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INDUSTRY PROFILE
Agrochemical is a term used to refer to a wide range of products of pesticides including chemical fertilizers, insecticides, herbicides, fungicides and nematicides. It may also include chemical growth agents, hormones, synthetic fertilizers, and concentrated stores of raw animal manures. The Indian Agrochemical industry is facing pressure to increase the per hectare yield due to volatility in demand of food grains, decreasing trend of cultivation across the country, pest attacks, and other uncontrollable factors. The Indian crop protection market growth is expected to be at 12% p.a. by 2017.
As the Agrochemical industry consists of insecticides, herbicides, fungicides and others, the major percentage is dominated by insecticides (65%) while herbicides consists of 16%, followed by fungicides and nematicides at 15% and 4% respectively. This pattern of consumption in Indian market is different from that of the global markets where globally the crop protection market is dominated by herbicides (44%), then comes fungicides (27%), while insecticides at 22% and nematicides at 7%. This shows the decrease in the usage of insecticides globally though there is an increase in the usage of genetically modified crops.
Factors driving growth
The Indian agrochemicals market is largely driven by strong growth drivers such as:
• Tremendous opportunities for domestic as well as global products in the Indian market as there is a very low consumption of crop protection products, 0.6 kg/ha compared to global average of 3 kg/ha.
• Opportunity exists for MNCs to establish production facilities in Indian market to cater to demands of export markets as cheap labour is available along with smaller processing cost.
• The availability of large technically skilled manpower in India facilitates opportunity for research, while contract manufacturing is another area where the Indian players can foresee a huge opportunity.
• The consumption of insecticides in the Indian market is driven by the production of crops such as sugarcane, cotton, cereals, paddy and others. The tropical climatic conditions are another major driver contributing to the growth.
• Herbicides consumption in Indian market will see an increasing trend in the present future since the farm labour is proving to be too costly and its availability is also facing difficulties. The low consumption of herbicides in India can be attributed to cheap labor for manual weed picking.
• The usage of Agro-chemicals world-wide is to ensure timely protection of crops and livestock. Crops are protected by timely application of fertilizers which produces good yield and also the usage of pesticides ensures protection from diseases caused by insects. Veterinary treatments such as vaccination, immersion dipping or oral dosing are used to protect the animals and live stock from diseases caused by bacteria, parasites and other viruses.
• Certain agro-chemicals are exceptionally hazardous to the health of workers, the general public & the environment. If proper precautions are followed they can be used safely. However the major obstacle in achieving safe working conditions is the extensive geographical spread of agricultural workers, who are often considered self employed.
IMPORTANCE OF AGROCHEMICALS
Agrochemicals form the largest and the most diverse group of chemical compounds. Popularly referred to as pesticides they are mainly used for plant protection and improving crop yields. Every year nearly 30% of the potential of food production valued Rs 150bn are lost due to insects, pests, plant pathogens, weeds, rodents, and birds and in storage. Hence the use of pesticides has become extremely necessary. Besides given the large growing population and scarcity of land available for cultivation, pesticides industry has a vital role to play in the agricultural sector.
USES AND APPLICATION
Important uses and application of Agro- chemicals are as follows:
Pesticides
The word "pesticide" describes a group of agro-chemicals intended to destroy or control pests of all kinds. These are named according to their intended use. For example insecticides are used against insects, herbicides against weed plants and fungicides against fungi, rodenticides against rodents etc.
Commodity chemicals
These are the substances which are manufactured for use in either agriculture or other industries. They may also include by-products of an industrial process or even industrial waste such as dilute caustic or acidic solutions. These substances are generally used in farming and have corrosive action on exposed parts of the human body.
On-farm veterinary products
These are the substances used in the rearing of animals. They can be applied to the skin, or administered orally or by injection by agricultural workers.
Fertilizers
These are the plant nutrients and trace elements applied generally to the soil to promote the growth of crops. Some of them can cause irritation or bums to the skin.
Preservatives
Preservatives are those agro-chemicals that are used for preserving agricultural products either fresh or in processed forms.
OUTLOOK OF PESTICIDE CONSUMPTION IN INDIA
Modern agriculture depends on the four main factors viz: water, fertilizers, seed and pesticides. Pesticides are the integral part of modern agriculture. About 35-45 % crop production is lost due to insects, weeds and diseases, while 35% crop produces are lost during storage. Indian Agrochemical Industry size in estimated to be US$ 3.8 billion in year 2012. Over the 12th plan period, the segment is expected to grow at 12-13% per annum to reach 7.0 billion. The Indian domestic demand is growing at the rate of 8-9% and export demand at 15-16%.
The per capita consumption of pesticides in India is 0.6 Kg/ha which is the lowest in the world. The per capita pesticide consumption in China and USA is 13 Kg/ha and 7 Kg/ha, respectively. The main reason for low per capita consumption of pesticides in India is low purchasing power of farmers and small land holdings. The majority of agricultural farm land belongs to Marginal farmers but maximum contribution to the produce is also from marginal farmers. The large scale farming is increasing and therefore, there is good scope for increase of per capita consumption of pesticides in India.
Government planning Rs50,000 Cr for fertilizer plants
The government of India will be investing Rs.50,000 crore to revive four fertilizer plants and set up two new plants to produce farm nutrients. The four plants which will be revived under the plan are located in Talcher in Odisha, Ramagundam in Telangana, Gorakhpur in Uttar Pradesh and Barauni in Bihar. In the recent union budget, finance minister Arun Jaitley had announced Rs.10,000 crore for setting up a national gas grid. These fertilizer plants will be supplied gas through the grid. The Talcher plant revival would cost the government around Rs.9,000 crore while the Ramagundam plant revival would need an investment of Rs.6,000 crore.
The government will also set up two 1.2 million tonnes per annum (MTPA) green field fertilizer plants in the states of Madhya Pradesh and Karnataka. The green field plants will need an investment of Rs.5,000 to Rs.6,000 crore each. In addition, the government is also in talks with the government of Iran to set up 1.2 MTPA Urea plant in Iran on the lines of India’s joint venture (JV) with Oman. Government also announced that India’s first reverse special economic zone (SEZ) will be set up in Iran. The reverse SEZ will be for the manufacture and supply of chemicals feedstock to India. India is also contemplating setting up such reverse SEZs in Myanmar and Mozambique.
CHALLENGES
• Despite the strong growth drivers, Indian agrochemicals industry faces challenges in terms of low awareness among farmers (only 25-30% of the farmers are aware of agrochemical products and their usage). With large number of end users spread across the geography, managing inventory & distribution costs is a challenge for the industry players. Apart from this, as per feedback from leading industry players, rising sale of spurious pesticides and spiked bio-pesticides pose a major threat to industry growth.
• High R&D costs since R&D to develop a new agrochemical molecule takes an average of 9 years and approx USD 180 Mn Indian companies typically have not focused on developing newer molecules and will face challenges in building these capabilities, while continuing to remain cost competitive.
• Genetically modified seeds possess self-immunity towards natural adversaries which have the potential to negatively impact the business of agrochemicals. Since, the number of end users is large and widespread, effective distribution via retailers is essential to ensure product availability. Lately, companies have been directly dealing with retailers by cutting the distributor from the value chain thereby reducing distribution costs, educating retailers on product usage and offering competitive prices to farmers.
• Support for Integrated Pest Management (IPM) & rising demand for organic farming.
• Effectiveness of current supply chain management (SCM) practices in agrochemicals is another area of concern for the industry. Companies face issues due to seasonal nature of demand, unpredictability of pest attacks and high dependence on monsoons. Month end skews and high inventory across the channel is a perennial problem for the industry.
KEY OPPORTUNITIES
1. Scope for increase in usage: With ~35-40% of the total farmland under crop protection, there is a significant un-served market to tap into. By educating farmers and conducting special training programmes regarding the need to use agrochemicals, Indian companies can hope to increase pesticide consumption.
2. Huge export potential: The excess production capacity is a perfect opportunity to increase exports by utilizing India’s low cost producer status.
3. Patent expiry: Between 2009 and 2014 many molecules are likely to go off patent throwing the market open for generic players. The total viable opportunity through patent expiry is estimated at over USD 3 Bn.
4. Product portfolio expansion:
Threats like genetically modified seeds, Integrated Pest Management, organic farming etc. can be turned into opportunities if the industry re-orients itself to better address the needs of its consumers and broadens its product offering to include a range of Agri-inputs instead of only agrochemicals.
GROWTH IMPERATIVES
• Going forward, the industry needs simplified registration norms for pesticides exports and increased scope of regulations to include all types of pesticides (including biopesticides). For effective regulatory policy, government and industry players need to work together to keep up the growth momentum. Regulators need to increase their inspection staff to ensure regular checks to contain the growth of spurious products.
• There is also a need to encourage R&D and ease registration process for development of new molecules. Large MNCs can look at strategic alliances with Indian counterparts to increase their marketing and distribution reach or expand into newer product categories. Smaller Indian companies can look at tie-ups with MNCs to explore opportunities in contract research and manufacturing.
• Companies also need to relook at strengthening their SCM strategies to improve their distribution reach. Certain progressive companies in the industry have adopted new innovative practices and are setting new benchmarks in supply chain performance which can be followed by other players as well.