Multinationals' Growing Investment Booms India's Agrochem Industry

Agriculture is the pillar industry of Indian economy, approximately 60% of the nation’s population live directly or indirectly on agriculture. India’s agriculture relies very much on monsoons and only 40% of the cultivated area is irrigated.The productivity of irrigated land is almost double than the dry land. India has one of the highest acreages of agricultural land in world totaling to 160 million hectares, which however still causes a challenge to India to secure food supply to a population of 1.2 billion.

India’s agrochemical industry primarily encompasses production and marketing of generic pesticide, where 80% of pesticides in the market is generic product. Due to the low-cost production and high-level practitioners, India is one of the countries who are able to produce high-quality pesticide at low cost. India’s agrochemical market grew significantly in 2013 to have reached turnover of $5.1 billion, 34% up year on year. Rice is the staple crop in India which consumes largest amount of pesticide, accounting for around 35% of the total pesticide consumption, followed by cotton consuming 30%. Based on the calculation of market value, 65% of India’s pesticide market was contributed by insecticides being used mainly for rice and cotton. Herbicide contributed to 16%, being used mainly for rice and wheat. Due to the continued increase of labor cost, herbicide sales appeared to grow rapidly. Fungicides contributed to around 15% of the market value, being used mainly for vegetables and fruits. Over recent years the use of fungicide increased rapidly, mainly attributable to rice growers’ switch from basic crops to high-value vegetables and fruits as well as government’s support to the export of these farm products.

According to the census of Pesticides Manufacturers & Formulators Association of India (PMFAI), India has 75 pesticide technical product producers including 10 multinationals, more than 1000 formulators and over 145,000 distributors. According to AgroPages’ ranking list of top 20 Indian agrochemical company in 2013, multinationals ranking on the top included Bayer CropScience, Syngenta, BASF, DuPont and ADAMA (former Makhteshim Agan), Cheminova and Dow AgroSciences; local producers ranking on the top were UPL, Rallis India, Indofil Industries, Gharda Chemicals, Coromandel International, Crystal Crop Protection, Excel Crop Care, Insecticides India, PI Industries and Bharat Rasayan.

According to PMFAI, almost all the multinational companies are having their plants and marketing facilities with fullfledged operations, contributing to 35% to 40% turnover of agrochemicals in India. Many have existed for more than 30 years. Nevertheless, it is noticed that multinationals have shown their great passion for investment in India over the last 2 years. What are the reasons for India to become an investment destination favored by multinationals? What will be the impact by the expansion of multinationals in India to local producers? What is the future prospect of Indian agrochemical industry? We have invited an interview participated by PMFAI, 3 multinationals - BASF, DuPont and ADAMA, 3 local producers - Indofil Industries Limited, GSP Crop Science Limited and Bharat Rasayan Limited to discuss to see what makes India to be a hot land of investment
by multinationals.

Multinationals’ investment in India over recent years

DuPont
DuPont Crop Protection in India is committed to bring the latest R&D innovations and technologies for the benefit of Indian farmers: products that not only protect crops, but are also safe to applicators, for the ecosystem and the end-consumer. “DuPont has fully demonstrated this commitment during the last 15 years by introducing the latest insect control technologies such as Indoxacarb known as DuPont™ Avaunt® in 2000, Rynaxypyr® brands such as DuPont™ Coragen® and Ferterra® in 2008-09 and DuPont™ Benevia®, powered by Cyazypyr®, in 2014. These are the next-generation chemistries that were made available to Indian farmers at the same time as growers in countries like USA, Japan, China, Brazil, etc. We also have invested in a state of the art formulation facility in Savli, Gujarat where it develops locally relevant innovations for India,” said Ram Mudholkar.

BASF
In October 2014, BASF invested EUR150 million in a new chemical production plant in Dahej India, which is so far the company’s largest individual project investment in India. “Furthermore, the company is gradually increasing investment in agricultural researches,” said Katharina.

ADAMA
ADAMA entered the Indian market in 2009 and has made significant progress in the past 6 years. “In 2010 we established our Head Office and state-of-the-art Research and Development Centre in Hyderabad. The R&D Center is the first one within the group to be established outside of the global headquarters in Israel. The following year we inaugurated our world class formulation plant in Gujarat, which caters to both domestic market and export needs. We have a wide spread network of over 40 regional offices and warehouses, ensuring that our products are easily available to our farmers. With around 70 products, ADAMA India offers the broadest portfolio of comprehensive crop protection solutions to Indian farmers. We have over 500 permanent employees and 1500 contract employees on board with us. Regarding future investments, India is an important market for ADAMA. Selling in over 120 countries around the world, India is ADAMA Group’s fastest growing market with sales volume ranked amongst the top. We intend to continue our focus in this
highly potent region in the coming years,” said Ilan Levanon, the President & CEO of ADAMA India.

What are the advantages attracting investment?

Political and economic environment good for overseas investment

The present investment environment is very positive in India with new majority government at the center, which has been making concerted efforts to attract greater foreign investment in India. “The new government has decided to liberalize and hike foreign direct investment limits in many sectors. Central Government and State Governments are in the process of simplifying foreign investment (FDI) requirements and joint ventures for which all clearance will be made available to the applicants within 30 days. Government is in the process of preparing formula for the same,” said Mr. Pradip Dave, the President of PMFAI. Mr. Alkesh Patel and Dr. Chauhan said that the “Made in India” campaign of the majority government led by Prime Minister Narendra Modi opened the doors for greater overseas investment.

Food demand and low consumption of pesticide are potentials of India’s future agrochemical industry development

Almost all interviewed companies mentioned India’s insufficiency of food supply as a result of population pressure and lower crop yield, as well as due to the lower pesticide consumption which causes loss of crops. With increasing population in India, demand for food grain is also increasing at a faster pace as compared to its production. More than 50% of crop area is still not come under crop protection umbrella. Every year significant amount of crop losses are there due to nonusage of crop protection products. As per estimates, crop losses due to nonusage of pesticides amounting to INR 90,000 crores ($14.67 billion at current rate) per annum, which is a huge amount. “It is estimated that the present food grain production can jump by an additional 33% through use of crop protection products”, said Mr. Ram Mudholkar of DuPont. Mr. Dave also expressed that the proper usage of crop-protection products is very important in crop growth improvement and pest disease control, so the present Indian pesticide market provides excellent opportunities for extended investment from agrochemical companies.

There is huge unrealized potential of growth of this sector, looking at the presently very low consumption of pesticides compared to the global levels.

Presently India's per hectare consumption of pesticides stands at 0.6 kg/ha against the global average consumption of 3.0 kg/ha and the average consumption of countries like - UK & France (5.0 kg/ ha), USA (7.0 kg/ha), Japan (12.0 kg/ ha), China (13.0 kg/ha) etc. “So India has got huge potential for crop protection products,” commented Mr. Patel.

Advantages of infrastructure, labor and technical force

Keeping in view lowest consumption of pesticides of 0.6 kg/ha, the irrigation facilities are increased to make water available to farmers. Borewell facilities are made available by Government and also adopting drip irrigation systems, which results in expansion of agriculture activities. Due to good returns to farmers from growing of fruits, vegetable, horticulture, pesticide consumption is likely to increase from the present 0.6. kg/ha to 1 kg/ha. This will be silver lining in future agrochemical production and marketing.

The Chairman of Bharat Rasayan Mr. SN Gupta holds that with the completion of irrigation facility like Narmada India’s agricultural environment is changing toward more high-yield cultivated land. Labor shortage will result in increased usage of herbicide. Increased incomes of farmers will enable them to give more spending on agricultural production.

These are also reasons to attract more investment from multinationals. Mr. Dave said that good production
practice, cheap raw material, low labor cost, technical experts, improved infrastructure and various port facilities are good foundations for multinationals to expand their world-standard business in
India.

Other advantages

Besides these well-recognized advantages, Mr. Ilan Levanon mentioned that the greatest strength of the country is its people, who are not just talented but also extremely motivated and hard working. The country has some of the finest talent of the world in terms of top notch researchers, subject matter experts and skilled work force. The Indian economy is fast growing and offers a conducive environment to foreign investors. India has the potential to become an important global economic center in the next few years.

What will be the impact to local producers from the expansion of multinationals in India ?

Mr. Pradip Dave gave his view to this point, “It will not have an impact on large-scale and medium-scale pesticide companies in India considering the reasons - Indian still largely depends upon generic products and these Indian companies are able to provide quality products at a very reasonable price.
Though the small-scale companies will be slightly affected, they will still be able to stand in the competition because of the prices and export opportunities for the generic products.”

The other 3 local companies appear to be more optimistic. Mr. SN Gupta holds the view that multinationals brought in advanced technology and different corporate culture having provided local companies with chances of cooperation in production and marketing. Multinationals’ emphasis on brand image and their training of farmers would speed up India’s agrochemical market. Mr. SN Gupta admit that multinationals’ capture of certain market share, the hiring of industry people and establishment of cooperation would cause some pressure to local companies.

Mr. Patel said that there is not a significant impact to local companies but instead there is a good chance for small and medium enterprises to cooperate with multinationals.

“The trend is showing that multinational companies are looking forward to sharing the molecules with co-marketing arrangements with Indian partners. There is huge opportunity for Indian Industry to offer contract manufacturing to MNC’s,” said Dr. Chauhan.

Promising Indian agrochemical industry

Mr. Pradip Dave is very optimistic about the future prospect of Indian agrochemical industry, saying that “Indian agrochemical industry has a bright future considering increasing domestic consumption and increasing exports of agrochemicals from India. Many Indian companies are adopting advanced sophisticated technologies, which will further improve quality of products. Apart from that, as many patented products are getting off-patented in coming years, Indian agrochemical industry with its abilities in greater innovations has great scope to capitalize on the same.”

Regarding the future of Indian agrochemical industry, the minds of 3 multinationals think the same, who all mentioned that food crisis poses a major threat to India but correct use of pesticide to ensure high yield is an effective measure to secure food supply and it is therefore essential to conduct cropprotection oriented training to farmers.

“We in ADAMA believe in the concept of being farmer centric. Putting the farmer first and being close to him is ADAMA’s key notion. I personally see it as far more than a notion, but rather a true commitment. It is our commitment and a privilege in assisting farmers to be made aware of the progress in agricultural technologies and how to adapt the right products at the right time for their crops. Comparing the rate of agrochemical usage per acre and/or per capita to other large countries or continents e.g. Europe, USA, Brazil, coupled with the increased level of field technification, IT facilities availability and demographic mega-trends, one can identify the incredible growth potential in the agchem sector in India,” said Mr. Ilan Levanon.

Katharina from BASF believes that pesticide producer can assist farmers in improved cultivation by training them as how to use advanced technology to ensure crop is protected in the whole course of cultivation from planting up to harvesting. “BASF has been a pioneer in this field with our Samruddhi program, which offers Indian farmers modern crop protection products bundled with education about newest farming practices. BASF's Samruddhi program has been audited independently by PriceWaterHouseCoopers and has shown to significantly increase farmers' incomes in India”, said Katharina.

Mr. Ram Mudholkar concluded that, “Future development prospect for the India agrochemical industry is a focus on developing environmentally safe pesticides by the industry as well as the government. Increased R&D expected for development of new molecules and low dosage, high potency molecules. Also a focus is on R&D in bio-pesticides segment with increasing preference for environmentally safe products in the market.”