agro chems > indian agrochemical industry

Emerging Trends , Opportunities and Challenges for Agrochemicals Industry

Raju Kapoor

Business Unit Head –Agrovet

Jubilant Organosys Limited

NOIDA

Flow of the Presentation

1. Back ground

2. Emerging Trends

3. Opportunities for Agrochemical Industry

4. Challenges before the Industry

5. Conclusion

Background

Indian Agriculture Scenario

•Agriculture was , is and would always remain the mainstay of global economics - more so in developing countries like India.• Meeting nutrition requirement of the population with declining available land poses the real challenge .• In India alone, we would be short of 25MMT of food grains by 2010-11 with the present growth rate of food grains production.•Declining growth rate of food production poses serious challenge as its growth rate would have to the literally tripled to feed the ever growing population of the country by 2010.

Is Agricultural Revolution failing?

Projected Gap in Foodgrain Production

0

100

200

300

Food

grai

n Pr

oduc

tion

mm

t-cu

rren

t tre

nd v

s de

sire

d tr

end

Food Prodn(current) 212 210 213 216 219 222 225 229

Food Prodn(Desired) 212 225 230 235 240 245 251 256

03-04 04-05 05-06 06-07 07-08 08-09 09-10 10-11

In India we would be short of 27 mmt of food grains by 2010-11If the present growth rate of foodgrain production continues.

Growth In Population and Foodgrain production

0.0%

5.0%

YEAR

CAGR

(Pop

ulatio

n vs

Food

grain

pr

oduc

tion)

Population 2.0% 2.2% 2.2% 2.2% 1.9% 1.6%

Food Production 4.1% 4.1% 1.9% 3.1% 1.1% 3.2%

60-61 70-71 80-81 90-91 00-01 10-11

The food growth rate has to be higher than Population growth rate.

Agricultural Situation not very happy

Growth rates (%) in output, input and value added in agriculture since 1950/51 at 1993/94 pricesOutput Input Value added/ Farm income

I. Pre green revolution 1950/51 to 1964/65

2.51 2 2.62

II. Green revolution period 1965/66 to 1979/80

2.8 3.14 2.72

III. Wider technology dissemination 1980/81 to 1994/95

3.22 2.64 3.38

IV. Post reforms 1995/96 to 2003/04

1.69 1.84 1.65

Source of basic data: National Accounts Statistics, GOI, New Delhi, Various issues

Growth rates post reform are falling

Crop Productivities continue to be low

Comparison of Wheat Yield

27423832

2333 2410 2725

0

2000

4000

6000

yiel

d k

g/h

a

Yield kg/ha 2742 3832 2333 2410 2725

India China Pakistan Banglade World

Comparison of Paddy Yield

2964

6350

3000 3586 3912

0

5000

10000

Yie

ld k

g/h

a

Yield kg/ha 2964 6350 3000 3586 3912

India China Pakistan Banglade World

Particulars 1981-83 1999-01 1881-83 1999-01Annual public expenditure Rs. Million at 2001 prices

7808 17695 2169 6548

Public expenditure as % of GDP agriculture 0.36 0.42 0.1 0.17Share of Central Government 47.6 49.5 4.6 7.6Share of State Governments 52.4 50.5 95.4 92.4Source: Pal and Byerelee (2003)

Agricultural ExtensionAgriculture research and educationPublic expenditure on Agriculture Research, Education and Extension

Public Expenditure is very low

Biotech Crops

Global market value of $4.70 billion (15% of the $32.5 billion Global crop protection market , and 16% of the global seeds market)

India poised to be a major player (area under Bt cotton up 400% between 2002 to 2004.

Use of such crops to alter agrochem use.

Organic Farming

2.5 mha area under Organic farming in India-(IFAD),(Includes 2.43 mha area under wild herb collection from forest areas in MP and UP)NPOP

332 new certifications issued last year. Organic produce exported 6792 MT valued at Rs

71.23 Crores ,US sales 10.8 Billion USD , European sales 11 Billion euros (FIBL survey).

Total Indian Agri produce export Rs 14,184 Crores –Fruit &veg Rs.1457 cr,processed F&V at 1125 cr.

Major Trends in Agrochemicals / Agriculture

Emerging Trends affecting agrochemical industry in India.

Agrochemicals being part of the agriculture system get affected by every event / action that affects Agriculture.

Major Trends are :

1. Stakeholders’ Expectations are higher and changing

2. Globalization – One world One market.

3. Consolidation- Leaner Meaner and Smarter

4. Intervention of Biotechnology-Two way sword

5. Research and development- the cutting edge

6. Competition and value differentiation

1. Farmers

2. Consumers of Agri Produce

3. Processors

4. Investors

5. Market

6. Government

7. Environment

Stakeholders’ Expectation

Who are the major stakeholders in agrochemical Industry?

Lower cost of inputs/favorable cost benefit ratio

Low pollution Precision Safety for user Knowledge Easy Availability

Consistently good

Quality Long duration controls Disposal of containers Credit Better value for his

produce

Farmer


• Low residues• Traceability /

Transparency• Better

Nutritional value• Longer

storability• Knowledge• Cheaper price

for agri produce• Remedial rights

Consumers of Agri produce

Storability / shelf- life of produce

Consistency in quality Lower residues Better Processability Adequate availability

of feed stock around the year

Processors of Agri Produce


• Better wealth creation

• Cleaner images (Responsible citizen)

• Respect and Profit

• Lowest possible risk / liability

• Sustainability of business

• Value creation through differentiation

• Legal / Regulatory compliances.

Investors

Better margins Lower responsibility Training Stronger brand pull Increased Credit Least harassments Lower inventories Quicker deliveries Range

Channel Partners

• Better revenues

• Quality compliance

• Regulatory Compliance

• Agri is a political subject so least negative impact.

• Transparency

Government


Lowest possible emissions Low residues in Soil / Food

chain Disposal of expired stocks /

containers etc Ground water safety Safety to user / transporter /

producer

ENVIRONMENT


Globalization- One world One market

Global economies are forced to open -Need for Indian farmer to produce and deliver world quality at globally most competitive cost . Manchesters and Muktsars to be competing global markets

Indian agriculture to undergo major reform and maturity. Same trend to be applicable to Agchem industry. Tariff barriers to tumble- non-tariff barriers to multiply Customers to use IT to make information driven

decisions. Disproportionate export subsidies to fade soon. Consolidation of land and operations – economies of

scale –technology up-gradation Uniformity in global regulatory environment

Global Agrochemicals Markets-Trends

Until 2004 Global Agchem Market growth near flat. 2004 surge takes market to US$ 32,665 Million, up 4.6%

after inflation(2003 US$ 29,390 million) Latin America up 25% (Brazil 7% , Argentina 11%) Pre 04 static market by value was primarily due to

– Planting of GM crops

– Lower cost of herbicides post patent

– Lower commodity prices

– Increased use of lower cost generic products

Global Agchem sales by region

Global Agrochemical Sales by Zone 2004

North America26%

Latin America14%Asia Pecific

26%

Western Europe24%

Rest of World10%

Usage trend changing slowly

Agchem Usage pattern over last 25 years

Herbicide

Insecticides

Fungicides

Others

Global Industry consolidation 1994-2004

Similar are the trends in India,since all the Big 6 are present here

Sales of leading Global Companies 2000-04

Big Six takeover the world Top six companies held 73% 2002, 81% 2003 and 77% in

2004. Syngenta overtaken by Bayer as mkt leader .Between them

they control 37% of all agrochem sales. 2000-2004 Bayer grew 172%,through takeover of Aventis and

entry into GM technology. Same period Syngenta grew 2% BASF 86% growth ( high sales of fungicide and

insecticides,entry in latin America and takeover of Fipronil) Monsanto sales dropped ,focus on Genomics and

seeds,defended Glyphosate market by getting duty to 48% (now 29.9%)imposed on imports from China to Europe.

Industry moves from ‘life science’ tag to ‘crop science’. All six pruning product portfolio to avoid cost of re registration Eg BASF from 300 to 170 actives ,Syngenta to have only 17

Actives of US $ 100 million each by 2006. All six have GM projects going.

Monsanto buys Seminis becomes largest seed company.

Syngenta GM crop account for 3% of sales,seeds 16% of sales.Sales up 75% inQ1’05

Du pont owns Pioneer Hibred BASF and Dow expanding into Seeds market GM market to grow at 8.2% to reach US$ 5776 Million

in 2007

Big Six takeover the world

1. Development of new pesticide molecules is highly cost and time intensive, because of same globally the R&D base is shrinking with only ~ 25 company's left in Drug Discovery.

2. Biotech. (Che.+ Genetics) is taking place of chemistry. in Pesticide R&D for development of a potential and commercially viable platform.

3. Focus shifting from synthetic to natural product based precursor.

4. Usage of non-crop value added agrochemical is increasing globally @ 4-5%.

5. Various agrochemicals getting off patented in coming 5-yrs offering manufacturers new opportunities

6. More impetus on GM crops and safety

Trends in global agriculture

Implications /opportunities for Indian Agchem industry

Consolidation in players, markets ,crops to throw up large opportunities in the area of – Contract manufacturing– Contract research– Access to Products hitherto not available due to

patents / monopolies– Global vision and strategies– Strategic alliances in India and overseas– Value added formulations market – Lower supply chain costs.

Shift from Input Suppliers to Solution Provider mindset .Newer Solution Delivery Systems must be innovated to gain leadership.

Identification of and focus on core strength areas Restructure to enable focus –move away from non-

core Create synergies to cut costs / transfer costs to

remain globally competitive. Higher respect for environmental norms Development of environment friendly formulations Create differentiated value platform-keep innovating Channel innovation with lower cost of solution

delivery will determine leadership.


Corporate farming and crop diversification to increase scope for higher technology adoption and application.

Strategic tie ups with other input suppliers to offer /become part of the package to the farmer

Subsidy restructuring of fertilisers to limit use of insecticides.Lower N use.-Integrated Nutrition management

Develop knowledge platforms such as patents , and capability to manage patents of others.

Develop new solutions around India’s core strength i.e Herbals, ayurvedics and naturopathy.

Develop Global leadership and vision Create global talent pool for manpower and management

skill a la IT. Become the global HUB for biotech solutions developed

within .


Research at Knowledge Institutions to be market and future oriented , Industry to bear cost and share profits.

Acquire strategic companies abroad. Learn to manage foreign companies. Become the bridge between financial institutions and

customers to manage working capital . Develop fine chemical capabilities to feed the global

companies. Application of fermentation technology to agri solutions a

la Pharma. Develop capability on data generation , dossier

preparation and registrations overseas.


All the opportunities have challenges built in Brand India to be established as global quality product and

service Leadership and vision Economies of scale Global cutting edge research –development and

integration of and with various sub-systems. Cost leadership Wealth creation for investors Global business orientation , benchmarking Patent management Value chain integration Ability to unlearn Avoidance of shortcuts

Challenges for Indian Agchem industry

Summary

Indian Agchem industry is at an interesting crossroad facing huge growth opportunities.

It must gear up for and facilitate agriculture revolution in the country and outside.

Focus and market orientation is must Need for wealth creation for investors Has opportunity to hold the future in its hands Commitment and discipline could provide Global

leadership. Industry to transform from Killer to Enabler

Thanks .

Population Growth Reduction in available land Quality of available land Nutritional self sufficiency v/s food grain

suffering Local requirement v/s Global

requirement. Food V/s feed

Food Requirement

Growth could be brought by managing wastelands better

Geographical area

Net sown Area wastelands

WL as % of GA

East 68.05 22.72 14.81 22%North 66.85 26.74 24.58 37%South 64.45 29.1 9.99 16%West 129.37 62.54 15 12%Total 328.72 141.1 64.38 20%

Land Utilisation Pattern in different ZonesArea (mha)

Population and Income Growth will Fuel Population and Income Growth will Fuel Increased Food DemandIncreased Food DemandPopulation and Income Growth will Fuel Population and Income Growth will Fuel Increased Food DemandIncreased Food Demand

Increased food demand matrixIncreased food demand matrix

Caloric Caloric shift shift to meat to meat

productproductss

HighHigh

MediumMedium

LowLow

Population X income growthPopulation X income growth

Year 2020Year 2020Demand Demand

+75%+75%•Population Population growth +45% growth +45%

•Increased meat Increased meat consumption consumption +30%+30%

• Shift to Shift to “healthy” and “healthy” and specialized foodsspecialized foods

LowLow MediumMedium HighHigh

61%61% 88%88% 147%147%

51%51% 76%76%

Base CaseBase Case100%100%

39%39% 61%61% 88%88%

ProjectionProjection(75%)(75%)

Source: IFPRI, FAO

•In India, the gains from the “Green Revolution” are getting saturated

Crop Group 1970-71 1980-81 1990-91 2000-01

Foodgrains 74.97 73.39 68.81 63.75Oilseeds 10.04 10.20 13.00 12.37Sugarcane and cotton 6.17 6.08 5.99 6.85Others 8.82 10.33 12.20 17.03

Foodgrains 49.2 44.2 41.61 43.69Oilseeds 9.88 8.7 13.27 6.83Sugarcane and cotton 9.19 11.28 10.08 9.9Others 31.73 35.82 35.04 39.58Fruits and vegetables 15.55 16.89 18.04 23.18Source : National Accounts Statistics, GOI, New Delhi, Various issues

Share in gross cultivated area %

Crop diversification since 1970/71 as revealed by share in area and output value

Share in value of output of crop sector %

Revolution in Agriculture Revolution in Agriculture UnderwayUnderway

agriculturaagricultural sectorl sector

agriculturaagricultural sectorl sector

Information Information availability availability Information Information availability availability (precision agriculture)(precision agriculture)(precision agriculture)(precision agriculture)

Increasing Increasing demand, demand, especially outside especially outside the U.S.the U.S.

Increasing Increasing demand, demand, especially outside especially outside the U.S.the U.S.

BiotechnologyBiotechnologyBiotechnologyBiotechnology

Grower Grower consolidationconsolidationGrower Grower consolidationconsolidation

Effects of Effects of discontinuitiediscontinuitiess

Effects of Effects of discontinuitiediscontinuitiess

Declining Declining governmegovernment nt subsidiessubsidies

Declining Declining governmegovernment nt subsidiessubsidies

Larger, sophisticated Larger, sophisticated growersgrowers

Higher yieldsHigher yields Value shift from Value shift from

chemicals to seedschemicals to seeds Differentiated cropsDifferentiated crops Integration of industry Integration of industry

participants:participants: - Seed- Seed - Chemicals- Chemicals - Biotechnology- Biotechnology - Food ingredients- Food ingredients - Food processing- Food processing

New relationships New relationships with growerswith growers

Area (in MHa)

ZoneGeographical

AreaNet Sown

AreaFallow land Forest Wastelands

East 68.05 22.72 4.75 21.94 14.81north 66.85 26.74 2.21 9.42 24.58South 64.45 29.1 7.99 13.18 9.99West 129.37 62.54 10.05 24.87 15Total 328.726 141.099 24.992 69.408 64.377

Land utilisation pattern in different zones

TOTAL 14 Billion lb $ 2.5 Billion 163 Million lb ai

CURRENT CROPS 4 Billion lb $ 1.5 Billion 46 Million lb ai

FUTURE CROPS 10 Billion lb $ 1.0 Billion 117 Million lb ai

Yield Increase Net Economics Pesticide Reduction

Overall Impact of Biotechnology in Pest Management 40 Case Studies

Gianessi et al, 2002. Plant Biotechnology: Current and Potential Impact for Improving Pest Management in US Agriculture.An Analysis of 40 Case Studies. National Center for Food and Agricultural Policy. www.ncfap.org

CURRENT AND POTENTIAL IMPACT FOR IMPROVINGPEST MANAGEMENT WITH PLANT BIOTECHNOLOGY

Higher Yields Grower Savings Less Pesticide Use

Sources: United Nations Population Division and Population Reference Bureau

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