Agrochemical Industry Agrochemicals also known as Pesticides are substance or mixture of substances that are used toavert, destroy

or control any kind of pests or unwanted type of plants or animals that cause harm tocrops or hampers the normal growth process of a crop. As per a Government of India estimate of 2002, value of crop losses caused due to non-usage of pesticides was around Rs 90,000 crore.Thereon, assuming losses grew at an average 2%, total losses would have amounted to Rs 101,355crore in FY2009, a staggering 2.2% of India's GDP With the global demand for food increasing at a rapid pace led by arising population and higherliving standards in developing nations, agro-commodity prices are considerably higher compared totheir historical standards. Matters have been compounded by a shortage of area under cultivationleading to greater thrust on yield improvement.The need to increase crop yields to meet the ever growing food demand has put the agrochemicalindustry into a sweet spot. According to the estimates, during the next 20 years, the world'spopulation will rise from 6.3bn to more than 8bn, leading to a 50% increase in demand for food and50% increase in demand for energy. Demand growth will also be compounded by peoples' demandfor higher standards of living. Furthermore, land under cultivation is facing pressure in the wake of rapid urbanization, erosion, etc. INTRODUCTION Agriculture occupies a dominant position in Indias economic structure.The success of the Green Revolution enabled the country to achieve selfsufficiency in foodgrains production. The demand for foodgrains is expected to increase significantly to 212mn metric tonnes in FY2001 from the current production of 203mn metric tonnes in FY99. Record production of food grains has been possible primarily on account of various inputs used in agriculture namely seeds, fertilizers and pesticides.

In India, only 36% of the area under cultivation is under pest protection which offers huge opportunity to enhance volumes. The industry is cyclical in nature with peak months being July to November. The industry is skewed in terms of consumption patterns regarding the crop usage. Cotton crop alone accounts for 40-50% of the pesticide consumption in India while other main crops using pesticides are rice, vegetables, and tea. The consumption is totally skewed in favour of Andhra Pradesh, Karnataka and Punjab..

Importance of agrochemicals

Agrochemicals form the largest and the most diverse group of chemical compounds. Popularly referred to as pesticides they are mainly used for plant protection and improving crop yields. Every year nearly 30% of the potential of food production valued Rs 150bn per are lost due to insects, pests, plant pathogens, weeds, rodents, and birds and in storage. Hence the use of pesticides has become extremely necessary. Besides given the large growing population and scarcity of land available for cultivation, pesticides industry has a vital role to play in the agricultural sector.

Basic usage and types Pesticides are essential inputs used for increasing agricultural production by preventing loss to crops before harvesting or post harvesting. The different types of pesticides are insecticides, fungicides, herbicides, rodenticides, nemanticides etc and are derived from chemicals.

Pesticides can be classified into two type namely technical grades and formulations. Technical grades exist at the first stage of manufacturing process and generally consist of highly toxic and hazardous liquids. They are in technical parlance defined as products with high chemical purity. Whereas further processing of technicals with emulsifiers and other agents (sometimes referred to as active ingredients) results in next stage namely formulations. Formulations are tailor-made for diverse applications on insect-pest spectra, plant diseases, weeds etc.

BROAD CATEGORIES Broad categorization of the pesticides industry The industry is broadly classified into different segments like insecticides, fungicides and herbicides and the main products and their use is given below as follows: Nature Insecticides Major Products Monocrotophos, Purpose Phosphamidon, To kill insects

Parathion, Endosulphan,Quinalphos Fungicides Copper Oxychloride, Nickel To eliminate fungus

Chloride, Mancozeb Herbicides/ Weedicides Anilphos, Pendimethalin,Paraquat, To remove unwanted plants/

Naropamide Nemanticides/ Zinc Phosphide,

weeds Aluminum To kill pests in plant roots and to eliminate rodents

Rodenticides/ Fumigants Phosphide

Insecticides are the largest product sector contributing to 75% of the total market. Currently around 129 insecticides are approved for use on crops. The key crop outlets for insecticides are cotton and rice, which account for 48% and 28% respectively of the total value of insecticide sales. Monocrotophos, Chlorpyrifos, Quinalphos, Endosulfan, Cypermethrin and Fenvalerate are overall leaders.

Consumption pattern of the Indian pesticides industry compared with global consumption patterns

The consumption of pesticides in international and domestic areas among broad categories is given below: Nature Insecticides Fungicides Herbicides Others Global share (%) 29 17 48 6 Local Share (%) 76 13 10 1

HISTORY AND STRUCTURE OF THE AGROCHEMICALS MARKET

Pesticides were initially used in India by importing DDT for malaria control and BHC for locust control in 1948. The first use of pesticides in agriculture began in 1949. Indigenous production of pesticides began with the establishment of DDT and BHC plant in 1954. By 1958 India was manufacturing five basic pesticides having production of over 5000 MT. Thereafter the industry

has witnessed a steady progress reaching a production volume of 60000 MT per annum in mid eighties. Till recently, bulk of the production had been of insecticides but now production of fungicides and herbicides is also increasing.

Today India is the largest manufacturer of basic pesticide chemicals among the South Asian and African countries next only to Japan. Currently 145 pesticides have been registered in the country of which 85 technical grade pesticides are manufactured in the country.

The total production of technical pesticides for the financial year 98-99 was estimated at 84700 MT tonnes against the installed capacity of 110.2mn ton by the Department of chemicals and fertilizers. Even though India has a large capacity in volume terms it accounts for less than 2.5% of the world markets in monetary terms. India along with China accounts for more than 10% of the total world production. However, consumption has been low at 600gm compared to 10,000gm per hectare in the developed world. The low consumption and usage of pesticides in the country arises on account of poor awareness levels, economic status of farmers and low proportion of cropped area under irrigation coverage.

India is currently the largest manufacturer of pesticides in Asia and is among the top 10 producers in the world. The Indian agrochemical industry is a Rs30bn industry with 15-20% of the output being exported. Indian pesticides products are now exported to USA, France, UK, and CIS besides a number of countries in South America, Asia, Africa and Australia. Operating margins of Indian companies are higher than MNCs by 2-3% because of higher level of integration. Higher administration and interest expenditure means that net profit margins of players operating in this industry are quite low at 4% to 5%.

INDUSTRY CHARACTERISTICS The agrochemical industry has the following characteristics:

1. Monsoon dependent: The Indian agriculture is still dependent on the monsoon and consequently the prospects of the industry are affected by the trends in rainfall received in different parts of the country every year. The maximum demand for pesticides usage

takes place in the month of July to September period. Thus the prospects of the players in the crop protection business are subject to vagaries of the monsoon and seasonal demand.

2. Generic nature: Currently more than 70% of molecules are off patent and hence there is no threat to Indian players with respect to patent regime. However with the discovery of new proprietary molecules and entry of multinational players with strong research and development capabilities, many new patented products will be launched in the country.

3. Limited investments in research and development: Since there have been very few proprietary products and poor patent protection in the country, this industry has seen low investments in research and development.

4. Environmental regulations: India has comparatively less stringent environmental protection regulations and has consequently become a preferred manufacturing base for many multinational players in the Asia Pacific region. Currently Agrevo (now Aventis) and Bayer (India) act as a global sourcing base.

5. Small scale of operations: There are very few Indian players with a global scale in terms of size of operations, facilities, laboratories, etc. In fact the Indian operations are undertaken on a small scale and cater to generic products compared to MNCs whose operations are on a large scale with focus on specialty products.

6. High working capital: The agrochemical industry requires high working capital due to its seasonal nature and long credit period given to farmers. Thus high inventories during off season period and high receivables during poor monsoon puts further pressure on the working capital requirements.

CRITICAL SUCCESS FACTORS FOR THE INDUSTRY

The Indian industry comprises basic manufacturers, formulators, importers, distributors and dealers both in the public and private sector. The players include both large scale multinationals and Indian companies besides medium and small scale companies. The total current investment is about Rs15bn. The following are the critical success factors for the industry: Promotion and farmers' education play a big role and are usually carried out by the players in the industry. Marketing has to be very localized, as the country has different production profile in different parts of the country. Secondly it has to be very aggressive in some areas compared to others as the penetration levels vary substantially from area to area. Any company has to constantly endeavor to improve its existing products and develop new ones in tandem with the consumers needs, as the crops develop resistance to the existing pesticides during various cycles. To a large extent, environmental factors also determine the life cycle of the products. The industry is increasingly manufacturing high value, low volume and environmentally friendly niche products.

MANUFACTURING PROCESS AND TECHNOLOGY

Raw material and labor are the major cost elements (constitute about 60%-65% of sales). Production is manpower intensive and batch processes are employed for production of the pesticides. Product obsolescence is a common phenomenon in this industry. Lack of patent protection in India makes multinationals wary of the Indian markets. The quality of indigenous pesticides is poor, resulting in the imports of the next generation of molecules. This has also restricted the presence of the multinationals to 40% of the market share. Organised players have to incur significant expenditure on selling and distribution on educating the farmers and reaching interior parts of the country.

EXCISE AND CUSTOM DUTIES Excise duties Pesticides had remained exempt from excise duty for decades. However in 94-95 budget a 10 percent excise duty was levied which was further reduced to a concessional duty of eight per cent in the 97-98 budget.

Thus Indian pesticides industry had differential rates of excise duties for technicals and formulations in 1998-99. Technical grade pesticides attracted a higher 16 per cent duty while formulations were subject to a lower duty of 8 per cent. Thus there existed disparity which resulted in technical-grade manufacturers not able to fully claim modvat credit. This anomaly has now been rectified with increase in the excise duty on the formulations to 16% in the budget for FY 2000. Currently there exists anomalous excise duty structure as excise duty is levied on pesticides while other agricultural inputs like seeds, fertilizers, micro nutrients continue to be exempt from levy of any kind of duties.

Custom duties Technical grade pesticides currently attract maximum ceiling rate of 35% advalorem custom duty along with imposition of 10% surcharge. They are also subject to special additional duty (SAD) of 4% with the result that effective rate of duty on pesticides works out to 44.9%. Besides pesticides intermediaries also attract a similar rate of duties. Consequently it is expensive to manufacture pesticides by importing intermediaries from abroad. Thus most of the domestic consumption is based on supplies made by local manufacturers.

CLIENTS Ratna Extrusions Pvt Ltd

Rallis India Limited Cheminova India Limited Sumitomo Chemicals Pvt Ltd Meghamani organics Limited United Phosphorous Limited New Chemi Industries Limited Gharada Chemicals Swal Corporation Limited Crop Chemicals India Limited Krishi Rasayaan Exports Pvt Ltd Nagarjuna AgriChem Vantech Chemicals Ltd

Ratna Packaging Pvt. Ltd.

Aurobindo Pharma Limited(EOU) ALPLA India Pvt Ltd (Yodeva Plastics Pvt Ltd)(100% EOU) Hilton Tobaccos Pvt Ltd (100% EOU) Dart Manufacturing India (p) Ltd Sumitomo Chemical India Pvt Ltd Usha International ltd Yash International(Crompton Greaves) RCC Sales Pvt Ltd

Ratna Agro Chemicals Pvt. Ltd. markets product through direct marketing with around 700 dealers/distributors through out Andhra Pradesh and north Karnataka with five distributor points.