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Executive Summary
The sheer size of Indian agriculture has attracted virtually every multinational
company from all over the world to come to India and tap its potential. However
despite its huge potential, the actual usage of agrochemical products in India is
lowest in the world. Uneducated farmers with small plots of land, erratic nature
of rainfall, primitive methods of farming, unreasonable land lease, rentals, etc.
have all contributed to the slow progress of the Agrochemicals Industry in India.
Despite this gloomy picture, there are also a large number of rich and prosperous
farmers whose agricultural practices match up with the best anywhere in the
world.
Agrochemicals usage is restricted to only 1/3rd of the cultivated land in India,
which represent the prosperous farms. Hence, despite the low coverage of
agrochemicals products, India is today the 14th largest market estimates at
Rs.2700 crores in the year 1999.
Agrochemicals play an important role in increasing agricultural production as
they protect crops from insects, pests, plant diseases and weeds before harvesting
and post harvesting. Initially manufactured as technical grade products they are
subsequently converted into formulations for agricultural use.
The industry is generic in nature as nearly 70% of the molecules are off patent.
Among off patent products, wide distribution network, strong brand image and
superior product quality act as entry barriers. Environmental concerns have
resulted in high regulation for the agrochemical industry making prior
registration for a large number of products mandatory.
The production process is essentially conversion job with raw materials, power
and labor acting as the major cost elements. The industry is working capital
intensive as the players give long credit periods to the farmers due to their poor
economic status.
Pesticides attract excise duty of 16%whereas other agricultural inputs like seeds
and fertilizers are exempt from levy of duties. Both technical grade pesticides and
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implements are charged a maximum customs duty of 35% rate that makes it
expensive to manufacture pesticides based on imported intermediaries.
The size of the global agrochemical market was placed at US $32.4bn in 1999 and
is likely to grow at 5% per annum. The global consumption is skewed in favour of
herbicides that account for nearly 48% of the pesticides usage. Manufacturers in
developed countries are advocating safer means of pesticides application and
shifting towards biotechnology to increase crop yield.
India is the second largest manufacturer of basic agrochemicals in Asia with 145
pesticides registered in the country. Even though India has a large capacity in
volume terms it accounts for less than 2.5% of the world markets in value terms.
Consumption is also low in India at 600gm compared to 10000gm per hectare in
developed countries. Insecticides account for nearly 76% while herbicides
account for only 10% of the pesticides usage in India.
The Indian agrochemical market is at Rs30bn in 1998-99. The industry has a
total current investment of Rs 15bn comprising 80players in the organized sector
and more than 500 players in the small-scale sector. Nearly 125 producers are
engaged in manufacturing technicals while 500 units are engaged in making
pesticides formulations. In terms of production capabilities, Indian players are
highly integrated and have already made inroads in the export markets.
Multinationals have expressed concerns over launching new products in India
because of insufficient patent protection.
Pesticides demand is expected to improve to90000 MT tonnes in FY2000 from
86600 MT in FY1999. The peculiar feature of this sector is that the consumption
is skewed in favor of a few cash crops. The geographical spread of usage is also
restricted to a few states like Andhra Pradesh, where the consumption profile
matches that of the developed countries.
The agrochemical industry is highly dependent on monsoon and consumption is
skewed in favour of Kharif crops with maximum use of pesticides in July to
September period. In India the industry is almost similar to commodity industry,
therefore the players have little pricing power. In the current year the industry is
suffering from over capacity and poor offtake due to erratic monsoons and lower
acreage. The industry has witnessed intense price competition from unorganized
players that has severely affected the margins of organized players. The last two
years have seen a single digit growth rate compared to 14% growth per annum
recorded earlier.
In future the industry is expected to witness higher consolidation as several
players are trying to exit due to poor profitability and bad market conditions. The
government regulations and ban on certain pesticides has encouraged research
and development to identify new and effective products that are safe for the
environment. Also, new patent regime with emphasis on patent protection and
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The demand for food grains 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.
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.
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’re in technical parlance defined as products with high
chemical purity. Whereas further processing of technicals with emulsifiers and
other agents (sometimes referred to as excipients) result in next stage namely
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Insecticides 29 76
Fungicides 17 13
Herbicides 48 10
Others 6 1
Source: Allan Woodburn 1998 for global market share, Pesticides Association of
India
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Global Scenario
The size of the global agrochemical market for year 1999 was about US $32.4bn
and it is expected to grow at the rate of 5% per annum in future.
Within this market the global generics market is worth $24bn accounting for
80% of the total size of the market. The patented product market size is about
$6bn. It is expected that by 2000 the size of the generic agrochemical market will
have increased to $27bn and will account for 70% of the total global agrochemical
market.
The following table shows the usage of agrochemicals among the different regions
across the world:
North America 30
Western Europe 25
Far East 23
Latin America 12
Rest 10
Novartis 5.7
Aventis 5.7
Monsanto 5.6
Bayer 3.9
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The top producers in crop production across different countries in terms of yield
is given below:
Source: CMIE
International Scenario
Currently developed countries are shifting towards precision agriculture.
Manufacturers in these countries are currently laying emphasis on safer means of
pesticides application to overcome harmful effects on human beings. Besides
many players are shifting to biotechnology to increase crop yield and reduce
usage of crop protection chemicals.
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Industry Characteristics
The agrochemical industry has the following characteristics:
• Monsoon dependent: The Indian agriculture is still dependent on the
monsoon and consequently 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 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.
• Crop-wise and State-wise imbalance: The pesticides usage is highly
skewed in favour of kharif crops and certain states. Rice and Cotton
account for nearly 50% of pesticides usage. Among the states Andhra
Pradesh, Karnataka and Punjab account for nearly 60 percent of total
pesticides market.
• Generic nature: Currently more than 70% of molecules are off patent
and hence there is no 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.
• Limited investments in research and development: Since there
have been very few proprietary products and poor patent protection in the
country, this industry has seen low investments in research and
development.
• Environmental regulations: India has comparatively less stringent
environmental protection 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.
• Small scale of operations: There are very few Indian players with a
global scale in terms of 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.
• High working capital: The agrochemical industry requires high
working capital due to its seasonal nature and long credit period given to
farmers. Thus high inventories during off-season period and high
receivables during poor monsoon put further pressure on the working
capital requirements.
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The industry needs to adopt the innovation route, which has seen a company like
Gharda Chemicals capture market from renowned multinationals like Aventis
and Ciba-Geigy, by making products not only more efficiently and economically
but also by safer methods. Gharda’s innovative approach of producing
isoproturon using urea instead of toxic phosgene has yielded rich dividends for
the company. There is no reason why other manufacturers cannot adopt this
route.
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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.
Thus Indian pesticides industry had differential rates of excise duties for
technicals and formulations in 1998-99. Technical grade pesticides attracted a
higher 16 per cent duty while formulations were subject to a lower duty of 8 per
cent. Thus there existed disparity, which resulted in technical-grade
manufacturers not able to fully claim modvat credit. This anomaly has now been
rectified with increase in the excise duty on the formulations to 16% in the budget
for FY 2000.
Currently there exists anomalous excise duty structure as excise duty is levied on
pesticides while other agricultural inputs like seeds, fertilizers, micro nutrients
continue to be exempt from levy of any kind of duties.
Custom Duties
Technical grade pesticides currently attract maximum ceiling rate of 35%
advalorem custom duty along with imposition of 10%surcharge. They are also
subject to special additional duty (SAD) of 4% with the result that effective rate of
duty on pesticides works out to 44.9%. Besides pesticides intermediaries also
attract a similar rate of duties. Consequently it is expensive to manufacture
pesticides by importing intermediaries from abroad. Thus most of the domestic
consumption is based on supplies made by local manufacturers.
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Production Consumption
Year (000
Tonnes) (000 Tonnes)
1990-91 74 53
1991-92 72 58
1992-93 76 63
1993-94 83 68
1994-95 90 75
1995-96 96 89
1996-97 102 72
1997-98 96 83
1998-99 (P) 98 86
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Production
Production ('000 MT)
Product Installed 92 - 93 - 94 - 95 - 96 - 97 - 98 -
Capacity 93 94 95 96 97 98 99
Technical grade pesticides have been growing at the rate of 10% in the last few
years.
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Cotton- Accounts for 45% of all pesticides used in India, making it the single
most important crop market in India. Irrespective of where it’s grown, cotton
attracts several insects throughout its life. On account of severity of insect
pressure virtually every product category finds its use including Organochlorines,
OP’s, Carbamates and Pyrethriods. However, of late pests have developed
resistance to the traditional compounds and farmers have lost heavily on account
of reduced yields. There was a distinct danger of farmers opting of cotton
cultivation due to the pests menace.
Fortunately some multinationals companies introduced new products with
remarkable success such as Imidacloprid, Acetamiprid, Larvin and Avaunt. With
the introduction of these products, cotton cultivation has once again become an
attractive proposition to the farmer.
Such new products, which are patented, are generally expensive as compared to
older generic molecules. Hence the new farmer is judicious combination of old
and new products to maintain its profitability.
Rice- is the second largest consumer of pesticides in India, accounting for 22% of
all pesticides in India. Rice crop needs to be protected from weeds, diseases and a
whole host of insects, which attack the roots, stem, wheat and grain.
Consequently the demand for insecticides, fungicides and herbicides is more
balances in rice as compare to cotton. Of late, certain pests have become
extremely difficult to control such as BPH, leaf roller, sheath blight and blast.
Fortunately recent introduction of new molecules such as Hexaconazole,
Tricyclozole, Validamycin and Imidacloprid helped control this menace and
paddy yields have shown remarkable improvement.
Other crops- India grows over 100 different crops for food and non-food
purposes, and each crop provides a niche market for one specific product or the
other.
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Imports
Developing a new product is an extremely expensive proposition on India and is
confined to large multinationals in India. As and when a new product finds a fit
in controlling a specific pest in India, the concerned multinationals go through
the process of registering and importing the new molecule into India. Hence
products that are imported are generally new sophisticated molecules, which are
not manufactured in India.
Exports
During 1999, Indian exports of agrochemicals reached Rs. 1500 crores, a steep
climb from Rs.64 crores exports during the year 1989. Hence in the field of
agrochemicals trade India has a healthy surplus on account of abundant and easy
availability of high quality and low cost raw materials and intermediates. The
high quality of Indian products such as cypermethrin, chlorpyriphos and
endosulfan gave India a distinct edge over China. On account of the huge
potential for agrochemicals abroad several Indian manufacturers set up large
capacities in India, anticipating that very soon domestic demand would justify
the same. However, the growth was slower than expected.
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Japan 1113
USA 43
Brazil 26
China 6
India 3
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The following table illustrates the decline in the cultivation of land available for a
person in (hectares) as follows:
1991 0.330
2025 0.200
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In future the firms will have to set up integrated world class manufacturing
facilities employing state of the art process and technologies developed through
in-house research and development to survive in the fiercely competitive market.
Besides companies will have to provide superior quality products at cheaper
prices with complementary services and build a strong customer franchise
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Marketing strategy
Syngenta has also moulded its strategy to suit the Indian market. Being a MNC it
has to take special measures to cater to its Indian consumers.
We will take a look at the marketing strategy of Syngenta based on the 4 P’s of
marketing, namely, Product, Price, Place (distribution) and Promotion.
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PRODUCT
At Syngenta its their constant endeavour to provide the farmers with the best
product. Their product-line consists of premium-end products the list of which is
given below.
Syngenta continuously meets the demand of the farmers by adding new products,
changing existing ones and eliminating others. The ideas for development of new
products or modification in existing products come from the feedback received
from the farmers and also sometimes dealers. Syngenta has a huge network of
field-workers who practically go into the farms to find solutions to recurrent as
well as new problems related to crop protection and collect feedback.
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PRICE
The products offered by Syngenta are premium end products and hence are
priced slightly higher. But their product range consists of the best that is there to
be offered in the market due to their immense R&D activities and emphasis on
technology. The farmers too believe in the quality of their products and price
comes secondary to such quality products.
Company Salesperson
Dealer/Retailer
Farmer
They have strict policies when it comes to offering credit to middlemen. Since the
company salespersons are in very close contact with the farmers they can offer
timely supply of their products.
PROMOTION
Their target audiences are the farmers and also opinion leaders like village chiefs
or teachers (as they are educated). They also target influencers like the
Department of Agriculture to help promote their product.
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They use media like “direct mailers” to inform the farmers about their
products and schemes, which, helps in creating a good rapport with the farmers
and they distinguish Syngenta from rest of the companies.
Press or print media is used very judiciously since many of the farmers are
not educated. For print advertising popular regional newspapers or trade
journals are used.
For television advertising regional television is used extensively and the most
preferred channel is Doordarshan since the reach of Cable television is
minimal. Programmes like “aamchi maati, aamchi mansa” which are
targeted towards farmers are used for advertising.
Radio is a very essential media since it has a wide reach. Audio advertising is
also done through vehicles, which announce the product and its features by way
of catchy phrases.
Films and slides are another very effective way of marketing. They are
screened at village theatres or at farmer meetings specially organized to inform
them about the product. The films are either educational where only the product
story is told or they may be theme based like a feature film wherein the product
story is told through dramatization of a theme which appeals to the farmer.
Other media used are wall paintings, hoardings and point of purchase
media like posters and danglers.
Public relations
This element is used to build preferences and awareness among the farmers. This
is done through trade fairs, sponsorship of events, public service activities. For
instance Syngenta is involved in a project called “Project Sahyog” to help
farmers cultivating rice. It also organizes lot of training programmes to create
awareness and train the farmers about modern farming techniques and use of
High Yielding Varieties.
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Conclusion
The end consumer demands more quantity, better quality and wide variety of
products. To deliver the same companies will have to provide better seeds, offer
better farm management techniques using new and greater variety of pesticides
that will enable higher crop production with greater crop protection.
Thus future growth of this industry will be driven by companies providing farm
solutions that will cover the entire gamut of food supply chain management
beginning from crop production till the stage of crop protection. This will
basically involve understanding farmers’ needs by setting up in house
technologies to increase yields. Besides control over major inputs and setting up
efficient distribution services with adoption of international practices relating to
crop management will enable Indian agrochemicals sector companies to meet the
global challenges.
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