Evolution of Indian Agrochemical Industry – Challenges, Opportunities & Way Forward

Indian economy is still primarily driven by agriculture sector. As per Provisional Estimates of Annual of National Income, released by National Statistical Office (NSO), Ministry of Statistics and Programme Implementation, Government of India, contribution of agriculture and allied sectors in Gross Value Added (GVA) of India for financial year 2020 – 21 is 20.2%.50% of Indian population is still dependent on agriculture for their livelihood. In view of these factors, sectors like agrochemicals, seeds and fertilizers, which are major inputs for agriculture have a major stake in growth of economy of the country. Therefore, these industrial sectors are driven by legislations, government rules and regulations, policies and interventions.

India is the fourth-largest producer of agrochemicals in the world after USA, Japan and China. The Indian agrochemicals industry is valued at around USD 5.72 billion in financial year 2020 – 21 as per the internal report of PricewaterhouseCoopers, out of which domestic consumption is approximately USD 2.72 billion, while exports is around USD 3.00 billion. Further, the Indian agrochemical industry is expected to grow at a CAGR of 8–10%20 till 2025. As per All India Statistics of Area under Cultivation and under use of Chemical and Bio-Pesticides published by Directorate of Plant Protection, Quarantine and Storage, Ministry of Agriculture and Farmers Welfare, Government of India, the total area under cultivation in India in 2020 – 21 is 188.595 million hectares out of which 147.349 million hectares is covered by chemical and bio-pesticides.

The trend of pesticide use pattern as per the data available with Directorate of Plant Protection, Quarantine and Storage, Ministry of Agriculture and Farmers Welfare, Government of India for the year 2018 – 19 is given below (See Figure 1).

Figure 1: Share of different agrochemical products by volume of usage in 2018-19 (technical grade)

The consumption of chemical and bio-pesticides on different crops for the year 2020 – 21 as per the data available with Directorate of Plant Protection, Quarantine and Storage, Ministry of Agriculture and Farmers Welfare, Government of India is given below (See Figure 2).

Figure 2: Commodity-wise consumption of technical grade chemical &biopesticides for 2020-21

The trend of consumption of technical grade pesticides in India for a five-year period as per data available with Directorate of Plant Protection, Quarantine and Storage, Ministry of Agriculture and Farmers Welfare, Government of India is given below (See Figure 3).

Figure 3: Consumption of technical grade pesticide in India

Challenges faced by Agrochemical Industry of India

The challenges faced by Indian agrochemical industry can be broadly classified into following categories.

 ● Market dynamics: The major factors contributing to market dynamics are as under.

• Decreasing arable land.

• Low productivity per acre of land area.

• Declining soil fertility.

• Heavy dependency on monsoon for irrigation.

• Decreasing water table in soil across the length and breadth of the country.

• Changing cropping patterns.

• Changes in pest complex as well as pest load.

• Resistance of pests towards generic products.

• Lack of awareness of farmers on proper usage of agriculture inputs: The common Indian farmer is lacking in adequate knowledge of agronomy and relies mostly on skills and knowledge gained with experience or from product recommendations at a point of sale, i.e., by an agri-input retailer. This lack of awareness and usage of agrochemicals based on habit and non-scientific recommendations may lead to over usage of a particular product (which might be required in a lesser quantity) or under-usage of a product (which might have been required in a higher quantity), thus resulting in sub-optimal yields and returns for farmers.

• Changing farmer preferences for new generation products, which are used at very low doses.

• Acceptability of combination products for broad spectrum pest control at reduced doses and sprays with better efficacy.

• Low consumption of 0.6 kg/ha of agrochemicals, which is very low as compared to agriculturally advanced countries as per the data of FAO available for 2017 (See Figure 4).
  

• Compared to new generation products, generic products are applied in large quantities. As generic products are still consumed in huge quantities in India, it can be concluded that there is a significant gap in the current and optimal application quantity of agrochemicals per hectare.

• High post-harvest losses up to the level of USD 6.12 billion per year.

Figure 4: Trend of consumption of pesticides for 2017 as per FAO

 ● Current Regulatory Framework: The regulation of pesticide industry in India started with the enactment of Insecticides Act by Parliament of India in 1968 and notification of Insecticides Rules in 1971. Government of India in 1958 appointed a Commission of Enquiry to advise on the measures to control the dangers from unregulated and indiscriminate use of pesticides due to number of deaths in Kerala and Madras after consumption of imported wheat contaminated by pesticides, which were accidentally shipped with them. This led to the formation of an expert group of Indian Council of Agricultural Research under Prof. M. S. Thacker who studied the various aspects related to pesticide use, which led to promulgation of Insecticides Act. This Act regulates import, manufacture, sale, transport, distribution and use of insecticides with a view to prevent risks to human beings and animals and for other matters connected therewith. Insecticides Act came into force with effect from August 1, 1971. Pesticides are to be compulsory registered under Insecticides Act and Rules at the Central level and licence for their manufacture, formulation and sale are dealt with at the State level. With the enforcement of Insecticides Act and Rules. pesticides after scientific and technical evaluation are available to the farmers for protecting the agricultural crops from the devastation of their pests and general public for house-hold use, humans from diseases and nuisance caused by public health pests and the health hazards involved in their use have been minimised to a great extent. Some of the challenges posed by the current regulatory framework are:

• Complex registration process: The current process for registration of a new agrochemical molecule in India is often perceived as a time-consuming, costly and complex procedure by the industry. Only a few large multinational companies and leading domestic players can afford to invest in R&D to develop new molecules and get them registered for manufacturing and sale. As a result, as of 30 June 2020, only 273 molecules and 746 formulations are registered in India. Compared to India, as of 31 October 2020, around 473 molecules are registered in the European Union (EU) and 527 molecules are registered in Japan.
  

• Lack of Data Protection: Since there is no legal provision for data protection in India, therefore, multi – national and prominent domestic companies are wary of bringing new molecules in the country as there is a high probability of me-too registrations being granted immediately after the first time registration of the molecule in the country. This has led to the situation of very less new generation molecules available in India as compared to global availability or being registered in the country after more than 10 – 15 years of global availability.
  

• Pesticide Management Bill, 2020: Pesticide Management Bill, 2020, introduced in Parliament of India in March 2021, focusses on stringent control on quality of pesticides, mandatory printing of pesticide information, including in digital formats, and provision of compensation to farmers and re-registration of registration certificates and licences. However, the bill proposes limited interventions in areas like R&D of new molecules, the current registration process or expansion of current production capacities of pesticides manufacturing industries, which could have led to the industry’s further growth. Further, the bill proposes to regulate the industry by way of stiff penalties and price control mechanism, which can be deterrent for the growth of the industry.

 ● Gaps in Production and Demand of Technical Grade Pesticides: There is a huge gap in the production of technical grade pesticides in India as compared to their demand, which is due to underutilization of production capacities in the country as India is still heavily dependent on imports of raw material required for production of technical grade pesticides.

 ● Reliance on Imports for Availability of Technical Grade Pesticides: The gap in production and demand, has led to the situation wherein the availability of even generic technical grade pesticides is fulfilled by imports only, which in a way makes the countries dependent on whims and fancies of the overseas manufacturers.

 ● Non-availability of Technologies for Production of New Generation Molecules / Green Chemistry Products: Even though the country has started investing on R&D but still there are many technologies required for production of new generation molecules / green chemistry products, which are not available in India.

Opportunities for Indian Agrochemical Industry

 ● Export Potential: Indian agrochemical companies are manufacturing molecules of organophosphorus, carbon disulphide and pyrethroid chemistries by complete backward integration and are known worldwide for impeccable quality and cost effectiveness. These products have got global acceptance and are exported in huge quantities from India. The current export turnover of India is USD 3.00 billion and we have got huge potentials to increase it further by developing products of other chemistries also. Further, we can tap the global market by developing combination products, which are acceptable worldwide looking into their broad spectrum efficacy.

 ● Investment on Research & Innovation: The focus of Government of India is on research and innovation in line with Make in India and Atma Nirbhar Bharat initiatives. Government and Industry have started investing heavily on research and innovation to develop new generation molecules, new isomers, new manufacturing processes, green chemistry products and new combination and solo formulations to make India global hub for manufacture of agrochemical products. They can further join hands under Public – Private Partnership mode for which government is providing funds also to boost the R&D environment of the country. These initiatives will also help in tapping the huge scientific and technical human resource pool available within India as well as globally.

 ● Development of Efficacious & Environmentally Safe Products: Farmers of India are now looking for efficacious and environmentally safe products, which are effective for control of pests at very low doses of few grams / hectare. Though such products in limited numbers are available in India but there exists a huge demand to develop many such products, which can be benefit for all the stakeholders and will also help in further promoting the export of agricultural produce of the country.

 ● Intellectual Property Regime: The intellectual property regime is also in favour of the industry to innovate on technologies and products by providing patent protection of 20 years. This has enabled many companies to invest on R&D activities to develop novel technologies and products and to get the protection both in India and globally through PCT or Paris Convention routes.

 ● Petroleum, Chemicals & Petrochemicals Investment Regions (PCPIR): Government of India has developed many zones in different states of India as PCPIR, with all the required facilities and policy support to promote the manufacturing of various chemicals including agrochemicals, petroleum and petrochemical products. Industry can utilize these facilities to build and commission plants for manufacture of technical grade products with complete backward integration to reduce import dependence for these products.

 ● CRAMS & CSM Model to Make India Global Manufacturing Hub: The global Contract Research and Manufacturing Services (CRAMS) market is valued at USD 200 billion as of 2019 out of which India has a share of 6%, which comes to USD 11.5 billion. India’s CRAMS market is expected to witness a 12% CAGR for the period 2019 – 24 as against global CAGR of 10%. The share of agrochemicals in India’s CRAMS market is 35%. Indian players have penetrated well in the exports space of many specialty chemicals including agrochemicals. Further, due to changing global scenario and strategies, various global MNCs are looking for various destinations other than China for future growth opportunities in these segments which augurs well for India as it can penetrate deeper and catch up with China on a global level. Custom Synthesis and Manufacturing (CSM) is a niche segment within the CRAMS model and deals with patented products that require more R&D efforts. Indian CRAMS / CSM players are going benefit as more innovators are focussing on their core competencies and outsource production through long-term contracts to low-cost manufacturing destinations such as India. These long-term contracts provide long-term revenue growth visibility as compared to other specialty players.

CSM requires more R&D efforts compared with CRAMS as contract manufacturers produce patented products, wherein each patented product’s manufacturing can be unique requiring unique infrastructure. CSM is more of niche segment within the contract manufacturing space and attracts higher margins than CRAMS of generic molecules. With the increasing infrastructure of contract synthesis in India, more foreign players with patented products are expected to manufacture active molecules. As a result, the valuation for CSM or patented businesses is relatively higher, resulting in higher growth potential of custom synthesis and manufacturing services in the contract synthesis sector.

India CSM market was valued at USD 11.5 billion for 2019 for specialty chemicals, and is expected to reach USD 20.3 billion by 2024 with growth rate of 12% CAGR driven by a) the increasing contract manufacturing trend for fine chemicals and niche specialty chemicals in India; b) global companies preferring investment in contract manufacturing in India; and c) India being a low-cost manufacturing destination with a skilled labour force.

Almost 80% of the Indian specialty CRAMS market is captured by fine chemicals which are nothing but single molecule compounds widely used across crop protection chemicals and Active Pharmaceutical Ingredient industries. These single molecule compounds are mainly active ingredients in either agrochemical or pharmaceutical formulation. Agrochemical contract manufacturing in India accounts for a 35% market share with predominantly export-led demand.

 ● Regulatory Framework: Government of India is opening up the regulatory framework for agrochemicals in the country, wherein they have framed the policy, rules and regulations for applications of pesticides by drones. Government has also starting focussing for fast track registration of new crop protection molecules in the country and are working on the modalities for the same.

 ● Policy Interventions for Foreign Investments: The various industry focussed policies of Government of India has enabled foreign companies to start investing in India by way of either opening their own companies in India or collaborating with Indian companies to establish joint venture companies. This opens another window of bringing new technologies / new products in India for the benefit of Indian agriculture and farmers.

 ● Technology Interventions: Both government and industry are working on bringing tools on digital platform to disseminate information amongst farmers for weather conditions, rainfall etc. to help them to plan properly for next farming season, proper information on adequate use of agriculture inputs, training etc. so that food productivity of the country can be maintained.

Way Forward for Industry

The opportunities available for the industry can help them as well as policy makers to decide and work in the direction of bringing newer technologies, novel molecules, efficacious combination and solo formulations, enhancing manufacturing infrastructure, creating proper policy environment to help in improving productivity as well as foreign investment in the country in order to increase the share of agrochemicals in GDP of the country as well as their exports by utilizing the huge untapped market still available within India and at global stage.