89611591 dealers perception

7/29/2019 89611591 Dealers Perception

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Agrochemical Industry

Agrochemicals also known as Pesticides are substance or mixture of substances that are usedtoavert, destroy or control any kind of pests or unwanted type of plants or animals that cause

harm tocrops or hampers the normal growth process of a crop. As per a Government of India

estimate of 2002, value of crop losses caused due to non-usage of pesticides was around Rs

90,000 crore.Thereon, assuming losses grew at an average 2%, total losses would have amountedto Rs 101,355crore in FY2009, a staggering 2.2% of India's GDP

With the global demand for food increasing at a rapid pace led by arising population andhigherliving standards in developing nations, agro-commodity prices are considerably higher

compared totheir historical standards. Matters have been compounded by a shortage of area

under cultivationleading to greater thrust on yield improvement.The need to increase crop yieldsto meet the ever growing food demand has put the agrochemicalindustry into a sweet spot.

According to the estimates, during the next 20 years, the world'spopulation will rise from 6.3bn

to more than 8bn, leading to a 50% increase in demand for food and50% increase in demand for

energy. Demand growth will also be compounded by peoples' demandfor higher standards of

living. Furthermore, land under cultivation is facing pressure in the wake of rapid urbanization,erosion, etc.

INTRODUCTION

Agriculture occupies a dominant position in Indias economic structure.The success of the Green

Revolution enabled the country to achieve selfsufficiency in foodgrains production. The

demand for foodgrains is expected to increase significantly to 212mn metric tonnes in FY2001

from the current production of 203mn metric tonnes in FY99. Record production of food grains

has been possible primarily on account of various inputs used in agriculture namely seeds,

fertilizers and pesticides.

In India, only 36% of the area under cultivation is under pest protection which offers huge

opportunity to enhance volumes. The industry is cyclical in nature with peak months being July

to November. The industry is skewed in terms of consumption patterns regarding the crop usage.

Cotton crop alone accounts for 40-50% of the pesticide consumption in India while other main

crops using pesticides are rice, vegetables, and tea. The consumption is totally skewed in favour

of Andhra Pradesh, Karnataka and Punjab..

Importance of agrochemicals


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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 per 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.

Basic usage and types

Pesticides are essential inputs used for increasing agricultural production by preventing loss to

crops before harvesting or post harvesting. The different types of pesticides are insecticides,

fungicides, herbicides, rodenticides, nemanticides etc and are derived from chemicals.

Pesticides can be classified into two type namely technical grades and formulations. Technical

grades exist at the first stage of manufacturing process and generally consist of highly toxic and

hazardous liquids. They are in technical parlance defined as products with high chemical purity.

Whereas further processing of technicals with emulsifiers and other agents (sometimes referred

to as active ingredients) results in next stage namely formulations. Formulations are tailor-made

for diverse applications on insect-pest spectra, plant diseases, weeds etc.

BROAD CATEGORIES

Broad categorization of the pesticides industry

The industry is broadly classified into different segments like insecticides, fungicides and

herbicides and the main products and their use is given below as follows:

Nature Major Products Purpose

Insecticides Monocrotophos, Phosphamidon,

Parathion, Endosulphan,Quinalphos

To kill insects

Fungicides Copper Oxychloride, Nickel

Chloride, Mancozeb

To eliminate fungus

Herbicides/ Weedicides Anilphos, Pendimethalin,Paraquat, To remove unwanted plants/


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Naropamide weeds

Nemanticides/

Rodenticides/ Fumigants

Zinc Phosphide, Aluminum

Phosphide

To kill pests in plant roots and

to eliminate rodents

Insecticides are the largest product sector contributing to 75% of the total market.Currently around 129 insecticides are approved for use on crops. The key crop outlets for

insecticides are cotton and rice, which account for 48% and 28% respectively of the total value

of insecticide sales. Monocrotophos, Chlorpyrifos, Quinalphos, Endosulfan, Cypermethrin and

Fenvalerate are overall leaders.

Consumption pattern of the Indian pesticides industry compared with global consumption

patterns

The consumption of pesticides in international and domestic areas among broad categories is

given below:

Nature Global share (%) Local Share (%)

Insecticides 29 76

Fungicides 17 13

Herbicides 48 10

Others 6 1

HISTORY AND STRUCTURE OF THE AGROCHEMICALS MARKET

Pesticides were initially used in India by importing DDT for malaria control and BHC for locust

control in 1948. The first use of pesticides in agriculture began in 1949. Indigenous production

of pesticides began with the establishment of DDT and BHC plant in 1954. By 1958 India was

manufacturing five basic pesticides having production of over 5000 MT. Thereafter the industry


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has witnessed a steady progress reaching a production volume of 60000 MT per annum in mid

eighties. Till recently, bulk of the production had been of insecticides but now production of

fungicides and herbicides is also increasing.

Today India is the largest manufacturer of basic pesticide chemicals among the South Asian and

African countries next only to Japan. Currently 145 pesticides have been registered in the

country of which 85 technical grade pesticides are manufactured in the country.

The total production of technical pesticides for the financial year 98-99 was estimated at 84700

MT tonnes against the installed capacity of 110.2mn ton by the Department of chemicals and

fertilizers. Even though India has a large capacity in volume terms it accounts for less than 2.5%

of the world markets in monetary terms. India along with China accounts for more than 10% of

the total world production. However, consumption has been low at 600gm compared to

10,000gm per hectare in the developed world. The low consumption and usage of pesticides in

the country arises on account of poor awareness levels, economic status of farmers and low

proportion of cropped area under irrigation coverage.

India is currently the largest manufacturer of pesticides in Asia and is among the top 10

producers in the world. The Indian agrochemical industry is a Rs30bn industrywith 15-20% of

the output being exported. Indian pesticides products are now exported to USA, France, UK, and

CIS besides a number of countries in South America, Asia, Africa and Australia.

Operating margins of Indian companies are higher than MNCs by 2-3% because of higher level

of integration. Higher administration and interest expenditure means that net profit margins of

players operating in this industry are quite low at 4% to 5%.

INDUSTRY CHARACTERISTICS

The agrochemical industry has the following characteristics:

1. Monsoon dependent: The Indian agriculture is still dependent on the monsoon andconsequently the prospects of the industry are affected by the trends in rainfall received

in different parts of the country every year. The maximum demand for pesticides usage


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takes place in the month of July to September period. Thus the prospects of the players in

the crop protection business are subject to vagaries of the monsoon and seasonal demand.

2. Generic nature:Currently more than 70% of molecules are off patent and hence there isno threat to Indian players with respect to patent regime. However with the discovery of

new proprietary molecules and entry of multinational players with strong research and

development capabilities, many new patented products will be launched in the country.

3. Limited investments in research and development: Since there have been very fewproprietary products and poor patent protection in the country, this industry has seen low

investments in research and development.

4. Environmental regulations: India has comparatively less stringent environmentalprotection regulations and has consequently become a preferred manufacturing base for

many multinational players in the Asia Pacific region. Currently Agrevo (now Aventis)

and Bayer (India) act as a global sourcing base.

5. Small scale of operations: There are very few Indian players with a global scale in termsof size of operations, facilities, laboratories, etc. In fact the Indian operations are

undertaken on a small scale and cater to generic products compared to MNCs whose

operations are on a large scale with focus on specialty products.

6. High working capital: The agrochemical industry requires high working capital due to itsseasonal nature and long credit period given to farmers. Thus high inventories during off

season period and high receivables during poor monsoon puts further pressure on the

working capital requirements.

CRITICAL SUCCESS FACTORS FOR THE INDUSTRY


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The Indian industry comprises basic manufacturers, formulators, importers, distributors and

dealers both in the public and private sector. The players include both large scale multinationals

and Indian companies besides medium and small scale companies. The total current investment

is about Rs15bn. The following are the critical success factors for the industry:

Promotion and farmers' education play a big role and are usually carried out by theplayers in the industry.

Marketing has to be very localized, as the country has different production profile indifferent parts of the country. Secondly it has to be very aggressive in some areas

compared to others as the penetration levels vary substantially from area to area.

Any company has to constantly endeavor to improve its existing products and developnew ones in tandem with the consumers needs, as the crops develop resistance to the

existing pesticides during various cycles. To a large extent, environmental factors also

determine the life cycle of the products. The industry is increasingly manufacturing high

value, low volume and environmentally friendly niche products.

MANUFACTURING PROCESS AND TECHNOLOGY

Raw material and labor are the major cost elements (constitute about 60%-65% of sales).

Production is manpower intensive and batch processes are employed for production of thepesticides. Product obsolescence is a common phenomenon in this industry.

Lack of patent protection in India makes multinationals wary of the Indian markets. The quality

of indigenous pesticides is poor, resulting in the imports of the next generation of molecules.

This has also restricted the presence of the multinationals to 40% of the market share. Organised

players have to incur significant expenditure on selling and distribution on educating the farmers

and reaching interior parts of the country.

EXCISE AND CUSTOM DUTIES

Excise duties

Pesticides had remained exempt from excise duty for decades. However in 94-95 budget a 10

percent excise duty was levied which was further reduced to a concessional duty of eight per cent

in the 97-98 budget.


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Ratna Packaging Pvt. Ltd.

Aurobindo Pharma Limited(EOU) ALPLA India Pvt Ltd (Yodeva Plastics Pvt Ltd)(100% EOU) Hilton Tobaccos Pvt Ltd (100% EOU)

Dart Manufacturing India (p) Ltd Sumitomo Chemical India Pvt Ltd Usha International ltd Yash International(Crompton Greaves) RCC Sales Pvt Ltd

Ratna Agro Chemicals Pvt. Ltd.

markets product through direct marketing with around 700 dealers/distributors through out

Andhra Pradesh and north Karnataka with five distributor points.

89611591 dealers perception

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