Oct. 16, 2020
The Indian economy encountered headwinds as volatility and sluggish demand impacted growth considerably. There was a strong hope of recovery in the last quarter of Financial Year (‘FY’) 2019-20. However, the sudden outbreak of COVID-19 made this recovery difficult to achieve in the near to medium term. The GDP growth for FY2019-20 touched 4.2% vis-à-vis 6.1% in FY2018-19. Despite the challenges presented by COVID-19 to economic activities in India, the country remains an attractive investment destination. The agrochemical industry has still witnessed record sales in recent months in anticipation of good monsoon season and higher crop cultivation. It also presents an opportunity for companies to diversify their supply chains and remain resilient to headwinds.
Agrochemical Industry in India has a strong capacity base and it is expected to reach 1,493,300 tonnes by 2022. Companies operating in this industry have been focusing on exports owing to seasonal domestic demand and huge potential in foreign markets. Other factors for greater exports include low cost manufacturing, availability of technically trained manpower which is cost effective, better price realization globally and strong presence in generic pesticide manufacturing have led to growth in exports. Domestic consumption is likely to increase in the future due to increasing awareness among farmers and owing to government support. Environmental clampdowns in China will reduce the number of local chemical enterprises from 6,884 to only 1,000, by 2022. This will lead to a decrease in China’s installed capacity and agrochemical companies in India are expected to effectively increase the capacity utilization in India.
Highlights of the list in FY 2019-20
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FY2019-20 was a quite significant year from an operational standpoint. The list of top 20 Indian agrochemical enterprises almost remains the same with the previous year. Many companies showed significant resilience in navigating disruptions in the global supply chains.
UPL: FY2019-20 was a significant year for UPL as it was celebrating its 50th anniversary year and also completed integration for the landmark Arysta acquisition in an all-cash US$ 4.2 billion deal. Today, the combined entity has emerged as the world’s fifth largest crop protection solutions company, creating a post-patent behemoth with revenues in excess of US$ 5 billion. During the year under review, UPL successfully completed the integration in record time across products, systems, businesses, markets, cultures, IT platforms, R&D pipeline and global teams.
Indofil: The Company’s consolidated income recorded a decrease of 1.37% in FY2019-20 because of shifting the manufacturing operations from Thane to GIDC, Dahej Plant. The capacity utilization of the old plant was lower, resulting in increased cost of production. Additionally, teething and stabilization issues with newer technologies, in the new plant, also led to cost increase. Nevertheless, Indofil expects to improve capacity utilizations during FY2020-21. On the international business front, the Company successfully sustained business volumes despite challenging global agrochemical market conditions, aggressive pricing and competition. The Company has four operational subsidiaries in Europe, Brazil, Philippines and Bangladesh. In Bangladesh, a new re-packing unit has been set up, the Company’s first facility outside India.
Insecticides India: Total branded sales increased by 29%, contributing 72% to the total sales. With a strong product portfolio and a pan India presence, the Company is among the few companies in the country to have a complete integrated portfolio. The Company has received 9 patents and 21 patents are in pipeline during FY2019-20.
With focus on “Make in India”, many leading companies have continued to invest in backward integration of some key products by setting up in-house manufacturing facilities for key ingredients and enhance their manufacturing capabilities, not only serve the needs of India, but will enhance export opportunities and support to position India as a global manufacturing hub for agrochemicals.
Tagros: Within 2 decades, Tagros has risen to become the largest Synthetic Pyrethroid actives manufacturer. Apart from punting big on new molecules for the upcoming years, Tagros is actively in discussions with multiple partners to explore contract manufacturing of off-patent products at its sites in Cuddalore, Dahej and Ankleshwar which have spare capacities immediately available for those who seek to outsource from India. During FY2019-20, 33.33% increase in sales is mainly because of production for key molecules like Sulfentrazone going up. Despite the minor hiccup of an unfortunate fire accident to 1 of its 3 Sulfentrazone units at Dahej, Tagros is confident that the affected capacities will be more than met and targets will be par for the course in 2020-2021.
Coromandel: Coromandel continued to invest in its manufacturing capabilities. Three new plants were commissioned during the year - Mancozeb WDG plant at Dahej, Pymetrozine plant at Ankleshwar, and Pyrazosulfuron plant at Sarigam. In the beginning of FY2019-20, the operations at Sarigam plant were hampered for a few months, due to the fire incident that took place in January 2019. The Company resumed operations at the plant in July 2019. Coromandel took progressive steps towards upgrading its portfolio from old generics to patented combinations or recently off patented molecules. It became the first company in India to be granted Pymetrozine TC and Picoxystrobin TC registrations for indigenous manufacturing.
Indofil: Indofil is also investing in backward integration of some key products by setting up in-house manufacturing facilities for key ingredients which were earlier imported from China. On manufacturing side, the GIDC Plants has now aggregate Mancozeb producing capacity of 68,000 MT/Annum. This will not only enhance product quality, but will also make the Company a self-reliant entity, in line with the government’s vision of ‘Make-in-India’ and ‘Atmanirbhar Bharat’.
Meanwhile, more and more Indian agrochemical companies has conducted an open strategy via direct/ indirect cooperation, strategic expansions, merger and acquisitions, joint venture thus being less dependent on outsourced suppliers, aspiring to grow as a global player with its presence in international markets.
PI Industries: PI completed the acquisition of Isagro (Asia) Agrochemicals Pvt. Ltd. on December 27, 2019 by acquiring 100% stake from Isagro S.p.A. and its affiliates. Thus, the acquisition will help meet growing demand from international customers by getting to additional manufacturing capacities, synergy benefits of adjacent mfg. site, long term contract for export of products to Isagro S.p.A. and also help the Company strengthen its position in domestic market by leveraging the complementary product portfolio and pan India distribution channel of the acquired entity.
Bharat: The Company has executed a joint venture ("JV") agreement on Feb.18th, 2020, with Nissan Chemical Corporation. The joint venture will operate through a company named 'Nissan Bharat Rasayan Private Limited', a company incorporated in India in which Bharat has 30% share and Nissan has 70% share. The JV Company has decided to construct new manufacturing factory in India for various technical products. During FY2019-20, the major increase came from overseas business due to strong product portfolio. R&D is focused on bringing more new off-patent molecules and at the same time helps the Company to increase more contract manufacturing business with various MNC's and some focused Japanese partners.
Dhanuka Agritech: Launching of new products is one of the major growth indicators of the Company full stop it has launched seven new products in the last one year and it is expecting to launch two more in the coming year. Over the years, the Company has a futuristic look in R&D division and has built strong strategic partnerships with leading global innovators. The Company has world class NABL accredited laboratories and has international collaboration with leading companies of US (Corteva, FMC and Oro Agri), Japan (Arysta, Hokko, Mitsui, Nissan, Nippon Soda and OAT Agrio) and Europe.
Apart from these above, as the global biocides market has a positive outlook, many leading Indian companies plans to strengthen and scale-up their Biocides portfolio.
UPL: UPL developed new markets for the products and services, educated farmers on the use of biostimulants and brought new technologies to farmers to enhance farm productivity. In November last year, UPL announced the acquisition of Laoting Yoloo Bio-technology Co., Ltd. in China, adding a strong team, more than 150 products and a state-of-the-art plant. UPL will gain from Yoloo's broad distribution base, product registrations and access to the Chinese domestic market creating a strong footprint for growth in China.
Coromandel: Coromandel has also a strong portfolio of bio pesticides and is the largest Azadirachtin manufacturer in the world with a state-of-art manufacturing facility in Cuddalore, Tamil Nadu. Nearly 60% of the production volume gets exported to developed markets including US, Canada and Europe. Overseas marketing of bio business is undertaken by the Company’s subsidiary, Parry America in US. Besides, the Company has marketing arrangements in EU, Africa and Asia. The R&D team of the business is focusing on various initiatives, including the development of Neem standards, new delivery mechanisms such as tree injection and development of microbial bio-control agents.
Indian Crop Protection Chemicals Overview
According to Phillips McDougal, the global market for crop protection products contracted by 0.8% to US$ 59.827 billion in 2019. Generic products continued to garner better prices, particularly those manufactured in China. Latin America continued to do well with normalised inventory levels. The industry witnessed an increasing adoption of alternative genetically modified traits, experimenting with new products leading demand shift from Glyphosate to expensive herbicides such as Glufosinate-ammonium, Dicamba and 2,4-D.
India’s agrochemical market is estimated to be US$ 2.8 billion in 2019. With the recent outbreak of Covid-19, almost all the sectors of the economy are affected, leaving out only a few niche segments. Sectors that produce raw materials like agrochemicals including pesticides and insecticides are currently in high demand as agriculture and other allied activities are defined as essential commodities in the country. Moreover, increasing awareness about the use of non-toxic and environmental-friendly pesticides and the government’s initiative in this regard has helped the bio-pesticides market to grow.
Domestic Agrochemical Industry: India’s domestic agrochemical industry was estimated to grow close to 5% year-on-year. Being a net exporter of crop protection products, India exported an estimated US$ 3,660 million worth of agrochemical products in the same period. The domestic agrochemical industry in India is expected to start on a positive note in FY2021, driven by a surge in herbicide sales in Q1, pre-buying led by robust demand expectations and price increase in generic molecules. Moreover, generic molecules have seen ~5% price increase due to short supply in India as the corona virus outbreak impacted production in China. The industry expects a strong growth in FY2021 with even better prospects given the confluence of factors such as: (a) healthy monsoon trend, (b) better price realisations, (c) strong demand for herbicides to fill in for labour shortage, (d) locust infestation, and (e) higher cash transfers by government, higher MSP for select crops, higher procurement and increasing focus on farmer incomes in view of the COVID-19 pandemic.
Indian Agrochemical Exports: Indian agrochemical exports (~55% of India’s aggregate sales in FY2020) were estimated to grow at a strong 16% y-o-y in FY2020 and are projected to log ~8% CAGR over next three financial years from an estimated US$ 3.66 billion in FY2020 to US$ 4.6 billion in FY2023. India’s capability in low-cost manufacturing, a strong presence in generic pesticide manufacturing, availability of technically trained manpower, seasonal domestic demand and overcapacity will drive growth in exports, especially to countries with similar crops and/or climatic conditions. Further, patent expiry of 26 active ingredients until CY2022 is also expected to support export growth from India, as it would open up the space for post-patent manufacturers given the majority of exports are off-patent products. Supply disruptions in China over the last few years due to stringent environmental norms on chemical enterprises and the recent post Covid-19 developments led to a rise in international prices, thereby making India more competitive in the global market.
"In the midst of every crisis, lies great opportunity"
To quote Albert Einstein: "In the midst of every crisis, lies great opportunity". The Covid-19 pandemic may have an extended impact, but this means opportunities as well as challenges.
Generic Players to Benefit in Coming Years: Globally, innovators command close to 70% share in the crop protection market while there main market consists of generics. Within the off-patent market, share of patent products is 20% while generic companies hold the rest. Out of the generic crop protection market, about 25% is controlled by innovators. This means there are opportunities for generic companies to garner market share from innovators given their inherent advantages such as low prices and costs, and larger distribution networks. Indian companies are expanding their distribution networks, creating brands, innovating process technology for post patent molecules, developing better product mix(more combination products, eco-friendly formulations), becoming aggressive about registering post-patent products, and developing relationship with distributors to push volumes at more competitive prices than innovators. There are several key molecules with a market size of over US$ 4.2 billion going off-patent, which will provide a sizeable opportunity for generics players.
Potential for tie up with MNCs in Domestic Market: Indian companies which partner with leading MNCs in the agrochemical space earn as much as 50% of the total revenues by marketing the products. Although Indian partners face the risk of termination or change in agreement by their foreign partners, who generally have an upper hand in deals, the Indian market has significant growth opportunities and there is a huge potential for many such collaborations. Leading Indian companies are expected to gain as large global MNCs look to be part of India's growth story.
Opportunity in Bio-Pesticides and other Biological Products: Growth in organic foods has led to a lot of interest in bio pesticides and other biological products. Although it poses some amount of risk to traditional portfolio of products, it also presents significant potential for agrochemical companies. The use of bio pesticides grew over 12% CAGR to 11,531 MT during FY2015 to FY2019. According to Maximize Market Research, the global biocides market was valued at US$ 7.1 billion in 2017 and is expected to surpass US$ 10.5 billion by 2026: (a) Globally, the bio-pesticides market is growing at 10-15% while in India the segment constitutes only 3% of the crop protection market; (b) With increasing awareness for eco-friendly inputs and use of integrated pest management(IPM) method for crop protection, there is significant opportunity for growth of bio pesticides in agri-inputs industry.
Increasing Export Potential: China government’s clampdown on industries due to environmental concerns is increasing the cost of production in China, which is strengthening the Indian manufacturers in their global competitiveness. Further, US - China trade war and global effort to reduce dependency on China for inputs and finished products is expected to boost demand. The prevailing international market conditions become conducive for India in its desire to be a manufacturing hub and preferred destination for sourcing. Government has announced agricultural export policy and set a target of USD$ 60 billion by 2022. Government is promoting cluster-based development which will boost competitiveness of exports and domestic sales by reducing logistics cost.
Incidence of Pest Attacks: On an average agro-pests are estimated to cause 15%-20% yield losses in principal major food and cash crops. Use of agrochemicals can help mitigate the pest problem and increase crop output by 25%-50%. So far, the presence of more than 40,000 different types of insects have been recorded in India and of these about 1,000 have been listed as potential pests of economic plants, 500 pests have caused serious damage at some time and 70 have been causing damage more often. FY2019-20 saw a record locust attack that impacted more than 350,000 hectares of land in various districts of Gujarat and Rajasthan. The year also witnessed a fall-armyworm attack in kharif that destroyed maize in 14 states, mostly Maharashtra and Karnataka.
Increasing Awareness: Educating the farmers about advantages of agrochemicals and its safe usage would lead to increase in demand. Companies have been training farmers regarding the right use of agrochemicals in terms of quantity to be used, right application methodology and appropriate solutions to be used for identified pest problems.
Digital Solutions in Agriculture: Digital innovations and technologies would be part of the solution. The so-called ‘Fourth Industrial Revolution’ (Industry 4.0) is seeing several sectors rapidly transformed by ‘disruptive’ digital technologies such as block-chain, internet of things, artificial intelligence and virtual reality. In the agriculture and food sector, the spread of mobile technologies, remote-sensing services and distributed computing are already improving smallholders’ access to information, inputs, market, finance and training. Digital technologies are creating new opportunities to integrate smallholders in a digitally driven agri-food system.
India is an emerging pesticide production base, along with Vietnam, Indonesia and China’s Taiwan, which have gradually joined the global production community, supplementing the supply chain. However, the Indian market also has some inherent deficiencies, which need to be carefully measured for investment and cooperation.
From the perspective of the industrial chain, although the Indian chemical industry has bright prospects for growth, India relied heavily on China for pesticide supplies in past six years. India's overall chemical infrastructure is still relatively underdeveloped, and its access to key intermediates and raw materials is limited. Indian chemical companies are generally small and lack independent research and development capacities, as well as forward and backward integration capabilities and scale effect.
Maybe the goal should be, if it isn’t already, for the entire Indian agro-industry to strengthen itself by building trust, communicating better from top to bottom, and becoming more collaborative and less transactional oriented. Indian chemical industry needs to be upgraded to create opportunities for cooperation between China and India. Indian agrochemical companies are having a great time in the last few years because of the China factor. And the time has come for India to think beyond. Despite some difficulties, the Indian market can be considered a strategic alternative in the near future, rather than a cornerstone.
The article is from 2020 INDIA PESTICIDE SUPPLIERS GUIDE magazine.
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