By Amit Kumra, MBA Capital Markets, NMIMS
Agriculture sector is one of the major contributors to the Indian economy. It accounts for about 18% of the GDP. Though its share has been declining consistently, it is still the largest sector and plays a major role in the socio-economic development of India. India has the herculean task of managing food security of around 1 billion people which necessitates the use of modern farming techniques, use of quality pesticides and high yielding variety of seeds. It is estimated that India on an average losses 18% of the crop yield at Rs 900 crore due to pest attack each year.
In India the pesticide industry is fragmented with 30-40 large manufacturers and around 400 formulators. The per hectare consumption of pesticides in India is very low at 381 grams as compared to world average of 500 grams which can be attributed to lowlevel of irrigation, dependence on monsoons, low awareness among farmers about the benefits of usage of pesticides and fragmented land holdings.
The demand for pesticides can be augmented only through sustainable growth in agriculture. With the government’s focus ondevelopment of the agriculture sector, the industry may see a better future. The Indian pesticide industry is also likely to move towardsthe global product mix, with an increase in the use of herbicides and fungicides. Exports will continue to remain the growth driver.
Agrochemical Sector:
The Indian Agrichemical Industry was estimated at around US$1 billion i.e. Rs5,000 crore at the end of FY2009. In FY2009, overall industry witnessed marginal volume decline, but saw a price increase of 10-12%.
Agrochemicals (Pesticides) are chemicals such as fertilizers, hormones, fungicides or insecticides that improve the production of crops. Agrochemicals can be classified as Insecticides, Herbicides and Fungicides. India is one of the largest producers of pesticides in South East Asia. The consumption of insecticides accounts for about 70% of the total consumption of pesticides. Fungicides constitute around 17% while herbicides account for 12% of the total consumption.
Herbicides:
Thelargest herbicidegloballyisGlyphosate, aherbicidewidelyused to kill unwanted plants both in agriculture and non-agricultural landscapes, which is the singlelargest product consumed globallyin the pesticidesegment. Thedemand ofthis product has grown consistently and significantly as it is consumed for most genetically modified crops and also for crops like Maize which are being used as bio-fuels as per the recently introduced energy policy of the USA.
Fungicides:
In fungicides, Mancozeb is the largest selling product, contributing over 35 percent of therevenuewith globalmarketsizeof$500million.Thecompanyhasrecentlyexpanded its Mancozeb capacity to 30,000 MT which has potential to deliver $125 million of revenueat fullcapacity.
Insecticides:
In the insecticide sector, one of the largest molecules globally is Chlorpyriphos. The demand for this product has increased globally, as some older molecules have been discontinued / replaced with Chlorpyriphos.
Key Players:
Agrochemical producers can be either innovators or generic manufacturers. Generic manufacturers operate in the off patented market, their key strengths being low cost manufacturing and strong distribution. Innovators are original patent holders with strong focus on R&D.
Innovators:
The top six R&D based innovators – Bayer Cropscience, Syngenta,BASF,Monsanto, Dow Chemicals and Dupont -- now command approximately 80% ofthe global agrichemicals market. Innovators enjoy higher margins since they are able tocharge premium prices for their products.
Generics Manufacturers:
These companies are not directly involved in high end R&Dto find new active ingredients (AI). Generics producers manufacture products that havegone off patent. Innovators in recent timeshave tended to outsource production of generics to low cost destinations such as India.
Challenges for agrochemical industry:
1.Low penetration of pesticides:
Estimated size of the Indian economy is US $1 trillion of which Agriculture accounts for 18%. The Agrochemical industry's size is estimated at US$1bn (Rs 5,000 crore) i.e. 0.1% of the countries total GDP and 0.6% of Agriculture GDP. Meanwhile, the subsidy burden of urea for FY2009 is estimated at US$21.2 billion or 2% of the total GDP and 12% of agriculture GDP. We believe this demonstrate the gross under penetration of agrochemical and the opportunity that is available to the companies in the Sector.
2. Biotechseeds threat to agrochemicals:
Scientific research has come up with seeds that have self-immunity towards natural adversaries. This can be a potential threat to the business of agrochemicals. Best example of such an introduction in the Indian market is "Bt Cotton", which resulted in a decline in the consumption of agrochemicals by cotton crop. However, off late there have been few reports of Bt Cotton unable to develop immunity towards new type of pests.
3. Patent expiry of molecules:
Agrochemicals are protected by patents to encourage innovation similar to the PharmaceuticalIndustry. Going ahead, many molecules are likely to go off patent throwing the market open forgeneric players. As per estimates, total likely available opportunity through patent expiry stands at US
Outlook:
The future prospects of agrochemical industry looks promising on account of the increasing need to protect farm produce from pests, higher affordability of farmer and lucrative farm produce prices. The growing varieties of various diseases, pests and their growing resistance will keep the demand for new products upbeat. The agrochemical industry offers enough scope for growth for both generic manufacturers and innovators. In order to keep pace with the growing needs of population and ensure food security, the world is moving towards Genetically Modified (GM) crops to enhance the yield. So we can say that there is huge demand unfolding for products such as insecticides, fungicides and pesticides.
About the author
Amit Kumra is a 1st year MBA student at NMIMS, Mumbai. He holds a bachelor’s degree Computer engineering from Bharathi Vidyapith University and can be reached at akumraster@gmail.com
