Organized by

Dept of Chemicals & Petrochemicals Govt of India

AGROCHEM CALS
February 10-11, 2011 Venue: Nehru Centre, Mumbai

Conference on

2011

Theme: Opportunities, Challenges, Innovations and Imperatives for Growth of Indian Agrochemical Industry

Knowledge Partner

Website: www.ficci.com

AGROCHEM CALS

Conference on

2011

Content
Preface n . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 01 . . . . . . . . . . . . . . . . . . . . . 03 Farming solutions - the next frontier for n breakthrough growth of Indian agrochemical companies Introduction to Agrochemicals . n Global n market overview . Indian n market overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . 07

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 09

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 . . . . . . . . . . . . . . . . . . 28

IPM nand newer methods of crop protection Profiles of key manufacturers. n

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Preface
Jai Hiremath
Chairman, National Chemicals Committee, FICCI Vice Chairman & Mg. Director, Hikal Ltd.

FICCI is jointly with Dept. of Chemicals & Petrochemicals, Ministry of Chemicals & Fertilizers, Govt. of India is organizing "Conference on Agrochemicals-2011" on February 10-11, 2011 at Nehru Centre, Mumbai. The theme of the conference is "Opportunities, Challenges, Innovations & Imperatives for Growth of Indian Agrochemical Industry". The conference is supported by Crop Care Federation of India, CropLife India & PMFAI. The one and half days "Conference on Agrochemicals-2011" would provide a roadmap for the Indian Agro industry in terms of globalization, the key issues involved in globalization, some of the challenges faced by the industry in terms of improving the productivity and how the industry should be more export oriented than it is today. Theme of the conference "Opportunities, Challenges, Innovations & Imperatives for Growth of Indian Agrochemical industry" would indeed serve its purpose by throughing light on Indian Agrochemicals Industry. Recently Task Force on Chemicals was set up by Chemicals & Petrochemicals, Govt. of India, headed by Shri Arun Maira, Member, Planning Commission, covering the entire chemical industry, divided into various sub-sectors. I am heading the sub-sector Agrochemicals. Important Recommendations on Agrochemicals will be mentioned in my "Theme Presentation" at the conference. The global market of pesticides and agro industry is very huge ~$44 billion. Globally, due to higher productivity, decline in the green movement, tight regulations and better crop management, the pesticide industry is not growing very rapidly. In fact, it is stagnant or slightly declining. In India, the agro industry has grown significantly over the last 30-40 years from a mere Rs.400 Cr. to over Rs. 8,000 Cr. today. The Indian Agrochemical industry is the fourth largest in the world only after the US, Japan and China and has undergone many changes over the years. Insecticides account for the largest share of the Indian crop protection market - 55%. Fungicides - 20%, Herbicides - 20% and Bio-pesticides and others - 5%. The consumption pattern is: paddy pesticides - 28%, cotton pesticides - 20% and others 52%. Exports account for over 47% of total Indian agrochemicals industry turnover. In India 60%-70% of the population lives on agro income. Nearly, one-third of our GDP is agrobased. We earn a very significant part of foreign exchange. The agrochemical industry can play a very important and a very vital role. Our agro industry management is something we should debate

01

about, with over Rs.1,40,000 Cr. of food grains wasted in transportation after production. We can always compare global numbers on the use of pesticides in India - about 600 grams per hectare versus 7 kg. in USA and 13 kg in China, which shows lack of pesticide usage or technology in terms of crop management. We need to address some of the issues of low productivity in our rural crop management. The industry needs to take a step beyond selling the product to helping in better crop management practices, which will in turn contribute to the growth of the domestic industry. Continuous innovation has led to development of crop protection products with lower usage rates and better degradability leading to lower environmental loading, improved human safety profile for farmers, workers and consumers, high biological efficacy, selective control of target pests, increased safety to specific beneficiaries, naturally occurring insects and organisms. India needs countryspecific research and investment opportunities, proper legislation on patent and data protection to exploit our own intellectual skills. There is tremendous opportunity for the Indian Pesticide Industry to manufacture and introduce off patent products. However due to ambiguity in registration the progress of the industry has been on hold. With our huge talent pool of qualified Indian scientists and technicians, we should look at increasing investments and are well capable of introducing newer molecules. Ample opportunities are available for growth. With better infrastructure and R&D programmes funded by Government, the Indian agrochemical industry could look forward to a very robust 15%-20% growth in the future. The comprehensive Report prepared by FICCI and Tata Strategic Management Group (TSMG) would help potential foreign and domestic investors in understanding the vast investment opportunities available in Indian Agrochemicals Industry. The report will also serve as a ready reckoner for those connected with Agrochemical Industry. This conference on agrochemicals is the most timely initiative and I am sure the participants would benefit immensely from the event.

I wish the event all success.

Jai Hiremath

02

Farming solutions - the next frontier for breakthrough growth of Indian agrochemical companies
India has a population of 1.18 billion which is expected to reach 1.45 billion by 2030. This rising population will lead to increasing demand for food grains. On the other hand, per capita land available for agriculture has been steadily decreasing. This coupled with rapid urbanization and non availability of agricultural manpower has had a strong impact on farm production. Agricultural produce has not been growing in tune with demand. Currently average crop yields in India are much lower than global benchmarks. For example, average yield for rice is 3.2 tons/ha in India vis--vis 4.2 tons/ha globally. Similarly, yields for soybean and corn are 1.0 and 2.4 tons/ha domestically compared to 2.5 and 5.0 tons/ha globally. The current price increases of food products reflect the situation having reached alarming levels and we have to rely on imports to meet our domestic consumption. This is only expected to worsen further if we do not take necessary steps to reverse it. Improving crop yields has become very critical and will become imperative in the future. India has the resources necessary to meet all its increasing needs and be left with a handsome surplus if we can use our significantly large area under cultivation effectively. This would however call for a holistic 'friend of the farmer' approach, offering locally relevant farming solutions, where agrochemical companies could lead and benefit by improving yield and productivity. The Indian agrochemical industry, which is Rs. 15,000 Cr today, could grow well beyond its aspirational target of Rs. 50,000 Cr by 2020. The opportunity lies in developing and executing innovative farming solutions that address the needs of the Indian farmer with very low landholding size, resources and knowhow available to him. Farming solutions would require a collaborative approach together with seed technology, IT, nutrients and other service providers. For the agrochemical companies it implies that to achieve such growth, capacity additions of over 100,000 tons would be required with significant capital investments of over Rs 3,000 Cr. In addition, substantial investment will be required for R&D and farmer-awareness activities. Besides effectively creating farming solutions with other partners, the Indian agrochemical industry itself faces critical challenges which could hinder its growth if not addressed effectively. The industry is predominantly generic in nature with very little investment in R&D. Lack of awareness amongst farmers on usage of agrochemicals and best practices followed globally is a major roadblock for the growth of the industry. Current per capita consumption of pesticides in India continues to be very low at 0.6 kg/ha compared to 7 kg/ha in USA and 13 kg/ha in China. It is estimated that crop losses in India due to non usage of agrochemicals amount to Rs. 90,000 Cr p.a. Relatively weak IP protection regime is another area of concern. A huge parallel market for spurious and spiked

03

pesticides exists which leads to significant revenue loss for genuine manufacturers. In addition, long lead times for new product registrations and non-availability of land and regulatory clearances are hindrances to setting up new investments. The Indian agricultural landscape is distinct from most other countries of the world and needs to be well understood to arrive at relevant farming solutions. We have a largely fragmented land-holding structure (refer fig.1) with subsistence farming in several regions. Farmers are typically not educated or exposed to modern methods of farming. The fragmented and small landholdings translate to lesser spending power by individual farmers for seeds, irrigation, fertilizer or agrochemicals. Deeper understanding of the market by geography, perhaps even at a district level, becomes critical to success. These differences need to be clearly understood and call for customized solutions to suit India's diverse agro-climatic conditions. Agrochemical companies can take the lead to look beyond the traditional offerings and adopt a

Fig. 1: Land ownership pattern by district - rural India

04

holistic approach to farm management to enable India to achieve its true potential in agriculture. These companies have a strong farmer-connect and reach, with the potential to influence and change the way farming is traditionally done in this country. If ever there was a burning platform necessitating this, it is now! The Indian market abounds with such examples where innovative and customized solutions have grown the market and catapulted the first movers to market leaders. The automotive industry in India received a strong fillip with India becoming a manufacturing hub for small cars. A call to develop the low cost car meeting specific needs of the Indian customer who could not afford it earlier, helped to create and proliferate the low end 'micro' segment. Similarly, the paint industry experienced a huge growth with introduction of tinting machines which offer customized paint solutions closer to point of sale, recognizing the Indian consumer's need for tailored shades and 'look and feel' before deciding. Castrol took the initiative to develop a completely new channel for lubricant sales. This offset the disadvantage of not being able to utilize traditional sales channels, which were controlled by PSUs, and created a robust distribution network for Indian motorists and car owners through other points of sale. Let us consider the benefits of adopting a holistic and innovative approach with the case of pulses. A brief study indicated that India could more than double its current production of pulses if crop nutrients, timely availability and usage of better seed varieties, requisite irrigation and proper storage were available (refer fig.2). This would improve our yield to global levels and help us meet our domestic demand. Arriving at the solutions innovatively recognizing the Indian context is critical. However the real challenge lies in the execution. First movers will be able to reap the benefits and enjoy sustainable growth.

Fig 2: Realizing India's potential for production of pulses

05

Agrochemical companies could adopt specific crops or geographies within their sphere of influence and help farmers increase output. This may mean working with various stakeholders such as microfinance companies, adopting contract farming, increasing farmer awareness through demonstrations and extension services, propagating better farm practices, ensuring right usage of crop protection chemicals, increasing usage of hybrids/ GM seeds and providing better storage facilities to reduce post harvest losses. The power of IT can be effectively leveraged to provide farmers with timely advice and guidance for improving productivity, addressing pest related issues and optimizing the value chain.

06

Chapter 1

Introduction to Agrochemicals
Introduction
With increasing population, demand for food grains is increasing at a faster pace as compared to its production. Moreover, every year, significant amount of crop yield is lost due to non usage of crop protection products. Agrochemicals are used to improve crop performance, yield or control pests, etc. Agrochemicals are substances manufactured through chemical or biochemical processes containing the active ingredient in a definite concentration along with other materials which improve its performance and increase safety. For application, these are diluted with water in recommended doses and applied on seeds, soil, irrigation water and crops to prevent the damages from pests. There are broadly 5 categories of crop protection products: 1. Insecticides: Insecticides protect crops by killing insects or preventing their attack. Insecticides may attack a particular type of insect or could be broad spectrum insecticides. Insecticides are used to manage the pest population below the economic threshold level. E.g. Chlorpyrifos is used to control insect pests in crops such as cotton, corn almonds, etc. 2. Fungicides: They are used to prevent the deterioration of crops due to fungi infestation. Fungicides are classified as protectants or eradicants. Protectant fungicides prevent or inhibit fungal growth and may have to be applied at regular intervals. Eradicant fungicides kill the pests on application. E.g. Anilazine is used to control fungal attack on lawns and turfs, cereals, coffee and various vegetables and other crops. 3. Herbicides: Herbicides or weedicides are used to prevent the growth of unwanted plants in a crop field. Herbicides could be selective, which kill the unwanted plants without any harm to the crop, or non-selective which kill all the plants. E.g. Glufosinate ammonium, a broad-spectrum contact herbicide, is used to control weeds after the crop emerges or for total vegetation control on land not used for cultivation. 4. Bio pesticides: These are derived from natural substances like plants, animals, bacteria and certain minerals and control pests by nontoxic mechanisms. Bio-pesticides are considered ecofriendly and easy to use. They could be classified as microbial pesticides, plant incorporated protectants and biological pesticides. They are of low volume and high effect formulations and require lesser dosages as compared to chemical pesticides. A growth area for bio-pesticides is in the area of seed treatment and soil amendments. Example of bio-pesticides includes Bacillus subtilis which is used as soil inoculant in horticulture and agriculture.

07

5. Others (Nematocides, Rodenticides etc): Fumigants and rodenticides are used to prevent the attack of pests during storage of crops. Plant growth regulators control or modify the plant growth process and are most commonly used in cotton, rice and fruits. As per Govt. of India, crop losses due to non-usage of pesticides were 28% of the yield amounting to ~ Rs. 90,000 Cr per annum (2002 estimated). It is estimated that the present food grain production can jump from 3 Trillion to 4 Trillion by using crop protection products. Therefore, right usage of crop protection chemicals is essential in increasing agricultural production by preventing crop losses before and after harvesting.

Losses caused by different pests (%)

Rodents & Others, 15% Weeds, 33% Diseases 26%

Insects,
Source: Govt. of India estimates 26%

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Chapter 2

Global market overview

Global market overview
The global crop protection industry has registered a growth of 6% p.a. from 2005 to reach USD 43.2 Bn in 2009. This market is expected to grow further owing to the increasing food and fuel needs and is expected to grow at 4% p.a. to reach ~USD 54 Bn in 2015.

Global Market size (USD Bn)

6% 33.2 25.8

43.2

2001

2005
Source: Industry reports, Tata Strategic analysis

2009

2.1 Geographical distribution

The crop protection chemicals market is mainly concentrated in the major developed countries such as United States and Western European nations. Europe has the largest share in the agrochemical market followed by Asia, Latin America and North America. There is an increased usage of products in Europe due to high commodity prices and in order to boost yield and quality. Increased demand for palm oil has led to increasing usage of herbicides in Japan, Malaysia and Indonesia. Strong rice prices and other food grains are driving the agrochemical consumption in India. In Latin America, increased production of soybean and sugarcane for animal feed as well as for bio-fuels is the driving the growth of agrochemical consumption.

09

Global geographical share, 2009

ROW, 4% North America, 23%

Europe, 29%

Latin America, 19% Asia, 25%

Source: GOI Task Force on Chemicals

It is believed that the crop protection chemicals market has reached its saturation in developed regions such as North America and Western Europe whereas regions such as Asia Pacific, Middle East and Latin America will offer high growth opportunities in the future.

2.2 Global market scenario

The global crop protection market is fairly consolidated with top nine companies accounting for over 80% of the market. Syngenta, Bayer and BASF are the market leaders in the global crop protection market.

Market share by Revenue, 2008 (%)

Sumitomo Chemical, 3.40% MakhteshimAgan Group, 5.50% Dupont, 5.7% Nufarm Limited, 5.9% Dow, 8.8% Monsanto, 10.8% BASF SE, 10.9% Bayer, 17.0% Others, 13.1% Syngenta AG, 18.9%

Source: Industry reports, Tata Strategic analysis

10

Global crop protection market is characterized by large number of mergers and acquisitions in the recent years. Several large companies have consolidated their presence in the existing geographies or ventured into newer areas through acquisitions of local companies. Some of the recent acquisitions include Arysta LifeScience's acquisition of Volcano Agroscience Limited in 2005, Nufarm's acquisition of Agripec (Brazil) in 2007. In 2010, Cheminova acquired insecticide business from Isagro (Italy) to strengthen its presence in emerging markets of India and Italy.

Some recent acquisitions

Year
2005

Acquirer
Makhteshim Agan Group Arysta Lifescience Corporation Nufarm Limited Nufarm Limitd Bayer CropScience

Target Company
Biomark Inc

Highlights Makhteshim Agan acquired 70% of Biomark Trading House Ltd. Acquisition enabled increased service & activity for MakhteshimAgan in Hungarian market Arysta acquired 50% stake in Callietha Investments, including Volcano Agroscience to increase its presence in South Africa. It later acuired the remaining 50% in 2008 Nufarm Limited acquired crop protection business business of Agrisol SRL to strengthen its presence in Italy Nufarm acquired 49.9% in Agripec in 2004. It acquired the remaining 50.1% to develop its business in South America Bayer CropScience acquired a biotechnology company, Athenix Corp. The deal helped Bayer to Strengthen its R&D presence in North America Cheminova acquired the insecticide business business of Isagro to strengthen its presence in Italy & gain access to new markets such as India

2005

Volcano Agroscience Agrosol SRL Agripec (Brazil)

2006 2007

2009

Athenix Corp.

2010

Cheminova

Isagro

Source: Industry articles, Tata Strategic analysis

2.2.1 Distribution of global crop protection market - Product category

Herbicides are the most widely used agrochemical products globally, followed by insecticides and fungicides. Fungicides is the highest growing segments as it helps increasing yield, improving quality and in seed treatment. Individual sales of various categories however depend on climatic conditions and crop variance.

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Market distribution by product category, 2009 (%)

Others, 3% Insecticides 26%

Herbicides 45%

Fungicides 26%

Source: Phillips McDougall

Herbicides are used in most of the regions of the world. However, major markets for herbicides are North America and Europe due to the favorable climatic conditions in these regions. Insecticides are more prevalent in Asian countries. This is due to higher growth of cotton, cereal, fruits and vegetables in these regions which have higher incidence of insect attacks. Increased usage of genetically modified crops in North America has reduced the usage of insecticides. Fungicides are used in almost all agriculture markets of the world due to favorable climatic conditions for the fungal growth.

Product category Top molecules - Global Herbicides Insecticides Fungicides Glyphosate, Triazines, Sulphonyl urea Pyrethroids, Organophosphates, Neonicotenoids Triazoles, Strobillurin, Dithiocarbamates

2.2.2 Distribution of global crop protection market - Crop-wise

Globally, fruits and vegetables and cereals account for the largest share of the crop protection industry.

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Market distribution by crops, 2008 (%)

Others 18.30% Cotton, 5.40% Rice, 8.70% Soybean, 10.10% Cereals, 18.10% Maize, 13.20%

Fruits & vegetables 26.20%

Source: Phillips McDougall

2.3 Global Trade of crop protection products

India, China, France, Germany and US are the largest exporters of crop protection products while Brazil, Canada, Poland, Russia and Mexico are the major importers.

Leading agrochemicals exporting countries by sector, 2009 ($ Mn) Insecticides USA France India China Germany 609 545 500 438 423 Fungicides Germany France UK Spain Switzerland 951 917 578 460 341 Herbicides USA France Germany Belgium China 1165 1096 1092 943 758

Source: Phillips McDougall

2.4 Global Industry Challenges

1. Market saturation: The crop protection market is believed to have reached a saturation point in most of the developed regions such as North America and Western Europe. Hence, there is limited scope for growth in these markets.

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Crop Protection Market forecast (USD Bn)

CAGR
3.2%
3.4%

16.7 14.5

14.1 12.4

2010E North America

2015E Europe

Source: Industry reports, Tata Strategic analysis

2. Evolution of biotechnology: Development of genetically modified crops in recent years, especially for pest resistance would result in relatively lesser need for traditional crop protection chemicals. However, this could lead to newer strains or pests driving need for other agrochemicals. E.g. new sucking pests have emerged causing significant harm to the BT cotton. 3. Stringent regulations: Stringent environmental regulations across all countries increase the cost of developing new products. These regulations are primarily affecting the older products while at the same time resulting in delay in introduction of new products. 4. Mergers and Acquisitions effecting SMEs: Larger companies are acquiring/ entering into strategic alliances with smaller companies to increase their market reach. This poses a threat to local companies who are forced to reduce prices in order to compete, thereby leading to lower margins. 5. Alternate methods for crop protection: Alternate methods such as natural products are being increasingly used which would affect the chemicals market. For example, more and more biological pesticides are being introduced.

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Chapter 3

Indian market overview

Indian market overview
The crop protection chemicals accounts for ~2% of the total chemicals market in India. The domestic crop protection market is estimated at ~USD 1.8 Bn and has grown at 5 % p.a. in the last five years. However, owing to greater export opportunities and introduction of newer molecules the industry is witnessing high growth rates in recent times. Currently, the exports of crop protection chemicals are estimated at ~USD1.6 Bn.

Crop protection market, FY10E (USD Bn)

Exports 1.6

Domestic 1.8

Total ~ USD 3.4 Bn

Source: GOI Task Force on Chemicals

3.1 Industry structure

The crop protection industry in India is generic in nature with ~80% of the molecules being non patented. Hence, strong distribution network and brand image act as competitive factors. Crop protection chemicals are manufactured as technical grades and converted into formulations for agricultural use. The crop protection industry consists of technical grade manufacturers, formulators producing the end products, distributors and end use customers. According to Pesticide Monitoring Unit, GOI, there were about 125 technical grade manufacturers, including about 10 multinationals, more than 800 formulators and over 145,000 distributors in India in 2007. Over 60 technical grade pesticides are being manufactured indigenously.

15

Technical grade manufacturers

Formulators

Distributors

End use customers

Technical grade manufacturers sell high purity chemicals in bulk (generally in drums of 200-250 kgs.) to formulators. Formulators, in turn, prepare formulations by adding inert carriers, solvents, surface active agents, deodorants etc. These formulations are packed for retail sale and bought by the farmers.

3.2 Indian market scenario

India due to its inherent strength of low-cost manufacturing and qualified low-cost manpower is a net exporter of pesticides to countries such as USA and some European and African countries. Exports formed ~47% of total industry turnover in Fy10. The industry suffers from high inventory (owing to seasonal and irregular demand on account of monsoons) and long credit periods to farmers, thus making operations 'working capital' intensive.

3.2.1 Domestic consumption

Consumption of crop protection products in India is among the lowest in the world. Per capita consumption of crop protection products in India is 0.6 kg/ ha compared to 13 kg/ ha in China and 7 kg/ ha in USA. Some of the reasons for low consumption in India are low purchasing power of farmers, lack of awareness among farmers, limited reach and lower accessibility of products. This presents an immense opportunity for the crop protection industry to grow in India

Per capita consumption: Fy09 (kg/ ha)

17 13

12

7 5 5

0.6

Taiwan China

Japan

USA

Korea France

UK

India

Source: Industry Report, Tata Strategic Estimates

16

3.2.2 Distribution of domestic crop protection market - Product category

Insecticides form the largest segment of the domestic crop protection chemicals market accounting for 55% of the total market. It is mostly dependent on rice and cotton crops. Herbicides are the largest growing segment and currently account for 20% of the total crop protection chemicals market. Sales are seasonal, owing to the fact that weeds flourish in damp, warm weather and die in cold spells. Rice and wheat crops consume the major share of herbicides. Increasing cost of farm labor will drive sales of herbicides going forward. Fungicides, accounting for 20% of the total crop protection market, are used for fruits and vegetables and rice Farmers moving from cash crops to fruits and vegetables and government support for exports are increasing the fungicides usage. Biopestiocides include all biological materials organisms, which can be used to control pests. Currently a small segment, bio-pesticides market is expected to grow in the future owing to government support and increasing awareness about use of non-toxic, environment friendly pesticides.

Segment Insecticides Fungicides Herbicides Bio-pesticides Others

Major Products Acephate, Monocrotophos, Cypermethrin Mancozeb, Copper Oxychloride, Ziram Glyphosate, Isoproturan, 2,4-D Spinosyns, neem based Zinc Phosphide, Aluminium Phosphide

Main Applications Cotton, Rice Fruits, Vegetables, Rice Rice, Wheat Rice, Maize, Tobacco Stored produce

With increasing penetration of BT cotton, usage of insecticides has witnessed a decline in the recent past. Its share in the total crop protection chemicals has reduced from 69% in 2004 to 55% in 2009. On the other hand, share of herbicides and fungicides has increased from 17% and 13% respectively in 2004 to 20% each in 2009. This is due to increased focus on fruits and vegetables and higher awareness levels among end users.

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Market distribution by product category FY04 (% of total)

Biopesticides & Others, 1%

Market distribution by product category FY09 (% of total)

Biopesticides & Others, 5%
Fungicides 20%

Fungicides 13%

Herbicides 17% Herbicides 20% Insecticides 55%

Insecticides 69%

Source: Industry reports, Tata Strategic analysis

Source: Industry reports, Tata Strategic analysis

3.2.3 Distribution of domestic crop protection market - Crop-wise

Paddy and cotton are the major consumers of crop protection chemicals accounting for 28% and 20% respectively of the total domestic crop protection chemicals market. Fruits and vegetables also account for a significant share of the crop protection chemicals market.

Crop wise pesticides consumption, FY09 (% of total)

Others, 16% Oilseeds 5% Pulses 5% Wheat 6% Fruits 6% Vegetables 14% Cotton 20%

Paddy 28%

Source: Industry reports, Tata Strategic analysis

18

In recent years, consumption of insecticides has decreased due to the introduction of BT cotton, which has lower risk of pest attacks. As a result, pesticides usage on cotton as % of total has decreased from 33% in 2005 to 20% in 2009. On the contrary, pesticides usage in paddy has been increasing mostly due to increased popularity of hybrid varieties of rice, which require higher amount of pesticides. Share of paddy in the total crop protection chemicals has increased from 24% in 2005 to 28% in 2009. Consumption of pesticides by fruits and vegetables has been relatively stable in the recent years.

Crop wise pesticides consumption (% of total)

33 28 24 20 21 20 16 8 8 10 6

Cotton

Paddy

Fruits & vegetables

Wheat

Pulses & oilseeds

Others

2005

2009

Source: Industry reports, Tata Strategic analysis

3.2.4 Distribution of crop protection Market - State-wise

The top three states Andhra Pradesh, Maharashtra and Punjab account for ~50% of the total pesticide consumption in India. Andhra Pradesh is the largest consumer of pesticides with a share of 24%.

State-wise pesticides consumption Fy09 (% of total value)

Others 23%

AP 24%

West Bengal 5% Maharashtra Haryana 13% 5% Tamil Nadu 5% Punjab MP & 11% Chattisgarh Gujarat Karnataka 8% 7% 7%

Source: Industry reports, Tata Strategic analysis

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3.2.5 Competitive Landscape

The Indian crop protection chemicals market is highly fragmented in nature with over 800 formulators. The competition is fierce with large number of organized sector players and significant share of spurious pesticides. The market has been witnessing mergers and acquisitions with large players buying out small manufacturers. Key market participants include United Phosphorus Ltd, Bayer Cropscience Ltd, Rallis India Ltd, Gharda Chemicals Ltd, Syngenta India Ltd, BASF India Ltd, etc. Top ten companies control almost 80% of the market share. The market share of large players depends primarily on product portfolio and introduction of new molecules. Strategic alliances with competitors are common to reduce risks and serve a wider customer base.

Presence of key industry participants across product segments

Company United Phosphorous Limited Gharda Chemicals Ltd. Monsanto India Ltd. Rallis India SyngentaIndia India Bayer CropscienceLtd Ltd BASF India 3 3 3 3 Insecticide Herbicide Fungicide Others

3 3

3 3 3 3 3 3

3 Fumigants, Rodenticides 3 Plant growth regulator -3 Rodenticides, seed treatment 3 Seed treatment Seed treatment, plant growth 3 regulators 3 Seed treatment

Source: Industry reports, Tata Strategic analysis

3.3 Distribution and Sales Channel

Maximum sales of crop protection chemicals are in rural areas. Hence for a wider reach, large manufacturers with all India presence use a three-tier sales and distribution network comprising distributors, wholesalers and retailers. Regional participants cater only to local markets.

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Crop protection distribution network

Technical Grade manufacturers
In-house formulators

Formulators

Retailers/ Dealers

Distributors

Distributors

Retailers

Retailers
Source: Tata Strategic analysis

End users

Typically, a company with all India presence could have 400-1000 distributors catering to 25,00030,000 retailers. Companies keep their stocks in warehouses or depots from where it is supplied to distributors. Multinationals, at times, enter into co-marketing and co-distribution arrangements with Indian companies. For example, Syngenta entered into an agreement with Rallis for marketing of its products in India. Mid size and small scale companies operate through direct marketing of their products. Most companies also engage in extension services or field demonstrations to increase farmer awareness and promote their products.

3.4 Import/ Exports

Indian exports of pesticides have been witnessing a strong growth in recent times. This is primarily due to its competence in low-cost manufacturing and technically trained manpower. Seasonal domestic demand, domestic overcapacity and better price realization in the overseas market have also led to this trend. India has emerged as the thirteenth largest exporter of pesticides in the world. However, most of the exports are off-patent products. Currently, the total export value of crop protection chemicals amount to USD 1.6 Bn. America, Asia (excluding Middle East) and Europe are the major exporting destinations. Key market drivers for Indian crop protection market export are: 1. Excess capacity: India's production capacity is 146,000 MT against the production of 85,000 MT. This excess capacity against domestic demand is a key growth driver for exports. 2. Low processing cost: Availability of cheap labor and low processing costs has made India a manufacturing hub with several multinationals setting up their manufacturing facilities in India.

21

3. Availability of process technologies: India has a very strong presence in generic pesticide manufacturing and has process technologies for more than 60 generic molecules. However, complex registration procedures and decreasing market size for generic molecules in United States and Europe pose a major challenge for the Indian crop protection chemicals export 3.5 Future Outlook Since the Indian agricultural sector is highly dependent on monsoons, the market for agrochemicals is expected to grow at a conservative growth rate of 8% p.a. to reach ~ USD 3.5 Bn by FY20. Exports are expected to grow at a higher rate of 15% p.a. to reach ~ USD 7.3 Bn. by FY20.

Future growth Scenario - Domestic (USD Bn)

CAGR

3.5

8%

1.8

2010

2020

Source: GOI Task Force on Chemicals

22

Key growth drivers include:

1. Increasing demand for food grains: India has 16% of the world's population and less than 2% of the total landmass. Increasing population and high emphasis on achieving food grain selfsufficiency as highlighted in the FY10 budget, is expected to drive growth. 2. Limited farmland availability: India has ~190 Mn hectares of gross cultivated area and the scope for bringing new areas under cultivation is severely limited. Available arable land per capita has been reducing globally and is expected to reduce further. The pressure is therefore to increase yield per hectare which can be achieved through increased usage of agrochemicals.

World - Available arable land per capita (Ha)

0.27 0.15

1998

2015E

Source: Yara Fertilizer Handbook, PotashCorp

3. Low Productivity: India has low crop productivity as compared to other countries. Average productivity in India stands at 2 MT/ha as compared to 6 MT/ha in USA and world average of 3 MT/ha. At the same time, India's pesticide consumption is also low at 0.60 kg/ha as compared to the world average of 3 kg/ha. Hence, increased usage of pesticides could help the farmers to improve crop productivity.

Average crop productivity and crop protection chemicals usage

13

5 2 0.6 3 3

USA

China

India

World
Productivity (MT/ha)

Agrochemical usage (kg/ha)

Source: Industry reports, Tata Strategic analysis

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With ~35-40% of the total farmland under crop protection, there is a significant unserved market to tap into. By educating farmers and conducting special training programmes regarding the need to use agrochemicals, Indian companies can hope to increase pesticide consumption

Yield improvement potential (%)

42% actual losses Due to pests, weeds & diseases 58% 30% further losses Due to drought, heat, cold, salinity 100% 130%

28% prevented losses Due to pests, weeds & diseases 30%

Yield without protection

Actual yield with crop protection

Attainable yield without pests

Additional potential without abiotic stress

Source: Bayer Cropscience research, Emkay research

4. Growth of horticulture and floriculture: Buoyed by 50% growth experienced by Indian floriculture industry in last 3 years, Government of India has launched a national horticulture mission to double production by 2012. Growing horticulture and floriculture industries will result in increasing demand for agrochemicals, especially fungicides.

Horticultural Production, India (Mn tons)

300
7.5%

205 146

2002

2007

2012E

Source: National Horticulture Mission

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5. Increasing exports: Indian companies have successfully expanded into other geographies for exports and this trend has been increasing in recent times. 6. Patent expiry: Between 2009 and 2014 many molecules are likely to go off patent throwing the market open for generic players. The total viable opportunity through patent expiry is estimated at over USD 3 Bn. 7. Availability of credit facilities: Govt. initiatives to provide credit facilities to farmers in the rural areas will provide boost to the agriculture industry. Access to finance would encourage them to use more pesticides in order to improve the crop yield. Govt. of India has set a target of Rs. 375,000 Cr for 2010-11. Loans are provided at lower interest rate of 6% with 2% rebate on timely payment. 8. Rural Infrastructure and IT: Linking the production areas with the market would help in easy distribution of pesticides. IT services would help create awareness among farmers and educate them for optimum use of crop protection chemicals. 9. Increasing awareness: As per Government of India estimates, total value of crops lost due to non-use of pesticides is around Rs. 90,000 Cr every year (2002 estimates). Companies are increasingly training farmers regarding the right use of agrochemicals in terms of quantity to be used, the right application methodology and appropriate chemicals to be used for identified pest problems. With increasing awareness, the use of agrochemicals is expected to increase. 10. Product portfolio expansion: Threats like genetically modified seeds, Integrated Pest Management, organic farming etc. can be turned into opportunities if the industry re-orients itself to better address the needs of its consumers and broadens its product offering to include a range of agri-inputs instead of only agrochemicals.

3.6 Key Trends

3.6.1 Market Trends
n focus on development and production of environmentally safe pesticides by the Increasing industry as well as the Government. n larger companies on brand building by conducting awareness camps for farmers and Focus by providing complete solutions. n in strategic alliances among large players for greater market reach and acquisitions of Increase smaller companies globally to diversify product portfolio. For example: Rallis has a marketing alliance for key products with FMC, DuPont, Syngenta, Bayer and Nihon Nohayaku. In addition, UPL has had a series of small acquisitions globally to enter new geographies and gain product expertise.

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n is on yield and quality output by the farmers. With increasing dispensable income, Emphasis farmers are willing to spend more to gain high yield and quality output. Preference for high quality products is on the rise. n herbicides and fungicides is on the rise due to increased focus on fruits and vegetables Usage of and increased awareness levels among end users. 3.6.2 Technology Trends n R&D expected for development of new molecules and low dosage, high potency Increased molecules. New pesticides such as sulfonylurea and imidazolinone herbicides require less volume of chemical per unit treated area in comparison to older chemicals. n focus on seed treatment chemicals. The advantage of these products is that they Increasing require very small volume of the compound and are more effective than the normal crop protection chemicals. n R&D in bio-pesticides segment with increasing preference for environmentally safe Focus on products in the market. n With participation from leading corporate houses such as PepsiCo, Reliance Life Sciences, ITC (agri-business division) and McDonalds and Govt. initiatives in policy changes, the trend of contract farming is catching up in the Indian agriculture sector. This is leading to faster technology transfer and adoption and has lead to greater market access (both domestic and global). This in turn is leading to fast development of new chemistry products.

3.7 Key challenges

1. Low focus on R&D by domestic manufacturers due to high costs: R&D to develop a new agrochemical molecule takes an average of 9 years and ~ USD 180 Mn. Indian companies typically have not focused on developing newer molecules and will face challenges in building these capabilities, while continuing to remain cost competitive. 2. Lack of education and awareness among farmers: The main point of contact between the farmers and the manufacturers are the retailers who are generally not technically sound and are not able to provide a proper understanding of the product to the farmers. Also, very often farmers are not able to communicate their needs effectively to the manufacturers. 3. Need for efficient distribution systems: Since, the number of end users is large and widespread, effective distribution via retailers is essential to ensure product availability. Lately, companies have been directly dealing with retailers by cutting the distributor from the value chain thereby reducing distribution costs, educating retailers on product usage and offering competitive prices to farmers.

26

4. High post harvest losses: Post harvest losses of crops are estimated at Rs. 140,000 Cr every year. Supply chain inefficiency and inadequate infrastructure are the major causes for such losses. 5. Spurious products: There is a significant share of spurious pesticides and spiked bio-pesticides. According to pesticides industry body, Agrochemicals Policy Group (APG), spurious and substandard pesticides worth ~Rs. 1200 Cr were sold in India in 2009. These products not only fail to kill pests but also inflict damages on crops. APG pegs the crop losses due to these spurious products at Rs. 7,000 Cr in 2009. 6. Support for Integrated Pest Management (IPM) and rising demand for organic farming: Promotion of IPM, zero budget farming and usage of bio-pesticides by Indian Government and NGOs is gaining momentum. With increasing demand for organic food, farmers in certain states like Karnataka have reduced chemical usage and have adopted organic farming. Agrochemical companies will have to tackle the rising environmental awareness and address concerns on negative impact of pesticide usage. 7. Threat from Genetically Modified (GM) seeds: Genetically modified seeds possess selfimmunity towards natural adversaries which have the potential to negatively impact the business of agrochemicals. 8. Longer period for registration of innovative products: In India, registration of new products takes 3-5 years which discourages domestic manufacturers.

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Chapter 4

IPM and newer methods of crop protection

IPM and newer methods of crop protection
Integrated Pest Management (IPM) is a sustainable approach to pest management by combination of biological, mechanical, physical and chemical methods. These methods are performed in three stages: prevention, observation and intervention. It is an ecological approach and strives for eliminating or significantly reducing the use of pesticides and at the same time controlling pest growth at acceptable levels. There are six basic components of IPM which are employed to control pest growth.

Apart from IPM, newer molecules with better efficacy are being developed. These molecules such as sulfonylurea and imidazolinone require lesser volume of chemicals per nit treated area. Newer products such as biological pesticides, seed treatment chemicals, and semiochemicals are being introduced. Seed treatment chemicals require a very small volume of the chemical as compared to normal crop protection chemicals.

28

Chapter 5

Profiles of key manufacturers

Profiles of key manufacturers

Bayer CropScience India

Company overview Product segments/ Verticals
lCropScience is one of the world's leading cropscience Bayer

companies in the world with presence in 122 countries

l Crop Protection l Environmental Science l Bioscience

Crop Protection Chemicals Products

l Insecticides l Fungicides l Herbicides l Seed treatment chemicals l Plant growth regulators

Sales Revenue in FY2010 Manufacturing locations

l Cr (includes revenue from other product segments), Rs. 1724

88% of revenue through domestic sales

lmanufacturing locations at Thane, Himmatnagar & Three

Ankleshwar
l Total production capacity of 5770 MT of active ingredients and

formulation capacity of 10,025 KL & 3650 Mt for liquids & solids respectively Distribution structure R&D
l distribution network & is also in co-distribution Has own

alliances with several other companies in India

l Apart from crop protection, major areas of research include

seeds & plant traits

lCropScience accounted for 24% of the Bayer Group's Bayer

entire R&D expenditure Key Mergers/ Acquisitions l with Aventis Cropscience Limited worldwide, 2002 Merger
l Acquisition of Biotech company Athenix Corp., 2009

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Rallis India
Company overview Product segments/ Verticals
l one of the leading Indian agrochemical company Rallis is l Agri business domestic: Five segments: Pesticides, seeds,

fertilizers, household products & seed treatment chemicals

l Institutional business: Formulations & technical bulk sales to

leading companies like Bayer, Syngenta, UPL, etc

l International business l services: Partnering with leading companies for Contract

contract manufacture of technical grades/ formulations & intermediates Crop Protection Chemicals Products
l Insecticides l Herbicides l Fungicides l Rodenticides l Seed treatment chemicals

Sales Revenue in FY2010 Manufacturing locations

l Cr (includes revenue from other product segments) with Rs. 934

22% from outside India

l Five manufacturing plants at Turbhe, Akola, Ankleshwar, Lote &

Patancheru
l Total installed capacity of pesticides is 16,720 MT for solids

&12,500 MT for liquids Distribution structure

l Distribution network covers 80% districts of India, with more

than 1500 dealers & 40,000 retailers

l Four regional & zonal offices each, 33 area sales offices, 23

depots present all over India

l International business is done through own registrations &

agents & distributors

l Institutional sales are direct

R&D

l involved in developing new formulations, providing R&D is

better delivery and sustainable solutions to the farmers

l Millennium Indian Technology Leadership Initiative The New

(NMITLI) is being pursued to find new molecules

l with regulatory studies & registration process Involved

Key Mergers/ Acquisitions l majority stake in Bangalore based Metahelix Life, 2010 Acquired
l Co-marketing alliances with several companies such as DuPont,

Syngenta, Bayer, FMC, Makhteshim Chemical works, Ghrada Chemicals, etc

30

United Phosphorous Limited Company overview

l Established in 1969 and has its presence in all value-added

agricultural inputs ranging from seeds to crop protection & post harvest activity
l own subsidiary offices worldwide Has its l player with customer base in 86 countries Global

Product segments/ Verticals l Agrochemicals

l chemicals Specialty l Industrial chemicals

Crop Protection Chemicals Products

l Insecticides l Fungicides l Herbicides l Fumigants l Rodenticides

Sales Revenue in Fy2010 Manufacturing locations

l Cr (includes revenue from other product segments) Rs. 2740 l 21 manufacturing location across the globe with 9 in India l Production capacity of 98,264 MT of pesticides & 42,631 MT of

pesticides intermediates Distribution structure R&D

l are sold through distributors spread across the country Products l R&D activities in product development & registration

Key Mergers/ Acquisitions l acquisitions from DuPont and Bayer Product

l Company acquisitions of Metahelix Life, Evofarms, AG, Cequisa

and ICONA

31

Syngenta India Limited Company overview

l 84% subsidiary of Syngenta Global l by merging agri-businesses of Novartis & Astra Formed

Product segments/ Verticals

l Seeds lprotection chemicals Crop

Crop Protection Chemicals Products

l Insecticides l Fungicides l Herbicides

Sales Revenue in Fy2009 Manufacturing locations Distribution structure R&D

l Rs. 1400 Cr. (includes revenue from other product

segments)
l Manufacturing plant at Santa Monica, Goa l Products are sold through distributors and co marketing

alliances with leading Indian companies

l Research & Technology centre at Goa, involved in product

research of organic chemical synthesis and analytical chemistry research Key Mergers/ Acquisitions
l Co-marketing alliance with Rallis India lprotection technology exchange with DuPont, Crop

partnership on improving crop quality with Embrapa - the Brazilian Agricultural Research Corporation, R&D agreement with Dow AgroScience
l license from Sumitomo Product

32

Gharda Chemicals Limited Company overview

l Established in 1967 l player in domestic and export market in India A major

Product segments/ Verticals

l Agrochemicals l Intermediates l Pigments l Veterinary drugs l High performance polymers l Contract services

Crop Protection Chemicals Products

l Insecticides l Herbicides l Fungicides l growth regulators Plant

Sales Revenue in Fy2010 Manufacturing locations Distribution structure R&D Key Mergers/ Acquisitions

l revenue of Rs. 895 Cr with exports of Rs. 432.5 Cr Sales l 5 manufacturing locations at Dombivli, Ankleshwar, Lote,

Jammu & Panoli

l Products are sold through distributors l R&D activities include product research & process

improvement for backward integration

l Gujarat Insecticides Ltd. In joint venture with Gujarat Set up

Agro Industries Corporation Ltd. In 1980

l In 1996, Gharda Chemicals purchased the entire holdings of

Gujarat Agro Industries Corporation Ltd and Gujarat Insecticides Ltd. Became the subsidiary of Gharda Chemicals.

33

References
1. 2. 3. 4. 5. 6. 7. IndiaChem2010 Handbook on Indian Chemical Industry, Tata Strategic & Roland Berger Crop Protection market in India 2008, Frost & Sullivan Global crop protection chemicals markets 2009, Frost & Sullivan Phillips McDougall report on agrochemicals Crop protection Business in the New Decade, 2010 presentation, Cheminova KRC Research weekender on Agrochemicals 2009 Thirty-seventh report of Standing Committee on Petroleum & chemicals on "Production and availability of pesticides", 2002 8. 9. Croplife India report on agrochemicals Company websites and Annual Reports FY10: Bayer Crop Science, Rallis India, United Phosphorous Limited, Syngenta India Limited, Gharda Chemicals Limited 10. Primary interactions with industry leaders and Govt. of India 11. Business Press 12. Chemical Weekly 13. Yara Fertilizer handbook 14. National Horticulture Mission

This report has been authored by: Pratik Kadakia (pratik.kadakia@tsmg.com), Jeffry Jacob (jeffry.jacob@tsmg.com) and Mandeep Singh Sandhu (mandeep.sandhu@tsmg.com)

34

Tata Strategic Management Group is the largest Indian Owned Management Consulting Firm. Set up in 1991, Tata Strategic has completed over 500 engagements with more than 100 Clients across countries and industry sectors, addressing the business concerns of the top management. Today more than half the revenue of Tata Strategic Management Group comes from working with companies outside the Tata Group. We enhance client value by providing creative strategy advice, developing innovative solutions and partnering effective implementation.

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Contact:
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Phone: +91 22 6637 6713 Fax: + 91 22 6637 6600 Email: pratik.kadakia@tsmg.com

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18th Floor, Nirmal Nariman Point Mumbai 400021 India URL: www.tsmg.com

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The Voice of India's Business Community

Established in 1927, FICCI is the largest and oldest apex business organization in India. Its history is closely interwoven with India's struggle for independence and its subsequent emergence as one of the most rapidly growing economies globally. FICCI plays a leading role in policy debates that are at the forefront of social, economic and political change. Through its 400 professionals, FICCI is active in 39 sectors of the economy. FICCI's stand on policy issues is sought out by think tanks, governments and academia. Its publications are widely read for their in-depth research and policy prescriptions. FICCI has joint business councils with 79 countries around the world. A non-government, not-for-profit organization, FICCI is the voice of India's business and industry. FICCI has direct membership from the private as well as public sectors, including SMEs and MNCs, and an indirect membership of over 83,000 companies from regional chambers of commerce. FICCI works closely with the government on policy issues, enhancing efficiency, competitiveness and expanding business opportunities for industry through a range of specialised services and global linkages. It also provides a platform for sector specific consensus building and networking. Partnerships with countries across the world carry forward our initiatives in inclusive development, which encompass health, education, livelihood, governance, skill development, etc. FICCI serves as the first port of call for Indian industry and the international business community. For more details log on to www.ficci.com

36

Mr. R K Bhatia Head-Chemicals Division FICCI Federation House, 1 Tansen Marg, New Delhi-110 001 Tel: +91-11-2331 6540 (Dir) EPBX: +91-11-2373 8760-70 (Extn 395) Fax: +91-11-2332 0714/ 2372 1504 E- Mail: rkbhatia@ficci.com

Ms. Ranjita C. Sood Sr. Asst Director-Chemicals Division FICCI Federation House, 1 Tansen Marg, New Delhi-110 001 Tel: +91-11-2335 7350 (Dir) EPBX: +91-11-2373 8760-70 (Extn 474) Fax: +91-11-2332 0714/ 2372 1504 E- Mail: ranjita@ficci.com

Government of India Ministry of Chemicals & Fertilizers Dept. of Chemicals & Petrochemicals

The Department of Chemicals & PetroChemicals has been part of the Ministry of Chemicals and Fertilizers from 5.7.1991. The Department is entrusted with the responsibility of policy, planning, development and regulation of Chemicals and Petrochemicals Industries. The business allocated to the Department is listed as below: 1. Insecticides (excluding the administration of the Insecticides Act, 1968 (46 of 1968). 2. Molasses 3. Alcohol - industrial and potable from the molasses route. 4. Dye-stuffs and dye-intermediates. 5. All organic and inorganic chemicals, not specifically allotted to any other Ministry or Department. 6. Planning, development and control of, and assistance to, all industries dealt with by the Department. 7. Bhopal Gas Leak Disaster-Special Laws relating thereto. Bhopal Gas Leak Disaster-Special Laws relating thereto. 8. Petro-chemicals. 9. Industries relating to production of non-cellulosic synthetic fibres (Nylon Polyester, Acrylic etc.) 10. Synthetic rubber. 11. Plastics including fabrications of plastic and molded goods.

For more details, please log on to www.chemicals.nic.in

37

Thank you Partners

Platinum Partner

Crystal Phosphates Ltd. Silver Partners

R

Cheminova India Ltd.

Dhanuka Agritech Ltd. Kit Partner

Hikal Ltd

Supported by

CCFI

INDIA

For further details, please contact

Mr. R K Bhatia Head-Chemicals Division FICCI Federation House, 1 Tansen Marg, New Delhi-110 001 Tel: +91-11-2331 6540 (Dir) EPBX: +91-11-2373 8760-70 (Extn 395) Fax: +91-11-2332 0714/ 2372 1504 E- Mail: rkbhatia@ficci.com Ms. Ranjita C. Sood Sr. Asst Director-Chemicals Division FICCI Federation House, 1 Tansen Marg, New Delhi-110 001 Tel: +91-11-2335 7350 (Dir) EPBX: +91-11-2373 8760-70 (Extn 474) Fax: +91-11-2332 0714/ 2372 1504 E- Mail: ranjita@ficci.com

Website: www.ficci.com