India agri-distribution market: Small players, digital transactions pressurize on profits; Fruit cultivation takes lead in biological plant protection practices

Date:11-15-2023

Global Agri-Input Distribution Market Observation

Editror’s note: The interview column of ″Global Agri-Input Distribution Market Observation″ was firstly published in 2023 Market Insight magazine. The interviews covered different types of markets including developed economies and emerging ones.

In this column, we are aiming to gain an in-depth understanding of the current development trend of the global agricultural input distribution market and analyze its characteristics of different markets, providing reference for industry participants.

India: Small players, digital transactions pressurize on profits; Fruit cultivation takes lead in biological plant protection practices

In the Indian distribution market, we invited experts from three distributors of UPL to participate in interviews. These three distributors are located in different regions with different company scales, but they have all worked closely with UPL for many years and have rich market experience. The views they shared also reflect, to a certain extent, some of the development trends and challenges currently facing the Indian distribution market.

• The rainy season in the first half of the year was affected by El Niño and drought, resulting in severe market conditions. 

• The rapid increase in online digital transactions has pressurized traditional profit models.

• Small and local businesses are entering the market. 

• Channel inventory continues to increase. 

• Government bans resulted in fewer economically-useful compounds. 

• Focus on improving soil fertility and practicing biological plant protection.

  Eknath Khemchand Agro  

Eknath Khemchand Agro was founded by Yogeshji Gujrathi in 1989, mainly dealing in seeds, fertilizers and pesticides in India. The current head of the company is Atharv Yogesh Gujrathi from the second generation of the family, who has been running the business for eight years. The company have cooperated with UPL for more than seven years. In the first year of its cooperation with UPL, Eknath Khemchand Agro's sales reached over $1 million, and this has grown year-by-year since then. It now has nearly 1,000 retailers in India.

Interviewee：Atharv Yogesh Gujrathi, the second generation of the founder 

  VETRI VINAYAGAR AGRO TRADER  

VETRI VINAYAGAR AGRO TRADER was established in 2004 and is located in Theni district, Tamil Nadu. Surilimani is the current owner. The company started its cooperation with Bayer CropScience and UPL in 2004. In 2005, it was focused solely on UPL's sustainable agriculture solutions. Over 25% of its business comprises UPL crop protection pesticides, in addition to fertilizers and seeds. Currently, the company's total business turnover is over $5 million, ranking in the top 5 in the region.

Interviewee：Surilimani, the owner of the company

  SRI LAKSHMI TRADERS  

SRI LAKSHMI TRADERS was founded in 2003 by two agriculture experts, R. Nirmal Kumar and G. Lenin Kumar, and is located in Dharmapuri district, Tamil Nadu, India. The company first started doing business with Ranadeo Nutrition Limited, followed by UPL and JK Seeds. Initially, UPL only provided three to four products for distribution, but from 2008, the company received the entire product range of UPL. In past three years, the company has focused more on its seed business.

Interviewee： R.Nirmal Kumar, G.Lenin Kumar, the founders of the company

In fiscal year 2022 and the first half of 2023, what is the market situation for agri-input distribution channels in India? What are the key influencing factors for your company's business performance?

Atharv Yogesh Gujrathi: As an agriculture enterprise, our performance in fiscal year 2022 was quite good. It was a year when the market was gradually reopening, and price spikes stopped while shortages still existed. In the first half of 2023, the monsoon season was badly affected by the El Nino phenomenon, which in turn impacted agriculture production. The market situation was very challenging. Drought led to sluggish cash flows. Despite such a challenging situation, we were still able to maintain last year's business volumes with key companies such as UPL, which has crop solutions for almost all situations, so even during the toughest times, there is demand for UPL's products.

Surilimani: Not many changes happened during fiscal year 2022 and the first half of 2023. Many new chemistry molecules were introduced in the market across various segments. The purchasing power of stakeholders has increased year-by-year. Online platforms have also increased rapidly. People started trading through digitalization. Business is growing slowly year-by-year. Demand for fertilizers is increasing day-by-day, and we are getting good support from retailers as we also have a fertilizer business.

R. Nirmal Kumar and G. Lenin Kumar: More changes happened during fiscal year 2022 and the first half of 2023. For example, the number of small players and local companies involved in crop protection increased in the market. Online platforms also increased rapidly. Many bio companies started supplying chemicals to distributors and opened more preferred dealerships. Many companies were only into manufacturing in the past, but they are now directly involved in marketing.

Due to these changes, distributors’ margins were badly affected and they were unable to scale up their businesses. We increased volume by reducing margins to survive in the market. The overall distribution operational cost increased with reduced margins, which led to ROI reductions. More players from other states entered the business by offering lower prices, which we are unable to offer to retailers. Day-by-day, we are losing customers and business due to all the challenges we face.

What is the current inventory status of the agri-input channel in the general Indian market? How does your company draft procurement strategies and improve efficiency while facing uncertainties?

Surilimani: Overall inventories of all channels are large and increasing due to the seasonal condition. This situation will not return to normal anytime soon and may continue for much longer.

Being a distribution company, we have a good market position and can operate good schemes and benefit stakeholders. All dealers and retailers are confused about which molecule to sell due to many companies offering competitive price. We supply stocks with low margins and continuously supply based on their needs. We purchase stocks based on seasonal conditions and forecast based on stakeholders' need. As a company, we do not have inventories and we do not encourage bulk purchasing and growing inventories. 

Atharv Yogesh Gujrathi: Currently, market has a huge inventory of CP products and nutrition products. After mid-July, there was a complete dry spell, so there was much less use of CP products. We are hoping these sales will recover in the Rabi season. As rain recently started in our region, we are hoping to reduce the gap. In this situation, the company should take some business plans from sales stakeholders.

What do you think are the main challenges and new trends faced by the Indian distribution market in past years? What are your companies’ plans regarding these trends?

R. Nirmal Kumar and G. Lenin Kumar: More competitors and competitive prices make profits uncertain. Existing compounds are gradually becoming resistant and less effective than before. New chemistries and launches are more costly to farmers and retailers. Online trade disturbs the margins of all dealers by broadcasting cheaper prices. 

Digitalization helps reduce work through SAP, online payments. QR code payments enable hidden pricing for stakeholders. We are also looking to procure new products and molecules that are not available in the current market.

Atharv Yogesh Gujrathi: The credit market is increasing in Indian distribution. Farmers demand cheap generics and are also curious for new technologies and products. In the future, we will focus on new technology products. We will evolve modality as our business expands.

Surilimani: Online trade disturbs margins through false statements and wrong data. New products increase burdens, as farmers cannot afford to buy them to solve problems.

What are the similarities and differences between multinationals’ and local companies’ strategies in the Indian distribution market? What are the advantages for local companies?

R. Nirmal Kumar and G. Lenin Kumar: The market strategies implemented by the two categories are basically the same. In terms of specific operations, many multinationals operate barcodes for dealers’ reward points to strengthen business connections, something that Indian companies do not do. Initiatives by major companies like UPL can make farmers more resilient by offering them Kavach (Crop/Whether/Accidental insurance), which has caught the attention of farmers and retailers. 

For us, service capability is our core competitiveness, in other words the timely supply of all goods and services. We ensure stock availability as per customers’ need, prompt scheme management, and deliveries to doorsteps.

Surilimani: Multinationals are good at demand creation while locals focus less on this. On customer service strategies, multinationals also have separate benefit schemes for their top 15 customers.

Atharv Yogesh Gujrathi: Indian companies have open distribution while multinationals go for selective distribution only. I think customer service, capability and supply chains are musts for every distribution partner. Supply chains are very important to connecting every village where agriculture businesses are present.

How do current Indian government policies on agrochemical production, land and farmer subsidies affect the distribution market?

Surilimani: Banning chemicals like Endosulfan and Monocrotophos, which is currently under review, has affected small and marginal farmers who previously achieved good results at cheaper costs. Many have skipped spraying due to the banning of many known and unique products without analyses. The process of agricultural lands becoming residential areas should be managed to stop it affecting businesses. Because of government bureaucracy and not having schemes, farmer subsidies do not directly reach needy farmers, forcing them to quit agriculture.

R. Nirmal Kumar and G. Lenin Kumar: Many molecules have been banned without any scientific reasons. Banned products are very cheap for customers and provide good solutions. Uniform GST should be levied on all agricultural inputs. The government also encourages farmers to produce their own solar energy.

Whether in developed countries, such as Europe, or developing countries like China, reducing pesticides and fertilizers has become a government goal. How do Indian agricultural distributors view this trend? Do you have corresponding product and technical reserves?

R. Nirmal Kumar and G. Lenin Kumar: We think sustainable development should be geared up in India. I envision increasing soil fertility with a city compost company and increased use of products such as Copio and Zeba from UPL's NPP. I am considering combining Pungam and Neem with biofertilizers, as well as encouraging farmers.

Surilimani: We encourage environmental protection and sustainable agriculture, as well as educating end users on need-based fertilizer applications to avoid soil pollution from indiscriminate use. To improve soil fertility, we focus on biofertilizers. UPL's NPP business focused on true biologicals. While environmental focus is important, productivity is also key to meet our population's needs.

Atharv Yogesh Gujrathi: From a sustainability perspective, horticulture crops in India already use sound practices, such as true bio fungicides, insecticides, biostimulants and residue-free practices like PHI and MRL. Concepts like UPL Village and Pronutiva Village, which combines biological with chemical pesticides to provide more sustainable solutions for crop production, should be promoted for stewardship.

lf you want to share your company story and your understanding to the market, please contact Mickey Shan at: mickey@agropages.com

This article was initially published in AgroPages' '2023 Market Insight' magazine.