Indian agrochemicals market to reach $6.8 bn by FY17: Tata Strategic Management Group

Increasing demand of food grains & declining farmlands in India have increased pressure on farm yield improvement and reduction in crop losses due to pest attacks. Indian crop protection market was estimated at $ 3.8 billion in FY12 with exports constituting about 50% of the market.  The crop protection market has experienced strong growth in the past and is expected to grow further at approximate 12% p.a. to reach $ 6.8 billion by FY17. The growth would be largely driven by export demand which is expected to grow at 15-16% p.a, while domestic demand is expected to grow at 8-9% p.a. Biopesticides, which currently represent only 4.2% of the overall pesticide market in India, are expected to exhibit an annual growth rate of about 10% in the coming years.

Indian crop protection industry is largely dominated by insecticides which form about 65% of share of the industry. Other segments like herbicides, fungicides and other (rodenticides/ nematocides) form 16%, 15% and 4%, respectively.

The Indian market is different from the global industry in terms of consumption patterns. Globally, herbicides constitute about 44% of the crop protection market followed by fungicides at 27%, insecticides at 22% and others at 7%. Favorable climatic conditions in North America and Europe drive herbicide consumption in those areas. Insecticides usage has also gone down in developed markets with increased usage of genetically modified (GM) crops.

Tropical climatic conditions and high production of paddy, cotton, sugarcane and other cereals in India drive the consumption of insecticides. Availability of cheap labor for manual weed picking also contributed to low consumption of herbicides in India. However, the trend is expected to change in future as herbicides, now, are the fastest growing segment due to increasing farm labour wages in India.

Key growth drivers
Indian agrochemicals market is supported by strong growth drivers. Current low consumption of crop protection products in India, 0.6 kg/ha compared to world average of 3 kg/ha, offers immense opportunities for future growth. Availability of cheap labour and low processing costs offers opportunity for MNCs to setup their manufacturing hubs in India for their export markets. The sector is also driven by huge opportunity for contract manufacturing and research for Indian players due to large availability of technically skilled labour.

Industry challenges
Despite the strong growth drivers, Indian agrochemicals industry faces challenges in terms of low awareness among farmers (only 25-30% of the farmers are aware of agrochemical products and their usage). With large number of end users spread across the geography, managing inventory & distribution costs is a challenge for the industry players. Apart from this, as per feedback from leading industry players, rising sale of spurious pesticides and spiked bio-pesticides pose a major threat to industry growth.    

Effectiveness of current supply chain management (SCM) practices in agrochemicals is another area of concern for the industry. Companies face issues due to seasonal nature of demand, unpredictability of pest attacks and high dependence on monsoons. Month end skews and high inventory across the channel is a perennial problem for the industry.

Growth imperatives
Going forward, the industry needs simplified registration norms for pesticides exports and increased scope of regulations to include all types of pesticides (including biopesticides). For effective regulatory policy, government and industry players need to work together to keep up the growth momentum. Regulators need to increase their inspection staff to ensure regular checks to contain the growth of spurious products.

There is also a need to encourage R&D and ease registration process for development of new molecules. Large MNCs can look at strategic alliances with Indian counterparts to increase their marketing and distribution reach or expand into newer product categories. Smaller Indian companies can look at tie-ups with MNCs to explore opportunities in contract research and manufacturing.

Companies also need to relook at strengthening their SCM strategies to improve their distribution reach. Certain progressive companies in the industry have adopted new innovative practices and are setting new benchmarks in supply chain performance which can be followed by other players as well.

Manish Panchal is the Practice Head (Chemicals & Energy) at Tata Strategic Management Group (TSMG) and Charu Kapoor is Engagement Manager at TSMG