Indian agrochemicals: tackling the challenges

The agrochemicals industry is an important component of the speciality chemicals industry and plays a key role in the Indian economy - protecting crops from the ravages of pests, be it insects, weeds, fungal infections or rodents. Unfortunately, for the industry, it receives more negative press than other sectors of the chemical industry, often unwarranted but occasionally deservedly.

By its very nature, agrochemicals are meant to kill. The trick is to keep its lethality species-specific and benign to others. The older generation products could be faulted on this count, but increased awareness of their mechanism of action, the science of toxicology and the relationship between structure and activity, have led to the development of novel agrochemicals that are highly potent, but selectively so. New generation products are now used at levels a few thousand times lower than products of yesteryears, and the quest for even safer products is ongoing and the focus of R&D efforts in the leading companies of the world.

Structure of Indian industry

India’s agrochemical industry can be divided into producers of technical agrochemicals - the bulk actives - and formulators who compound actives in forms that enable use. The industry is highly fragmented at both levels, with around 125 technical producers and more than 800 formulators, serving a few million farmers through a few thousand retail distributors. Many technical producers are forward-integrated into formulations, unlike in the pharmaceutical industry where there are who make nothing but active pharmaceutical ingredients (APIs).

The industry can also be divided on the basis of ownership. About 10 MNCs with a portfolio comprising patented & generic molecules, serve the local markets; compete with a much larger number of domestically-owned companies largely in the generics space and serving local & international markets. The manufacture of technicals is mostly in the hands of the latter, as many MNCs prefer outsourcing of actives from India, or increasingly China.

Intensifying competition & increasing dependence

Globally, the competitive landscape in technicals has intensified with the mushrooming of Indian companies and a much larger, export-oriented industry in China. India’s formulators have also become increasingly dependent on imports - of technicals or their intermediates. This is a vulnerability the Indian agrochemical industry shares with the pharmaceuticals industry wherein API supplies are also increasingly from China, or based on penultimate intermediates sourced therefrom. The markets for intermediates - both for agrochemicals and APIs - is clearly an opportunity Indian chemical companies need to address, by building plants with economic scale and modern technologies.

About 20 Indian agrochemical producers are active in international markets. The challenge here is to get products registered, and partnerships and outright buyouts have helped hasten market entry. The value of exports has now crossed US$2-bn and continues to grow at double-digits - akin to the pharmaceuticals industry.

Declining market-share

Producers face many challenges in the domestic market, which is seasonal, regional and fluctuating. As much as 70% of demand is in the kharif (Jul-Nov) and companies have to stock inventories well before. The business is long on credit - agrochemicals are the last thing farmers buy, well after seeds and fertilisers and offtake depends on a lot of things, including the weather, going right. Brands carry little weight, although a few MNCs have invested in brand-building efforts to shore up loyalties for new generation products. This makes the market vulnerable to fakes and dubious products, which share some have pegged as high as 40%. While this is probably an exaggeration, there is no running away from the fact that this is a problem every respectable agrochemical company faces.

Changing market dynamics

The dominance of cotton as the main market for agrochemicals has eroded with the emergence of Bt-cotton, a genetically modified version that naturally combats insects and has been enthusiastically accepted by the farming community. Rice is now the number one crop in terms of agrochemicals use, and a broader variety of ingredients are used here, in contrast to extensive insecticides usage for cotton. Consequent to this change, the share of insecticides in the total agrochemical pie has decreased and herbicides & fungicides have become more important. Indeed, these two segments are the fastest growing, reflecting both a shortage of labour to do manual weeding and the emergence of new infestations.

The states of Andhra Pradesh, Maharashtra, Punjab and Gujarat account for little more than half the total consumption, but the market has clearly become more diversified and evenly spread than was the case a few years ago.

While Indian companies account for roughly three-quarters of the market, MNCs with their new products are gaining share. Their newly launched ingredients have been well received by farmers, even though they seem highly priced at first glance, and this is because of extensive outreach efforts to communicate their value proposition. This trend could accelerate going forward and represents a threat to Indian companies that are now forced by global regulations to respect intellectual property.

Innovation - key to growth

Innovation holds the key to growth in all sectors, and nowhere is this truer than in the agrochemicals and pharmaceuticals space. In the latter a few companies are making concerted efforts to developing new products - regrettably only with an eye on international markets - but in the former no such efforts are forthcoming, individually or collectively. R&D spends in the Indian agrochemical industry are abysmally low - at less than 1% of sales - and much of this is quality control & analysis passing off as research. Even for an industry with a generics focus this is dangerously low and needs to change.

The other threat that the industry faces is from biotechnology. With plants being genetically engineered to tackle pests and other stresses, the role of chemicals as agents of protection is being questioned - and not just by the ‘green’ brigade. The leading agrochemical companies of the world - the likes of Bayer, Syngenta, DuPont and BASF - are placing big bets on this approach and have built up a significant body of work, protected by walls of patents, for growing the crops of tomorrow.

Their own agrochemical businesses are being changed on account of these strategies, but the impacts will go far beyond and impact nearly all of the industry - sooner than later!

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