AgroPages just released Ranking list of Indian Top 20 Agrochemical Enterprises 2015-16. Statistics shows that the top 20 has an entry level of above INR 5.2 billion sales amount. Among these companies, only UPL Limited’s sales exceeded INR 100 billion. The sales of the No.2 ranked Gharda Group was INR 17 billion. As seen from the change of sales, there were 10 enterprises having achieved one-digit or double-digit growth, of which Sharda Cropchem Limited achieved the highest growth by 17.7%.
According to a report by Tata Strategic Management Group, the market value of the Indian agrochemical industry in the 2015 fiscal year, which ended 31st March, 2016, was $ 4.4 billion, a 3.5% increase year on year. Also, according to the data of the consultancy Kleffmann, the global agrochemical market was down by 10%. From the ‘2015 Global Top 20 Agrochemical Firms’ report, it can be seen that almost all leading global companies suffered negative growth. Due to the global agrochemical downturn, it was not easy for the Indian market to achieve even small growth. Of course, the extreme weather, fall in commodity prices and drastic fluctuations of the exchange rate had an impact on these Indian companies, who are dealing with both the domestic and international markets. Half of the top 20 companies suffered decreases, many of these being engaged in the export business. In the 2015 fiscal year, India’s monsoon rainfall remained normal, farmer’s demand for pesticides increased steadily, and the domestic business of Indian companies remained stable.
The small growth in the Indian market well matches the business performance of the Indian top 20, which reflects the improved risk resistance capacity of Indian companies. Nevertheless, existing problems in the Indian agrochemical industry cannot be ignored, which will impact the long-term performance of Indian companies in both domestic and international markets. Problems include the lower consumption of pesticides, lack of education and awareness among farmers, lower level of pesticide applications, non-genuine products, enterprise’s low focus on R&D, and inefficient distribution systems. Of course, Indian enterprises are aware of these challenges, and are taking positive steps to take reasonable actions to cope with problems which may restrain the development of the industry. The companies on the top 20 list are very active in creating better operational procedures. Here is an analysis of the business operations over recent years, in a bid to understand how these companies could become India’s agrochemical industry leaders by virtue of their advanced ideas and strong actions.
Enhanced international cooperation
India is a large exporter of pesticides, mostly manufacturing generic products. Indian enterprises are not paying sufficient attention to research into novel molecules and technology. Each year, multinationals spend 8-10% of their revenues on R&D, while Indian companies only spend 1-2%. It is understood that today’s new developments in molecules consumes significant resources, so the risk of investment can be high. Therefore, on one side, new technologies and new products are required to sustain a company’s development, and on the other side, huge research costs and risks are a keenly felt burden. Indian companies have taken indirect approaches to R&D activity through enhanced collaboration with other companies, especially companies which own patents or know-how.
For example, in July this year Insecticides India Limited announced a tie-up with US-based Momentive Performance Materials to introduce a silicone-based superspreader - AgroSpred MAX, to help increase the bioefficacy of crop protection chemicals, growth promoters and micronutrients.
Dhanuka Agritech saw significant gains since they shifted from manufacturing to adopting an asset light model and focus on marketing and building their brands. The company has tied up with eight leading global innovators and expanded the company’s product portfolio by obtaining distribution rights to their partner’s patent products.
Recently, Indian companies have developed close cooperation with Japanese companies. In recent years, to lower their own risks, Japanese companies have begun building manufacturing facilities in India, where the cost of production is lower, or seek cooperation with Indian companies. On the other hand, using the local advantage of distribution channels, Indian companies are taking this chance to introduce the advanced products and technologies of multinationals to capture larger market shares.
In June 2016, Sumitomo Chemical launched an open offer to acquire a 45% stake in Excel Crop Care Ltd, entailing an investment of Rs.623.44 crore, to increase their presence in India.
Also, PI Industries and Mitsui Chemicals Agro announced plans to establish a joint venture company (SOLINNOS Agro Sciences) in India. This company is being set up to provide registration services for MCAG’s proprietary agrochemicals and intends to leverage PI’s deep understanding of Indian agriculture and MCAG’s capability of delivering innovative agrochemicals.
Coromandel entered into a joint venture with Mitsui and Yanmar, a leader in farm mechanization technology, and started Yanmar Coromandel Agrisolutions for developing equipment tailored for Indian farms.
And in August, Insecticides India Limited tied up with Nihon Nohyaku to launch new products for paddy, pulses and vegetable crops in India.
Due to the promising match between foreign and Indian companies, it is expected that, in the years ahead, these kinds of agreements are going to continue, with more depth and in a more diversified mode.
Attention to farmers and sustainability
One challenge to the Indian agrochemical industry lies in the lack of training of farmers, resulting in a low levels of knowledge among farmers, and lower levels of pesticide usage. Due to the territory and language differences in India, educating farmers is difficult. The only communications channel between farmers and manufacturers are pesticide retailers, who often do not have adequate technical expertise and are, thus, unable to impart proper product understanding to farmers. In the meantime, farmers’ needs for pesticides are not conveyed effectively to manufacturers. This disconnection between supply and demand remains a major problem for Indian companies in the domestic market. For this reason, Indian companies launched a series of special programs to engage in direct communications with farmers to offer guidance, while also listening to farmers as they discuss their needs.
Dhanuka has an agri specialist’s team, called Dhanuka doctors, with more than 1,500 experts who provide counselling and training to farmers on superior agricultural practices. This has helped the company expand its reach and strengthen its brand equity among farmers.
Coromandel initiated a campaign, entitled “Gromor Suraksha Day”, for imparting theoretical lessons and practical demonstrations to farmers regarding the safe use of pesticides.
PI Industries entered into an MOU with government institutions and specialized agencies for imparting vocational training to rural youth, with a view to enhance their employability.
Furthermore, Indian companies have realized the importance of introducing new technologies into agricultural production. For instance, several companies have released mobile Apps, which improved communication with farmers, as well as speeded up the distribution of information.
Insecticides India Ltd launched a mobile application last year, and today they have approximately 109.7 million subscribers. Farmers and the agricultural community can receive the latest information about agricultural products and their uses through this app.
Rallis has built close contacts with more than 1 million farmers through their flagship initiative - Rallis Kisan Kutumb (RKK) - and launched mobile apps to provide farmers with actionable information on agronomic practices, as well as efficient uses of agri inputs to improve productivity, while optimising costs.
Distribution deployed to enhance supply chain efficiency
Low-efficiency supply chains and incomplete infrastructure cause post-harvest crop losses of INR 450 billion each year. The low-efficiency of distribution systems causes difficulties to agrochemical companies in promotion of new product and the training of farmers. The successful enterprises are very often those that pay attention to the establishment of a high-efficient and complete supply chain, which also helps to communicate closely with farmers and conduct training for farmers. Typical examples are the 2 companies – UPL and Dhanuka Agritech.
During the last 2 years, UPL has taken significant steps. In 2015, they made a quick entrance into the Brazilian market by acquiring a 40% stake in Brazilian agrochemical distributor SinAgro. The following year, they acquired a 26% stake in a weather risk management company to expand their farm services and precision farming solutions to farmers. And recently, UPL created a strategic alliance with Amira Nature Foods Ltd to build a productive rice value chain in India and other parts of the world. Via a series of acquisitions and cooperations, with UPL quickly expanding into regional industry chains.
Dhanuka Agritech has established a very large distribution network across India, with more than 8,800 direct dealers catering to approximately 80,000 retailers, and serving over one crore farmers. Dhanuka has four zonal warehouses, along with 46 warehouses in different States, to ensure timely delivery of its products. The company hopes to further strengthen its distribution network by increasing the number of dealers and retailers by 5% every year. With the help of such a large network, the company has launched diversified training and education programs, which serve as a brand image in rural regions to help farmers increase their earnings by use of diversified products and technical solutions.
According to Tata’s prediction, the Indian agrochemical industry will grow at a rate of 7.5% in the coming 5 years, and is expected to reach a market value of $6.3 billion by 2020, to which the Indian domestic market and international market will each contribute 50%. In the 5 years ahead, with additional market explorations and increases of pesticide application levels, domestic market demand is expected to grow by 6.5% annually. With more developed international market, increases in exports are expected to reach 9%. India is the 13th largest pesticide exporting country, most of which being generic products. Information shows that $4.1 billion worth of pesticides will be off patent by 2020, which is a great benefit to India’s pesticide exports.