Indian Market Penetration from “Hidden Champions” -- Japanese Companies: Specializing in Small-scale, High-yielding Cooperation, Looking to Capitalize on Industry Reshuffle

India, home to 1.3 billion people, is one of the world’s major farming countries. India has an agricultural area of approximately 150 million hectares, quadrupling Japan’s national territorial area. However, India has a per unit area yield that is far below the global average. As the country needs access to more efficient modes of production, it has seen a surge in its demand for agricultural inputs such as crop protection products and fertilizers.

Many years ago, a number of Japanese agrochemical companies started to keep their eyes on India, showing great passion for investing in the Indian agrochemical market. Since then, these Japanese firms have been forging partnerships with their Indian counterparts on technology transfer projects, so far having gained respectable returns on their investments. Unlike multinational giants going on M&A spree and radical restructuring on a global scale over these years, Japanese agrochemical companies prefer to concentrate on high-yielding operations on a small scale and within a small scope, looking to capitalize on the industry reshuffle. This measure also chimes with the development strategy that emphasizes slow pace and stability, a strategy espoused by most Japanese firms.

Mitsui and Nisso Jointly Acquire 56% Stake in Bharat Insecticides Limited

Bharat Insecticides Ltd.(‘BIL’) is now associated with Mitsui & Co., Ltd.(‘Mitsui’) and Nippon Soda Co., Ltd.(‘Nisso’). Mitsui and Nisso have acquired 56% stake in BIL through a special co-founded company. The BIL’s promoters will continue to hold balance shares in BIL. As a result of this transaction, BIL has become a group company of Mitsui. The new relationship with Mitsui and Nisso will further strengthen BIL’s ability to deliver innovative crop protection products and support the sustainable growth of India’s agriculture sector.    

Joint MD Mr. Kimihide Kondo shared Mitsui’s vision and confidence on consumption led growth story of Indian economy and mentioned, “Although Mitsui has been active in the rapidly growing Indian agrochemical industry, this investment into BIL provides us the exciting opportunity to contribute in mainstream manufacturing and distribution of plant protection products in India. Japan and India share a strong cultural and business relationship and in the same spirit, we are committed to bringing more products and technologies to Indian agriculture through our global footprint. BIL, through its aggressive business approach, committed employees and strong industry relationships allows us to gain a strong base in India as India expands its influence on global agrochemical industry.”

L to R - Mr. Shinya Michino, Deputy Vice President- Sales; Mr. RP Gupta, Promoter; Mr. Kimihide Kondo, Joint Managing Director, Mitsui; Mr. SN Gupta, Founder Promoter; MP Gupta, Promoter and Mr. Dharmesh Gupta, MD, BIL

Mitsui is a global trading and investment company with annual revenue of USD 63 billion. Mitsui has a diversified business portfolio that spans approximately 65 countries in Asia, Europe, North, Central & South America, The Middle East, Africa and Oceania. Mitsui has a long heritage in Asia, where it has established a diverse and strategic portfolio of businesses and partners that gives it a strong differentiating edge, provides exceptional access for all global partners to the world’s fastest growing region and strengthens its international portfolio. Through this partnership, Mitsui will boost the synergy between BIL, Nisso, and Mitsui, accelerate the integration of operations, and contribute to the development of local agriculture in India.

Mitsui has built trust-based relationships with its customers and partners around the world in the business of supplying agrochemicals, fertilizers, seeds, and other agricultural supplies that contribute to improving the productivity and quality of agricultural produce. Mitsui has significantly contributed to a stable global food supply through its distribution platform in Europe (Mitsui AgriScience International (MASI) Europe, a wholly owned subsidiary) and its biologicals company in the USA (Certis USA, also a wholly owned subsidiary). Recently, Mitsui has been strengthening its global distribution platform with its investment in Ouro Fino Quimica Ltda (Head Office: Sao Paulo, Brazil). Mitsui also plays an active role in the intermediates business of agrochemicals and works closely with many agrochemical manufacturers in India and globally through its strategic relationships.

Sharp-eyed Sumitomo Chemical Seeks Widespread Presence in India

Given the strong demand of growing Indian population for food, Sumitomo Chemical stays positive on the prospects of the country. In the past two decades, to ensure its business growth in India, the company has made a few investments, and it will continue to power its future growth there. In 2000, Sumitomo Chemical established Sumitomo Chemical India Limited(‘SCIL’) as its base for producing and selling crop protection products in the country. Since then, Sumitomo Chemical has been taking wide-ranging steps to consolidate the foundation of its crop protection business in India. Specifically, these steps include without limitation: establishing a joint venture Mahindra Summit Agriscience Ltd. in partnership with local company Mahindra Agri Solutions Ltd.; purchasing several products from a leading multinational company in 2006; acquiring New Chemi Industries, an Indian agrochemical firm in 2010.

Most strikingly, in 2016 Sumitomo Chemical acquired the majority interest in Excel Crop Care Ltd.(‘ECC’) -- a listed Indian agrochemical company that enjoys a strong brand and multiple sales channels -- thereby fortifying the position of the Japanese firm in the Indian market. The aforesaid merger has been successfully completed and took effect as of August 31, 2019. The entity after the merger is named Sumitomo Chemical India Limited(‘SCIL’).

Mr. Chetan Shah, existing Managing Director of ECC and newly appointed Managing Director of SCIL said “Merger of SCIL and ECC is an important step in the ongoing growth journey towards creating a leading agrochemical company in India. The merger shall create greater operational synergies, deliver maximum value for our shareholders and a superior experience for our customers. We expect synergies at multiple levels from the merger especially in expanded distribution reach and R&D capabilities and as it opens up possibilities to create novel combination products by combining specialty products and generic products.”

Worldwide, agrochemical companies without an advantage in industrial chains tend to struggle to gain a footing in the market. The merger of Excel Crop Care and Sumitomo Chemical India will help to cope with the impact from price hikes of Chinese products. Given their similar business and highly complementary operations, the merger of the two companies will result in a massive enterprise with powerful product supply capabilities. In addition, they can utilize their management resources in a more centralized and more efficient manner. This will enable the new company to become a leader in India’s crop protection market that is expected to maintain fast growth, thus delivering long-term benefits. The merger may likely generate key operational synergistic effects and process efficiencies including:

- Highly complementary business. All of Excel’s products are generics, whereas 63% of Sumitomo Chemical India’s products are patented (special) chemicals;

- Share 13,000+ distributors in India and expand the distribution network to boost sales;

- Collaboratively research, develop, and roll out products to expand product mix and reduce customer concentration, thus mitigating business risk;

- After the merger, the new company will round out top 5 agrochemical companies in India. In conducting international business, Excel can also leverage Sumitomo Chemical’s global influence to earn a better reputation and continue to benefit from the innovation and R&D capabilities of its parent company.

Sumitomo Corporation Set Up Agrochemical Trading Branch in India, To Deepen Influence in Asia

Sumitomo Corporation is expanding its business segments in Asia, its region for agriculture busines that is next only to Europe and America. Sumitomo Corporation is committed to improving the safety and productivity in crop production across Asian countries. As their economy develops and population grows, some parts of Asia including India and Southeast Asia have seen a spike in their demand for food, and therefore need to improve their agricultural productivity. Once the agricultural productivity is improved, farmers will have higher income, and there will be less impact on agriculture from uncertainties such as weather events.

In April 2018, Sumitomo Corporation and its Summit Agro founded a subsidiary Sumisho Agro(‘SAIN’) in India, which engages in agrochemicals trading business in the country. SAIN is primarily responsible for registration. It also works to improve the new products from Japanese agrochemical producers to make them safer and better. SAIN is dedicated to maximizing the sales of the products sourced from Japan. In addition, the company will also purchase more raw materials in India and strategically cooperate with Japanese agrochemical producers. Japan-based Summit Agro was responsible for the local business of SAIN in India. But now, SAIN can respond faster to the change in market demand. By supplying locally purchased merchandise through Sumitomo Corporation’s sales network, SAIN will further demonstrate the influence of its parent company in the Asian agrochemical market.

What’s more, Sumitomo Corporation, in conjunction with Summit Agro International Ltd., invested in Mahindra Summit Agriscience Limited(‘MSAS’). MSAS is a company established by the distribution arm of crop protection products, spun out from Mahindra Agri Solutions Limited (‘MASL’). MASL is a wholly-owned subsidiary of Mahindra & Mahindra Limited(‘Mahindra’). In October 2018, Sumitomo Corporation acquired a 40% stake in MSAS to take over the crop protection product distribution business of MASL. Additionally, since January 2019, Sumitomo Corporation has been involved in matters in connection with obtaining registration and license.

Mahindra, India’s largest tractor manufacturer(with a 42% market share), is also exposed to automobiles, irrigation equipment, IT, and others, having established a vast marketing network across India. Mahindra Group, with which Mahindra is affiliated, enjoys high visibility and exceptional credibility in the industry. Sumitomo Corporation, boasting its extensive experience and skills in global distribution, has absolute confidence in the sales performance of its crop protection products. The partnership between the two companies will deliver new value to India’s agriculture sector as well as to local farmers.

Sumitomo Corporation has been expanding its distribution business of crop protection products. After this investment in MSAS, the company’s business will cover 90% of the major 20 countries in the global crop protection market.

Nissan Chemical Implements Expansion Strategy Oriented towards Market Demand

Nissan Chemical has longstanding partnerships with Indian firms such as Insecticides India Ltd. and Dhanuka Agritech. As early as in February 2012, Nissan Chemical announced a marketing partnership with Insecticide India to sell its fungicide Pulsor(effective active ingredient: thifluzamide) in India, used for preventing rice sheath blight.

“Pulsor enjoys a huge market in India. In the country, the market size of all fungicide products related to rice is roughly INR 8 billion, and that of fungicides related to the prevention of sheath blight is INR 2 billion. This product proves phenomenally successful in Japan, Brazil, Mexico, Columbia, China, Vietnam, and many other countries,” said Rajesh Aggarwal, general manager of Insecticides India.

Moreover, in 2017 Nissan Chemical set up a new crop protection branch in Haryana, India, so as to strengthen its ties with local partners, thereby securing marketing and development capabilities more oriented towards local demand. Nissan Chemical regards India as a market with great growth potential, a market to which it will continue to increase its crop protection exposure.

On February 18, 2020, Nissan Chemical signed a joint venture agreement with Bharat, an India-based firm. The joint venture, named Nissan Bharat Rasayan Private Limited, is 30% owned by Bharat and 70% by Nissan Chemical. The newly established company has decided to build a plant that can produce various technical concentrates in India, to invest more in the following dimensions: expanding capacity; providing new capacity for major inputs; having more products registered; strengthening R&D to develop relevant products for critical markets.

Nihon Nohyaku Increases Stake in India Subsidiary, To Solidify Position of Overseas Production Base

Taking India as one of its most strategically significant countries, on March 11, 2015, Nihon Nohyaku acquired a stake in Hyderabad, in a bid to set up a direct marketing and production base in India. After the acquisition, through integration, Nihon Nohyaku established synergistic effect with Hyderabad. This includes producing and selling its patented compounds in India, as well as selling finished products through Hyderabad in the country.

In 2017, Nihon Nohyaku announced that it had increased its stake in its India subsidiary from 74.00% to 99.94%. As its stake increased, Nihon Nohyaku renamed this subsidiary from Hyderabad to Nichino India Private Limited, in an effort to strengthen its presence in India and beyond. Moving forward, Nihon Nohyaku will continue to consolidate its business by strengthening market and product development in India. Meanwhile, it will fortify the position of Nihon India as the overseas production base for its patented active ingredient, thereby expanding its overseas business.

In addition, Nihon Nohyaku is proactive to dialog with more Indian firms, seeking to build partnerships with them, and has reached some agreements. Nihon Nohyaku announced that it has, in tandem with Insecticide India, rolled out a new generation of insecticide product branded as SUZUKA, which can be used for rice, beans, and vegetable crops.

“We are committed to offering new technical products accessible to farmers. We are glad to work together with Nihon Nohyaku to roll out SUZUKA to raise farmers’ income. It will be another famous brand,” said Rajesh Aggarwal, general manager of Insecticide India.

Summary

These years have seen increasingly close and frequent cooperation between Japanese agrochemical companies and their Indian counterparts. To de-risk, many Japanese companies have veered their investments towards India, a country with low production and human costs. A few of these companies have started to build plants, or to seek acquisitions and partnerships in India. Indian companies, at the same time, take advantage of their channels to introduce new products and technology from these multinationals, in order to further seize their market shares. 

Over many years, the Indian market is well known as a provider of high-quality generic preparations to different global markets. As Japanese companies continue to acquire their Indian counterparts, these Indian firms have strengthened their technological forces, thus playing an increasingly important role in the global supply chains. Given that Japanese agrochemical companies and their Indian counterparts match each other in demand, it is projected that over the years to come, such transactions between the two sides will continue; and that they may cooperate within a broader scope and in more diversified ways.

The article is from 2020 INDIA PESTICIDE SUPPLIERS GUIDE magazine.