The Changing Landscape of the Indian Agrochemicals Market

Date:10-26-2022

Situation Analysis

India is the second largest producer of agricultural products in the world, after China, accounting for 7.5% of global output.  Food exports is currently worth about USD 50 billion annually, making India a food basket of the world. The government is encouraging more production and more exports which bodes well for the growth in consumption of agrochemicals, both fertilizers and pesticides.

**In million bales of 170kg each

Application of pesticides per hectare in India is very low compared to other agricultural producers. For example, China uses 13 kg/ha whereas India uses about 0.5 kg/hectare.  Not only is consumption per unit area very low, the Indian farmers’ choices of pesticides are also rather limited with just 300 molecules registered in India compared to over 950 in China, over 800 in USA and the world’s total of 1175 molecules registered for use.

Source: Statistical database, Directorate of Plant Protection, Quarantine and Storage

The Indian pesticide market continues to grow quite strongly in spite of harsh challenges the industry is facing; cut-throat competition leading to widespread law violations such as illegal imports, fake or substandard products being produced and sold in the market, environmental pressures due to climate change and ever decreasing farm size (average of less than 1 hectare) making distribution and marketing extremely challenging, and the recent threat of banning a list of 27 products.  The value of the Indian pesticide industry in 2021, the fourth largest in the world, was about USD6.7 billion, with about half of that exported.  The projected compounded annual growth rate (CAGR) for India is a strong 8% for the next few years compared to 2-3% CAGR for the rest of the world.

Going forward

(1) Pesticides manufacturing 

Many more Technical grade pesticide manufacturers are expected to come into the market. Up to the year 2020, 2403 companies have been issued with pesticides manufacturing licenses and this number continues to grow. Larger manufacturers conduct in-house chemical engineering and process chemistry research to develop their chemical synthesis technologies while small players rely on recruiting experienced production engineers  from existing manufacturers. 

One major weakness of the Indian Technical pesticide manufacturing to-date has been the lack of key building blocks such as good quality Phosphorous and local availability of key Intermediates. These have to be imported from China.  Over the past five years, there has been a conscious effort to attempt to backward integrate in production to reduce reliance on China. Disruptions in supplies out of China due to domestic factors such as energy crises and clamp-downs on pollution have been compounded by the Covid-19 pandemic leading to severe production and logistics challenges arising from lockdowns. Prior to the pandemic, the sudden imposition of punitive import duties by the USA on Chinese goods including pesticides also jolted USA importers. All these factors have shaken up the world’s buyers of generic pesticides which has led to the focus on India to see if she can be a reliable alternative or second source to the Chinese manufacturers. Can India rise to the occasion? 

A handful of Indian manufacturers are seriously looking at making some intermediates but the lack of economies of scale compared to the Chinese players makes the economics of doing this a major hurdle. Of course the lack of building blocks or key raw materials is also an impediment. 

Nevertheless, many of the larger Indian Technical grade pesticide manufacturers are investing in R&D to strive for backward integration.  With this strong mindset and solid investment, some of these larger players are definitely succeeding in backward integration, though only in the production of a few molecules. They have also invested heavily on new and more sophisticated production plants, to produce not only the older molecules but the newer ones that have come off-patent recently, and they are preparing for the ones coming off-patent over the ensuing few years. 

Traditionally, Indian manufacturers have been quite well backward integrated in the production of organophosphate compounds and pyrethroids. More recently, they have overtaken China in pyridine and perhaps even in fluorine chemistry. In pyridines, notable products include Pyriproxyfen, Picoxystrobin, Pymetrozine, Chlorantraniliprole, Fluroxypyr, Picloram and Clorpyralid, they are certainly ahead not only in costings but also in technology in that they have greener production processes compared to those adopted in China. 

(2) Solutions for Indian farmers 

In spite of the severe challenges in reaching out to the small farms and relatively lowly educated farmers of India, many companies from the inputs side of the equation are offering products and services arising from agtech.  For the past decade, only industrial scale farmers of the developed world have benefited from agtech which leads to precision farming as well as greater efficiencies. They have left the poor and small farmers of the developing world further behind. 

It is therefore quite heartening to see Indian suppliers of farm inputs now keen on engaging the small farmers at the ground level with foot soldiers doing, to some extent, what agricultural extension officers in the developed world would do—disseminating information to the farmers. 

Go-to-market models focussing on direct selling, of products and services, e-commerce platforms and more organised retailing are emerging and evolving in the Indian agricultural landscape. In any case, more sophisticated offerings such biopesticides, biofertilizers, biostimulants, drones and diagnostic tools such as mobile soil test kits require foot soldiers to bring these to the farm level directly. These agtech products and services do not lend themselves to relying on the traditional retail outlets. 

This new trend has led to traditional agricultural input suppliers having to change their go-to-market business models and interestingly, also caused the emergence of new players that have never been in the market of supplying agricultural inputs before. These new kids on the block are backed by large Private Equity investors. They not only supply inputs, old and new (mostly new), but also have the financing power to buy the agricultural outputs off the farmers and place them into the local market outlets as well as export markets.  Will such new and financially powerful backward and forward integrated players in the Indian agricultural landscape change the dynamics and shake up the growing but chaotic industry? Time will tell but at least the market is evolving to one in which the small farmers are finally starting to see agtech at their farmgates. 

What’s driving the change?

The ″Make in India″ mantra of the government over the past few years, the competitive pressures at all levels of the agricultural input supply chain, the growing domestic market, increase in food exports, disruptions in supplies out of China are key factors driving the increase in pesticide manufacturing and bringing more and more players into the market.

The need and opportunities to bring agtech to the Indian farmers, investments by both new and old suppliers, are shifting from the old B to B models to a B to C one. It is by no means an overnight change. It is at the early stage and it is evolving. It is certainly heartening to see the small Indian farmers getting such attention and finally benefitting from agtech, both in terms of products and services. Maybe a win-win situation will finally prevail in the Indian agricultural landscape.

What does it take to win in the changing Indian agricultural landscape?

For overseas markets:

For the increasing number of Technical grade pesticide manufacturers leading to more cut-throat competition, product and offerings differentiation is the key to success.  Manufacturers will have to continue to innovate, to backward integrate, to become more cost-efficient in production and yet still be mindful of sustainable production techniques.

Market access through mergers and acquisitions, meaning investments downstream in the supply chain, is also critical to success. No local distributors are short of products. Knocking on their doors offering products just on price alone will lead to nowhere. 

Technologies are out there for astute manufacturers to differentiate their product offerings to gain attention and win business. For instance, there are technology platforms out there to reduce or even avoid weed and insect resistance. Tying up manufactured products to such novel technologies will certainly gain an upper-hand vis-a-vis competitors merely offering a generic. Another example of novel technology is gene editing to make crop varieties more herbicide tolerant to allow farmers more herbicide choices which will help to reduce and to overcome weed resistance as well. There are good opportunities for generic herbicide manufacturers to collaborate with gene editing companies to develop such traits in certain crops. Gene editing is not regulated as the old Genetic Modification of crops which can take anywhere from 14-16 years and USD140 million to develop a crop with a herbicide tolerance trait. Gene editing, on the other hand, can result in the development of such a trait over just 5-6 years and takes only USD 5 million. Collaboration with a gene editing company in the research will of course result in the generic herbicide manufacturer having an end-use label that legally allows farmers to use their particular herbicide along with the gene-edited seed. Both gene edited seed and herbicide will of course be sold at premium prices because of the trait and the tolerance of the herbicide.

For domestic markets:

Suppliers of inputs adopting a B to C business model of more direct sales and engagement of farmers need to offer a complete range of inputs and services to make it profitable and worthwhile. More direct engagement with farmers does not necessarily mean that the traditonal dealers are eliminated. They have their roles to play in terms of stocking and delivery of the inputs, and perhaps even in the delivery of drone spraying services. 

Agtech such as using drones to apply pesticides need to be adapted to the small farm sizes. Diagnostic tools such as mobile soil test kits that will allow farmers to save on fertilizer costs need to be handled and demonstrated to farmers by field staff or foot soldiers.

Farmers, whether from developed countries or from the small farms in India, are entrepreneurs. If the suppliers of agtech and bioagri inputs such as biopesticides and biostimulants can show them good results and a positive return on investment (ROI) they will be ready to adopt them. 

Conclusion

The changing agricultural landscape in India offers new challenges and opportunities for not only Technical grade pesticide manufacturers but also formulators and suppliers of inputs and services. Agtech and bioagri inputs suppliers need more direct engagement with farmers in order to get them to adopt these new technologies by demonstrating to them a positive ROI.

---

This article was initially published in AgroPages' '2022 India Focus' magazine.