Continuous rains threaten to weigh on agrochemical sales in India

Continuous rainfall in several parts of India is threatening to impact the sales of agrochemical firms Rallis India  and Bayer CropScience. Pesticides, fungicides and herbicides account for most of the revenues of both the companies. Healthy crop sowing has boosted demand for seeds. But excess rains are clouding the agrochemical firms’ sales outlook.

Except the east and northeast, all the regions of the country have received above-normal rains.

The country, as a whole, has received 15% more rain so far this season, the Met department said. Normal rainfall would have increased the addressable market for agrochemical firms. But heavy rainfall in some regions, including parts of Andhra Pradesh, Maharashtra and Madhya Pradesh, has damaged crops. A report in Business Standard newspaper said excess rains can hit 5-7% of the summer crop.

With little respite from rain, farmers are avoiding applying pesticides. A channel check by Espirito Santo Securities India Pvt. Ltd found that farmers in Andhra Pradesh, the biggest agrochemical market, more or less skipped the first round of pesticide spraying. Many farmers in Andhra Pradesh and Maharashtra have skipped the second spray as well, said Nitesh Sharma, analyst at Espirito Santo Securities. Together, the two states account for more than one-third of all agrochemicals sold in the country.

Rains wash away chemicals and impact insects and fungus incidence. Unwanted vegetation will creep up and help herbicide sales.

But that alone cannot make up for the loss of pesticide and fungicide sales as the two segments constitute the majority of the crop protection product sales.
If rains continue unabated, the much awaited summer crop season (kharif) can prove to be a dampener for agrochemical firms. Companies with significant retail presence have already seen muted sales in the June quarter. April-June is a lean season for farm input providers. Companies use this period to place products at distributers and retailers so that they are well-stocked for the summer. Despite early rains, placements were surprisingly low. Stand-alone sales at Rallis India were flat in the June quarter. The company’s decision to place products close to the consumption cycle weighed on sales. Due to low pre-placements in Andhra Pradesh and Punjab, Bayer CropScience reported a muted 7% growth in sales in the last quarter.

September will be important for agrochemical sales. Pesticide use usually peaks in August and September. So, even if farmers skipped the first spraying, favourable weather conditions in the form of more sunny days can revive sales in the second half of the current quarter.

Another reason analysts are not pressing the panic button is the complex relationship between rain and agrochemical sales. Despite adverse conditions, some regions tend to do well.

As Rallis India points out in its latest annual report, “Agricultural rainfall is different from the weather rainfall.” So even if conditions are unfavourable, the agriculture sector may do well in some parts of the country. “For instance, agriculture growth rate of Madhya Pradesh for year 2012-13 is healthy at 14.28%, while some states observed muted or negative growth,” the company said.

The diverse nature of the agriculture sector and substantially higher crop sowing—up by almost 12% on 2 August—will ensure threshold level sales. But hopes of bumper sales are under a cloud.