

As time goes on, the land circulation and transfer of the agricultural labor forces will guide the agricultural production managed in the moderate scale to form the new change and will give rise to more market demands.

The main agricultural machinery equipment will develop towards the professionalization, precision, intelligentization and large scale. That the domestic large agricultural machinery substitute for the imported large agricultural machinery will be a trend. The nation will support the development of the large-sized tractors and their compound machines and tools and the large-sized, high-efficiency combine harvesters and other high-end agricultural equipment and core parts.

With the change of the main customers and the demand upgrade, the agriculture and the agricultural machinery products and the entire services will be integrated so as to provide the complete solutions for users, which will become a trend.

The demand structure of the agricultural machinery market will optimize and upgrade constantly. The weak link and weak industry related to the agricultural mechanization will become the key point supported by the agricultural machinery policy in future. After the seeding and harvest links of three main grain crops including wheat, paddy and corn achieve the mechanization basically (except the seeding by rice machine and harvest by the corn machine), these links such as seed processing, precision drilling and grain drying, transportation and storage etc. and the operation machinery for economic crops will become the key points.

Similar to the development of the Japan’s agricultural machinery, the agricultural machinery products for economic crops such as tobacco and tea leaves etc. in the exclusive areas such as hilly areas and paddy fields will develop towards the professionalization, light weight, precision and specialization, which puts forward higher requirements for technical research & development and cost control of the agricultural machinery enterprises.

Oriented by meeting the agricultural operation, the agricultural machinery enterprises will actively promote the integration between the agricultural machinery, agriculture and farm and make the transition to the manufacturing service industry gradually by means of information integration.