Pump & Dump in agrochemical industry!
Dec. 28, 2018
Heads have been rolling in agro-chemical multinational companies in last one year. Few people from the top -management from certain companies have been asked to go due to poor results and a web of complex problems.
What's happening behind the doors!
Few of these companies are staring at massive overdue -collections as well as a pile-up of non-sale-able inventory. Morale of the employees is all-time-low in these companies and trade is at logger-heads.
Issue is the build-up of huge unsold material in the trade for last few years. Senior management of certain companies forced the front-line staff to pump & dump more than necessary material in the market place to meet its annual targets. Trade-partners were lured with the promises of hefty margins and extended credit limits.
Well, it is not new in agro-chemical or certain other industries, but some time the scale of pushed material by few companies becomes unprecedented. A cocktail of ambitious but spine-less domestic managements & compulsion of parent-companies to meet quarterly targets leads to extra pressure. But sometime, this extra push backfired due to certain opposite set of incidents e.g. poor rains, demonetization and temporary disturbance in business due to transition to GST .
Also the problem is aggravated by the fact that although many managers are quite regular and known for adopting for these kind of shortcuts to show revenue, but rather than being punished for the same, they had been rewarded well in the past.
Many a times, the management is able to hide these not-so-good practices as agri-inputs is a seasonal & cyclical industry. You have one good season or cycle once in three years, and all unsold material of the past, in trade pipeline would get liquidated and all sins would be buried beyond recognition.
Pumping material is present and is must across all the companies!
Pumping or pre-placement of material is almost necessary in this industry as it has to deal with lot of uncertain factors e.g uncertainty of rains, ambiguity of pest pressure , yearly variation of acreages under different crops. Also due to poor logistics-infrastructure at rural retail level, it is difficult to manage timely supply of material on -demand basis.
Hence companies tend to invoice the material before the advent of the season to make full use of the opportunity (if it arises) and to block the shelves from the competition.
But this pumping becomes dumping if unsold material is not taken back at the end of the season.
Apart from dumping material in season in the name of pre-placement, there's another practice of invoicing material at March-end (Dec for few MNCs). It may be justifiable in other sectors but in agriculture in India, it is a lean period from mid-Feb to mid-May. There's no sowing season and almost nil presence of pests, weeds or diseases. Any sales during this period, especially in this industry, is not only an obvious way of fabricating numbers but it's also an unethical practice by the managements to meet year-end targets to save their jobs.
Dumping is also a reflection of a very serious lacuna of the management , either it does not know the the market or it does not understand marketing. And that should be a serious concern for all the stake-holders.
Pump & dump policy tend to succeed in only one industry, that too at certain times.That industry happens to be stock market where lot of poor quality stocks are pushed by incredulous operators in the hands of innocent investors.But the difference between stock-market and other industries lies in the fact that investors in stock market happen to pay for the stock once it is invoiced to them though it may lead to losses ,whereas in agro-chemical industry, material is invoiced to the trade on credit and it pays only for that material that is liquidated at customer level.
If pumped material is not taken back,there's fake revenue on the books ,too much pressure on front-line staff and trade for overdue collections .
“There’s Never Just One Cockroach in the Kitchen”
… and “once you put a spotlight and start looking at everything, you’re likely to find something additional,” Warren E. Buffett.
Putting excess material in trade for revenue-fabrication is not the only problem , it creates certain additional problems and organistions can really collapse under the weight of these challenges.
Have tried to list down several consequential problems of dumping in the above table, but the major aftereffect of this shortcut of generating revenue is lack of agrochemical-industry's ability to produce great leaders.
They say that a hero is a product of a situation rather than the result being a product of the hero. It is demand of the situation that brings out the exceptional qualities of man.You give a comfortable way of generating revenue to a person, he would stop looking for hard alternatives , would stop thinking.
Agro-chemical industry's has been a key player in green revolution that made India self-sufficient as far as agriculture production is concerned.
But if the supply by certain companies in the trade is more than the demand ,along-with pressure-tactics adopted by the management, many-a-times the trade pushes this material to the gullible farmers.A majority of farmers being illiterate & having heavy dependence on trade for credit ,end-up using certain products that are either not required or are not appropriate . This ends up in putting extra stress on already-stretched pockets of the growers.
In a way , dumping also results in the greatest disservice towards the growers , a community that this industry aims to serve . The survival of any industry depends upon the prosperity of its customer-base, either we take corrective actions or ignore it at our own peril.
Industry leaders should mull over the fact that agro-chemicals industry has been currently growing at a rate of 10% per annum but it has a potential of doubling up this speed as Indian agriculture is still highly under-penetrated as far as scientific agriculture -practices are concerned. Innovative marketing methods and genuine farmers's awareness campaigns are the needs of the hour.
Why dumping has worked in the past but would fail in future?
Agri-input MNCs success in India has been more of product-driven in the last few decades due to two reasons: there was nil penetration of scientific-techniques and there was a scarcity of available solutions .In this situation, a good molecule and ample supply of the same led to the MNCs getting good foothold in India.
The dictum of 'supply creates its own demand' worked well in a virgin market but it is highly doubtful whether it can succeed in future. Recent turmoil in few of the companies is an early evidence of the same.
Situation has changed,there're several alternatives available now to the end-customers. Need of the hour is to expand the market itself rather than fighting for the share in the existing & already-crowded market-pie.
No problem can be solved from the same level of consciousness that created it :-Albert Einstein
It is high time for parent companies to have a serious look at the current set of management at domestic subsidiaries; some of them may consist of people who have been able to make the top due to some product-specific growth or by pump-&-dump practices. A deep understanding is required whether current management has ability to think beyond the dangerous practices of the past!
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