Indian enterprises experienced smooth development collectively in the 2016-2017 fiscal year, and more than half of the enterprises among the Top 20 Indian agrochemical enterprises notched up a double-digit growth, with just one of them slackening its performance slightly. Considering the consecutive weak global agrochemical market and the negative growth rate of 2.5% of the global agrochemical industry, the performance of the Indian enterprises was particularly eye-catching.
UPL, with agrochemical product sales of INR144.6 billion (equivalent to $2,157 million according to the average exchange rate of the 2016-17 fiscal year), ranks 10th in the world’s Top 20 list and 1st in the Indian Top 20 list. Last year, UPL launched eight new products in the Latin American region, where it attained an amazing 26% growth in the shrinking market. The compound annual growth rate (CAGR) of the company in the 2012-2017 fiscal year reaches 17%, which is much higher than the 1% CAGR of the whole industry (Source: Phillips McDougall)
The second-tier enterprises among the Top 20 list which are an order of magnitude lower than UPL are led by Gharda once again, and counted to Excel which ranked 13th. There are 13 enterprises with sales of pesticides exceeding INR10 billion, i.e. an increase of four over last year.
The third-tier enterprises among the Top 20 list have sales between INR5 billion to INR10 billion. The lowest sales among the Top 20 list is slightly higher than last year because of the general good performance of the enterprises. Sulfur Mills is newly listed and ranks 17th. Punjab Chemicals & Crop is found at the end of the list, while HPM dropped off this year.
Willowood India achieved the highest growth rate of 45.7%, because good performance in the Indian and the oversea markets drove the company's production and sales.
Last year, India experienced a favorable southwest monsoon. The sown acreage was expanded and the crop production increased by about 8%. The rise in the volume and prices of agrochemical products brought about by the planting demand was the main reason for promoting the performance of the Indian agrochemical enterprises. Besides this, the insufficient rainfall during the monsoon season for two consecutive years led to the downturn of domestic market, which compelled the enterprises to attach more importance to exploit the overseas market, and then brought about a rapid growth in the Indian enterprises’ foreign trade businesses last year. Willowood, Rallis, Meghmani, Heranba, Sharda, Krishi and other companies achieved a 10% or even 20% plus growth in exports.
According to a report from CareRatings, a well-known credit rating agency of India, the Indian agrochemical industry was estimated to be valued at $4.9 billion in the 2016-17 fiscal year. According to data from Phillips McDougall, the sales of the global agrochemical industry were pegged at $49.9 billion in 2016. That means, the share of the India market accounted for almost 10% of the global agrochemical market.
The first quarter of the 2017-2018 fiscal year has ended. Thanks to the growing planting intentions of the farmers brought about by favorable anticipation in the southwest monsoon season by the Meteorological Department, the demand for pesticides increased dramatically in the first quarter, a low season traditionally. However, the implementation of the Goods and Services Tax (GST) by the Indian government blocked the upstream transmission of the demand chain. Because of a higher rate of new taxes, retailers and distributors hurried to de-stock before the implementation of the new tax from July 1, resulting in lower shipment than expected from manufacturers. Analysts believe the adverse effects caused by the implementation of GST will not last long; instead, it will positively drive enterprises to build an orderly and efficient supply chain.
It has been predicted by the India Meteorological Department that the southwest monsoon in India this year will reach a historical average level of 50 years, and the future of climate-dependent Indian pesticide sector is still optimistic. The growth rate of the pesticide sector is expected to reach 10%, the domestic market about 8% and the exports about 15%. From a long-term point of view, a series of changes in policies concerning pesticides and agriculture in India from last year will have a long-term and positive impact on the Indian pesticide sector:
Changes in registration policy help promote Make in India
Prime Minister Narendra Modi launched the Make in India initiative immediately after he took office in 2014. The production of pesticides was included in the initiative, which encouraged the production of pesticides in India, and the R&D of high-quality pesticides to achieve self-reliance. The Make in India initiative provides a tolerant policy environment for the production of domestic pesticides, especially the production of the technical products.
In response to the Make in India initiative, the DAC&FW of India submitted a bill to the Central Insecticides Board and Registration Committee of India concerning the Make in India for pesticides in January 2017. The committee then amended its registration policy on May 19, 2017, to implement the restrictions on TIM and registrations for import, and the Chinese pesticide suppliers were the first to bear the brunt.
Currently, half of the TCs, intermediates and terminal formation products of pesticides needed by India are imported from China. China's exports to India were valued at about $247 million in 2015. The volume and prices rose in the first half of 2016, with a year-on-year growth of exports by 59% and a year-on-year growth of export value by 20%, while the exports were valued at $177 million.
The implementation of the new policy will curb the rapidly growing export to India by the Chinese enterprises and crack down on the Chinese enterprises and Indian traders; however it will greatly benefit Indian manufacturers, especially TC manufacturers with a TIM registration certificate.
With the support of policies and a good market environment, Indian companies are exerting their full capacity to seize the market opportunities.
Last year, the demand for mancozeb products were thriving both at home and abroad. Coromandel expanded its plants in Sarigam and Dahej to meet the needs of domestic and foreign markets. Meghmani Organics announced recently its plan to build a new plant in Dahej to double the production of its main product 2,4-D acid. Insecticide also announced the expansion of its Dahej plant to increase its production capacity of TCs. After being acquired by Sumitomo, Excel has been producing its three main products at full capacity. Krishi Group, which has been focused on processing and production of formations, said that in response to the call of Make in India, the company will start building its own TC production line this year, which is expected to begin production in 2018. Gharda launched bispyribac-sodium and a new mixture product (fipronil + imidacloprid) in India, and its existing products are being produced with the maximum capacity.
With the implementation of the expansion plans, it is expected the Indian pesticide sector will have 40% of its idle capacity fully released in the coming two years.
Vision to double farmers’ income and reform in agricultural policies
In 2016, Indian Prime Minister Narendra Modi unveiled a strategy to double the income of farmers by 2022. To achieve this goal, India has implemented a series of agricultural policies and actions since last year, including but not limited to, issuance of soil health card, crop insurance system, irrigation infrastructure construction, national agricultural market projects and loan policies. At the same time, the Ministry of Agriculture and the Indian Council of Food and Agriculture stressed that to double the income of farmers, it was necessary to improve farmers' awareness of pesticide utilization, reduce crop losses, guide farmers in the correct use of pesticides and learn modern agricultural operations, as well as crack down on fake and shoddy pesticide products. The lack of awareness about the correct use of pesticides has led to a lower level of pesticide utilization, and the current consumption level of pesticides in India is 0.6kg per hectare, which is far lower than other major agricultural countries, leaving much room for improvement.
The fiscal expenditure budget of the Ministry of Agriculture of India has been increased by 38% over last year, and a total of INR621.2 billion will be used to guarantee the implementation of various governmental agricultural projects and infrastructure. These structural changes will show a positive cumulative effect on the pesticide sector, which is closely related to agriculture in the medium and long term.
Besides this, many Indian enterprises have a large number of distribution networks and farmer service teams in the local market and train farmers regularly. Many companies, such as Dhanuka and Willowood, are equipped with “soil detection caravans” to serve farmers directly by detecting soil health status, providing guidance and recommendations for farmers, among others. These activities not only embody the sense of social responsibility of a company, but also show the unique competitive advantages of local enterprises in the Indian market, i.e. they can serve the market and consumers as close as possible.
With the growing spending on pesticides due to the increase in farmers' income, stable planting demand brought about by improved infrastructure (e.g. irrigation system), and the improvement of farmers' awareness and level of pesticide utilization, the domestic market demand will keep rising for a long time.
Indian companies accelerate global presence based on new export opportunities
Beside the positive policies, the export environment for Indian enterprises will be more favorable.
The pesticide exports of India accounted for half of its pesticide sector. Because of the sluggish demand in the domestic market during the previous two years, many Indian companies shifted their strategic focus on the foreign markets. Pesticides made in India are getting recognized and accepted by more and more markets as a result of their advantages in production cost, production capacity, human resource and price, and Indian enterprises are also accelerating their presence in the global market.
The deployment in the Chinese market was one of the highlights of UPL last year, and the company plans to increase its market share in China through mergers and acquisitions. Coromandel expanded its businesses in the Asia-Pacific and African markets significantly last year. Meghmani, while continuing to consolidate its existing market share in South America and North America regions, will shift its focus on the Brazilian market, hoping a good number of products can be registered and launched in Brazil by 2020. Rallis plans to have their products registered in eight to nine countries this year. Willowood plans to enter the Brazilian market after its success in the US market.
Along with their presence in the global market, Indian enterprises have also paid more attention to improving their product quality. An increasing number of enterprises have started to build their own good laboratory practice (GLP) labs. Currently, UPL, Gharda, Krishi, PI industry and Indofil, among others, have been equipped with GLP labs of their own, while Insecticide India, Crystal, Willowood, Meghmani Organics and others are building their own GLP labs.
The provision of GLP can not only meet the increasingly stringent requirements of global registrations, but also improve the R&D and production capacity of Indian enterprises in new off-patent proprietary products, so as to quickly seize the market share of such kind of products. By 2020, the proprietary products with a market value of $4.1 billion will expire. This is a good catalyst for Indian enterprises, which are mainly based on off-patent proprietary products and contract manufacturing organization, and will function as a boost to exports.
Currently, some small- and medium-sized enterprises in China have been forced to close because of the increasingly stringent environmental protection policies of China; also, the supply of raw materials from China is limited. The competitive pressure from the Chinese market has been greatly eased, and Indian manufacturers are expected to face the transfer of partial production capacity. The supply-demand gap in the international market will also provide opportunities for Indian enterprises in the export business.
Agriculture is a pillar industry for India and has a huge potential. A series of policies of the Indian government show its ambition to develop agriculture and improve people's livelihood. The agrochemical industry, which serves agriculture, will enjoy a long-term positive impact in terms of governmental policies. The ongoing monsoon performance, lower inventory and favourable domestic and foreign market environment will further promote the development of enterprises.
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