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Typology of tractor use growths patterns in

Terai

Regional Workshop on Agricultural Transformation:

Challenges and Opportunities in South Asia

Hiro Takeshima, IFPRI

Kathmandu, Nepal

February 13, 2015

INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE

Objectives

• Examine tractor use growths in Terai (and some

Siwalik)

• Patterns – ownership / rental

• Trends of potential drivers (factor endowments)

• Typology of farm inputs use intensification

• Large variations even within Terai

• Differential policies for specific households types

• Why Terai?

• Focus on where mechanization is actually happening

• Half of population in Nepal now live in Terai (Nepal

Population Census 2011)

• Later on, analyses will include Hills / MountainsDefinitions of Terai, Hills and

Mountains in this study


Significant growths in tractor uses in Terai between

1995 and 2010

8

29

46

35

8

1995 2003 2010

using tractors

Terai

Hills

Mountains

0.91

2

0.7

0.3 0.3

1995 2003 2010

owning tractors

Terai

Hills

MountainsSource: Presenter’s estimate based on Nepal Living Standard Survey (NLSS)

2010

2003

1995

% of farm households


In Terai, female headed households are

also catching up

9

30

47

1

24

40

24

8

2 35

1995 2003 2010

% of farm households using tractors, by gender of household heads

Terai - male Terai - female

Hills - male Hills - female

In Terai, tractor uses are growing among

not only male headed households, but also

among female headed households.


% of cultivated area plowed by tractors

Tractor use growth in Nepal Terai is

comparable to other fast

mechanizing countries like

Cambodia

The pace for Nepal as a whole is

slower.

Bangladesh

Bangladesh

India

Sri Lanka (Rice)

Vietnam …

0

10

20

30

40

50

60

70

80

90

1975 1980 1985 1990 1995 2000 2005 2010

Nigeria

Bangladesh

Brazil

Cambodia

China

India

Indonesia (rice)

Nepal

Nepal Terai

Sri Lanka (Rice)

Vietnam (Rice)

Source: Various. aFigures for Nepal are based on share of households using tractors estimated from NLSS.


Tractor use is growing mostly by custom hired tractors,

rather than owned tractors

1995 2003 2010

Terai

Owned tractors 59 108 260

Rented tractors 440 954 1,570

Total 499 1,062 1,830

Nepal

Owned tractors 73 125 264

Rented tractors 468 994 1,683

Estimated area cultivated by tractors, by sources of tractors (owned vs rented), 1000 ha

Rented tractors account for 80% of growths in tractored areas.

Source: Author’s estimation from NLSS.

*Assuming farmers use tractors to all the plots they cultivate.


FACTOR ENDOWMENTS

Trends of changes in factor endowments partly explain tractor use growths in Terai


Slight increase in land-to-labor ratio

0.11

0.11

0.16

0.9

0.15

0.09

0.14

0.13

0.5

0.13

0.17

0.12

0.22

0.29

0.17

0 0.5 1

Non-mechanizedfarm households

Draft animal only

Tractor renters

Tractor owners

All farm households

Owned land per working age members among farm households (ha)

1995

2003

2010

Farm land per working age

members started rising since 2003

• Due to declining agricultural

population (despite overall

population growths)


Rising human capital and farm wages

Source: Authors’ calculations from NLSS.aWages are averages of daily male wages for plowing, planting, weeding and harvesting.

0

1

2

3

4

5

6

1995 2003 2010

Average years of formal education completed (working age)

Terai

Eastern

Central

Western

Mid-western

Far-western

Hills

Mountains

All0

2

4

6

8

10

12

14

1995 2003 2010

Real farm wage (kg of cereals / day)

Terai

Hills

• Consistent with the growing mechanization in Terai

• Not fully explain slow mechanization growth in the Hills and Mountains


Tractor rental price declined relative to wages

Source: Authors’ calculations from NLSS.

5.4

4.9

3.84.9

4.5

3.5

1995 2003 2010

Ratio of hourly tractor rental rate / daily wage

Terai

Hills / Mountains

Tractor rental rates had declined relative

to wages by 20-25% compared to 2003

Consistent with the growth in tractor

rentals in Terai

However, does not explain relatively slow

tractor use growth in Hills and Mountains


Declining tractor prices in Terai (real term)

1989 1992 2010

Four wheel tractors 5066 6464 30000

Power tillers 1100 1300 12000

Share of power tillers (%) 18 17 29

0.2

.4.6

.81

cum

ula

tive d

ensity

0 20000 40000 60000 80000real tractor price (kg of rice/wheat)

2003 2010

Changes in distributions of (real) tractor prices

in Terai - 2003 and 2010

Source: Authors.

Number of four wheel tractors and power tillers in Nepal

Source: CSAM (2014) for figures in 1989 and 1992; Justice & Biggs (2013)

for figure in 2010.

In Terai, real prices of owned tractors have declined on

average between 2003 and 2010

Median price in 2010 is worth around 24 tons of cereals =

400,000 rupees

Median price in 2003 was worth around 37 tons of

cereals (though nominal price was around 300,000

rupees, this was much higher in real terms in 2003)

Consistent with increasing shares of power tillers

Consistent with growing tractor ownership in Terai


Larger farm owners in Terai - switched from draft

animal to tractors between 2003 and 2010

0

10

20

30

40

50

60

70

80

90

100

< 0

.05

0.0

5 -

0.1

0.1

- 0

.2

0.2

- 0

.3

0.3

- 0

.5

0.5

-0.7

5

0.7

5 -

1

1 -

1.5

1.5

- 2

.5

2.5

- 5

> 5

Share

(%

)

area owned (ha)

tractor rental (2003)


tractor own / rent (2003)

2040

6080

shar

e (%

)

0.05 0.1 0.2 0.5 1 2.5 5 10area owned (ha)

2003 2003 CI

2010 2010 CI

02

04

06

0

shar

e (%

)

0.05 0.1 0.2 0.5 1 2.5 5 10area owned (ha)

2003 2003 CI

2010 2010 CI

Larger own farm => more substitution from draft animals to tractor

rentals between 2003 and 2010

< 0.1 ha: significantly lower tractor rental

> 2.5 ha: significantly more tractor owner

% renting tractors % using only draft animals


INTENSIFIED USE OF EXTERNAL, NON-

LAND INPUTS AS MAJOR DRIVERS OF

TRACTOR USE GROWTHS IN TERAI

However, farm size and factor endowments alone does not explain tractor use growths in

Terai.


In Terai, tractor renters not only cultivate larger areas but

uses more external inputs per area, than draft animal users Type of

farm

househol

ds

Inputs use per cultivated area (equivalent to kg of cereal / ha) Mean

cultivat

ed area

per

year

(ha)

Fertilizer Hired labor Uses of

external

inputs per

cultivated

area

(excluding

tractor)

Tractor

use per

cultivated

area

Farm

labor

Inputs

uses per

cultivated

area

(excluding

opportunit

y cost of

land)

Tractor

renter

205** 248** 612** 137** 1907* 2657 1.7**

Draft

animal

users

137 167 431 0 2272 2704 1.0

Differences in inputs use per cultivated area between tractor renters and draft

animal only users in Terai, 2010 (values measured equivalent to kg of cereal / ha)a

Source: Authors. Figures are weighted by sample weights and cultivated areas. aAsterisks indicate statistically significant difference based on t-test: ** 1%, * 5%.

Tractor renters use the

amount of fertilizer, whose

monetary value is worth

205 kg / ha of cereals.

This is higher than 137 by

draft animal users.

=> Somewhat different

from outside Nepal, where

fertilizer and hired labor are

substitutes to tractors and

land.


Farm inputs use intensification: typologies

• Modified cluster analysis

• Combine k-mean method with hierarchical method (Punj & Stewart 1983; Siou et al.

2001; Takeshima et al. 2013)

• Farm households with own farm size 0.1 ~ 2.5 ha

• Variables

• Input use intensity: Cost of external inputs per ha of owned farm

• Type of inputs intensively used: Cost shares of external inputs (own tractor, rented

tractor, fertilizer, irrigation, seed, hired labor)

• Family labor use intensity: Family labor cost per ha of owned farm

• Lowland use intensity: Lowland share of cultivated area

• Cropping patterns: Revenue shares of major crops

• Other potential variables (not included)

• Market orientation – potentially under-reported; inclusions seem to lower overall typology

properties (less diversity across types)


Farm household typologies in Terai, 2010

Descriptions Inputs

costs /

ha

Own

ed

(ha)

Cultiv

ated

(ha)

1 Middle income, small subsistence 713 0.5 0.5

2 Cash crop (sugar cane) growers 888 0.9 1.8

3 Fertilizer-based intensifier 644 0.6 1.3

4 Power intensive mechanizers 896 0.5 1.3

5 Traditional (lowland) 149 0.5 1.1

6 Intensive labor hirers 863 0.8 1.7

7 Upland based intensifiers 689 0.5 1.5

8 Traditional (upland based), non-rice 196 0.5 1.0

9 Small (own farm < 0.1 ha)

10 Large (own farm >= 2.5 ha)

TractorIrrigationFertilizerHired labor

Inputs per ha


Tractor users in Terai, 2010

Tractorowners

Tractorrenters

Middle income, small subsistence(family labor based)

Cash crop (sugar cane) growers

Fertilizer-based intensifier

Power intensive mechanizer

Traditional (lowland)

Intensive labor hirers

Upland based intensifiers

Traditional (upland), non-rice

Small farm (< 0.1 ha of own farm)

Large farm (> 2.5 ha of own farm)

Tractor use

costs among

actual users (kg

of cereal / ha of

cultivated area)

Small farm 60

Large farm 86

1 Middle income, small subsistence

(family labor based)

98

2 Cash crop (sugar cane) growers 120

3 Fertilizer-based 101

4 Power intensive mechanizer 296

5 Lowland, traditional irrigators 40

6 Intensive labor hirers 129

7 Upland based intensifiers 139

8 Upland based, traditional, non-rice 106


Messages from typology

• Several mechanization patterns, variations across regions

• Power intensive mechanizers = intensify inputs use by using tractors

intensively per hectare of cultivated area for power intensive activities like

plowing (Western, Central)

• Intensive labor hirers = intensify inputs use by hiring many laborers, and

substitute part of them with tractors (though tractor use less intensive per

ha) (Eastern, Mid-Western) – also a majority of tractor owners

• Fertilizer-based intensifiers = still rely mostly on fertilizer to intensify inputs

use; some tractor renters are found among this type (Far-Western)


Why is this typology important?

• Different policy recommendations (and hypotheses) - Examples:

• Power intensive mechanizers:

• Productivity highly depends on intensive, repeated plowing

• Reducing cost of deep plowing; more efficient plowing machines can have large benefit

• Intensive labor hirers

• Productivity depends on labor intensive production practices (plowing, labor intensive planting, weeding,

etc) on larger areas

• Potential demand for diverse machineries that can mechanize different practices (planters, weeders etc)

• Fertilizer-based intensifiers

• Productivity depends on soil nutrients, but not so much on labor intensive practices or intensive repeated

plowing

• Demand for mechanization may largely depend on the fertilizer price / availability, soil fertility

• Increasing their tractor use requires change in technology characteristics that raise returns to intensive

plowing or labor intensive practices

• Traditional lowland farmers

• Returns from mechanization may be low; policies to induce general intensification are needed (improved

varieties etc); without sufficient intensification, returns from mechanization is likely to be limited

=> These hypotheses need to be further investigated


Overall summary

• Intensification per unit of land has been common in Terai between 1995-2010, rather than achieving

economies of scales from farm size expansion

• Tractor use in Terai has grown as part of such land-saving intensification, although larger farm owners

do hire in more tractors

• Despite the small, atomistic farm types in Terai, tractor uses grew through custom hiring by a small

number of specialized tractor owners, rather than through widespread ownership of smaller tractors

• Tractor use growth in Terai is consistent with the trends of wage increases relative to tractor rental

price, but it is also driven by the general inputs use intensification.

• Farm household types in Terai

• Farm size is the major determinant of wealth, income, poverty; but the levels of inputs use intensification also

vary, and associated with higher wealth.

• Diverse patterns of inputs use intensifiers per unit of land – association with each region

• 3 major types of tractor renters (power intensive mechanizers, intensive labor hirer, fertilizer-based intensifiers).

They are also among those with the highest levels of inputs use intensity

• The presence of distinct types suggest that differential mechanization policy options can be more

efficient


Thank you!


Summary of patterns

• Tractor use has been growing fast in Terai, while slow in other regions

• Despite the small, atomistic farm types in Terai, tractor uses grew through custom hiring by a small

number of specialized tractor owners, rather than through widespread ownership of smaller tractors

• Mechanization patterns differ between tractor renters and tractor owners. Understanding tractor use

patterns of both types is important.

• Inequality has widened between tractor owner households and other farm households (revenues,

consumption and asset holdings). In 2010, their differences are in the range of 4 ~ 6 times. Wealth of

tractor owners has also surpassed those of non-farm households.

• In 1995 and 2003, tractor owners were often located in remote areas, compared to tractor renters.

Between 2003 and 2010, more tractor owners emerged in sub-urban areas, or areas where access

had improved (closer to various facilities than non-owners, unlike in 2003). Much growth in tractor

ownership between 2003 and 2010 occurred in sub-urban areas instead of remote areas.

• A fraction of farm households, cultivating less than 0.2 ha of land, has converged as non-mechanized

farm households (using neither tractors nor draft animals), specializing into vegetables, non-citrus

fruits, or spices, as well as renting out of land, shifting away from rice production.

• To some extent, but tractor is not the driver of land consolidation


Summary hypotheses

Growths of tractor rentals in Terai

• Tractor rental costs account for only a small share of total crop production costs of farm

households. This pattern possibly reflects generally small land size in Nepal Terai.

• Tractor rental is growing along intensification rather than extensification – it is growing

alongside intensified uses of hired labor, fertilizer, irrigation per unit of cultivated land. To be

more precise, tractor as well as other external inputs may be substituting family labor.

• Tractor rental may be also driven by motives for expanding cultivated area, but only to a

modest extent.

• Switching from draft animals to tractor rentals may make sense only if overall input

intensification becomes profitable (for example with improved varieties, improved

infrastructure). Cost savings of substituting manual work may be insufficient in inducing

tractor uses.

• Tractor rental is partly motivated by market oriented production, but subsistence production

still dominates (intensified inputs use may be financed by growing remittances). Tractor

rental may be also motivated by increased subsistence food consumption.


Summary hypotheses

Tractor ownerships in Terai

• Compared to tractor rentals, association is clearer between tractor ownership

and farm size; owning tractors make sense if 5 or more ha of land can be

cultivated per year.

• They invest into tractors because of anticipated farming revenue increases,

while remittances play little roles in this decision.

• By 2010, market accesses seem to have increasingly induced tractor

ownership.

• Aside from commercial rice production, large scale cash crops production

like sugarcane is part of the motivation for tractor ownership.

• Characteristics of tractor owners have diverged; its growth are led by growths

of both commercial farmers, as well as higher-income non-farm households

interested in using tractors in small scale


Summary hypotheses

Labor market and mechanization in Terai

• Tractor use in Terai has grown as real farm wages have risen while real

tractor rental prices have remained constant

• Growing agricultural labor market - while real wages have risen, more labors

seem to have entered ag labor market instead of remaining as family labor (which

may be reflected in the growth of landless workers), seeking employment in larger

farms / tractor renting farms. This growth in labor hiring may have been

somehow an important parallel process in growing tractor adoption.

• Rising human capital and real farm wage are, however, also observed in the

Hills and Mountains, where tractor uses have grown much more slowly.

These factors appear to affect the mechanization differently in Hills and

Mountains, compared to Terai.


Summary hypotheses

Cropping patterns and tractor rentals – generally weak linkage

• Tractor rental growth in Terai is only partly driven by the cropping pattern –

rice has remained dominant (80% of farm households have specialized in

rice or rice based production system) since 1995 despite changes in farm

sizes, and increased adoptions of tractors have nevertheless happened

despite relatively stable cropping patterns throughout this period

• Changes in tractor adoptions associated with cropping pattern changes

seem relatively small.


Summary hypotheses - additional

• There is some threshold (about 0.2 ha) of owned farmland size to

receive tractor rental service

• For agricultural growth in Terai in the short term, economies of

scale is unlikely to be the driver, but intensification per unit of land

is likely to be so; and mechanization can still play roles in the

latter


Why are these hypotheses important?


Why are these hypotheses important?

• Why … not happening?

• Leasing / renting out


• Growing pop of mini tillers (?)

• 500 => 5000 in 10 years or so for the whole of Nepal, mostly Hills


Implications to current agricultural mechanization

policy

• Is the adoption determined by key economic factors? => then, the

effects of gov’s policies for promoting mechanization may be also

bound by these factors; adoption is driven by larger forces


Middle income, small subsistence(family labor based)Cash crop (sugar cane) growers

Fertilizer-based intensifier

Intensive mechanizer

Traditional (lowland)

Intensive labor hirers

Upland based intensifiers

Traditional (upland-based), non-rice

Remoteness

Average of minutes to agric center, bank, bus stop,

cooperatives, market center, phones, paved road, shop

Education

Expenditure

per capita Remittances


% of landed farm households in Terai using tractors

and fertilizer, by operational size (ha)

0

10

20

30

40

50

60

70

80

90

100

< 0

.1

0.1

- 0

.2

0.2

- 0

.3

0.3

- 0

.5

0.5

- 1

1 -

1.5

1.5

- 2

2 -

3

3 -

4

4 -

5

5 -

10

10

- 2

0

> 2

0

Sh

are

(%

)

Total area cultivated by households annually (ha)



tractor renter + owner (2003)

tractor renter + owner (2010)

fertilizer (2003)

fertilizer (2010)

Source: Authors calculations based on NLSS.

Operational size < 0.2 ha => slow

mechanization => distinct

characteristics

Between 2003 and 2010, tractor use

has become increasingly important

for farm above 0.2 ha operational

size.

Operational size 0.2 ~ 5 ha => share

of mechanization relatively constant

across size => role of tractors

unclear


Terai household types by crops and mechanization

status (including subsistence crop production)

0% 20% 40% 60% 80% 100%

All farm households…

2003

2010

Tractor owner (1995)

2003

2010

Tractor renter

2003

2010

Draft animal

2003

2010

Non-mechanized

2003

2010

Shares (%)

Rice

Vegetables

Cash crops (sugarcane,jute, tobacco)Non citrus

Wheat

Maize

Spices

Pulses

Tuber

Oilseeds

Other grains

Rice-wheat

Rice-pulses

Rice-vegetables

Relation between crop

specialization and

tractor uses are

generally weak. This is

particularly so between

tractor renters and draft

animal only users.

Tractor ownership tend

to more specialize in

cash crops (mostly

sugarcane).

Non-mechanized

households tend to be

specializing in

vegetables.


% of tractor owners earning revenues from hiring out

Source: Authors.

57

43

Yes No

56

44

Yes No

56

44

Yes No

58

42

Yes No

2003 2010

Owning

expensive

tractors

Owning

cheaper

tractors

No change between 2003 and 2010

No difference between different types

of tractors


Per capita revenues and expenditures in Terai; by types

(median) (national average in 1995 = 100)

39 49 99 89 49 49

118 59

296

99 59 20

16899

502

128 89 59

1995 2003 2010

114 76133 101 82 70

190108

222139 101 95

190139

380

152 120 133

1995 2003 2010

Per capita revenue (deflated by cereal price) Per capita expenditures (deflated by cereal price)


• In Terai, tractor owners are becoming increasingly distinctive in characteristics

• Tractor renters are have been generally wealthier than other farm households, but in small ways


Shares (%) of farm households with access to rented

tractors or power tillers

58

4

0

4

0

0

89

5

0

10

2

0

86

10

0

9

2

4

Tractors (Terai)

Tractors (Hills)

Tractors(Mountains)

Tillers (Terai)

Tillers (Hills)

Tillers(Mountains) 2010

2003

1995

Source: Author’s estimation based on NLSS.

*Figures are the shares of communities which reported the availability of tractors, weighted

by the number of households and sample weights of the communities.

Low adoption of tractors in

the Hills and Mountains

may be partly due to the

low availability.

Availability of tillers appear

low as well across all

regions.

However, it is unclear

whether the low

availability is due to the

lack of demand.


Per capita revenues and expenditures in Terai; by types

(median) (national average in 1995 = 100)

114

76

133

101

82

70

190

108

222

139

101

95

190

139

380

152

120

133

Non-farm households

Farm households

Tractor owners

Tractor renters

Draft animal users

Non-mechanized farmhouseholds

2010 2003 1995

Per capita expenditures (deflated by cereal price)


• In Terai, tractor owners are becoming

increasingly distinctive in characteristics

• Tractor renters are have been generally wealthier

than other farm households, but in small ways


Terai household types by the largest revenue source

(including the value of subsistence crop production)

0% 20% 40% 60% 80% 100%

All households…

2003

2010

Tractor owner…

2003

2010

Tractor renter

2003

2010

Draft animal

2003

2010

Non-mechanized

2003

2010

Shares (%)

Agriculture

Livestock

Off-farm enterprise

Remittances

Other major sources

Ag + renting out oftractors / animals

Ag + remittances

Ag + off-farmenterprises

Others

By 2010, growing share

of tractor owners are

found among households

earning more than half of

revenues from off-farm

enterprise


Annual operational size (ha) by tractor use status

(figures in parentheses are mean areas owned) in Terai

Source: Authors’ calculations based on NLSS.

5

7.4 7.3

3.7

1.9 1.71.2

1.7

1.0

1.8

0.14 0.120

1

2

3

4

5

6

7

8

1995 2003 2010

Tractor owners

Tractor renters

Draft animals

Non-mechanized (Neither using tractors nor draft animals)

In Terai, tractor owners

cultivate much larger areas

on average

Tractor renters cultivate

considerably smaller areas.

However, between 2003

and 2010, difference

between tractor renters and

draft animal only users

widened (1.9 vs 1.7 to 1.7

vs 1.0).

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