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Indian agrochemicals industry: On the
throes of change
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The
importance of agriculture to the Indian economy and for food security cannot
be overemphasised. Despite the emergence of a strong services sector, and
lofty ambitions to ramp up the share of manufacturing, there is no escaping
the fact that agriculture underpins India’s rural economy. It accounts for
15% of gross value added and 60% of rural households rely on it for their
livelihood.
Raising agricultural productivity
The
challenges facing Indian agriculture are many, but can be summarised as
‘doing more with less.’ Pressures of population, urbanisation and
industrialisation are shrinking land for farming, even as demands from an
increasingly affluent population – including in rural India – are rising. The
availability of water for irrigation has become a bone of contention, leading
to disputes not just with neighbouring countries, but also between States.
Ground water depletion has reached alarming levels, especially in areas that
were at the forefront of the Green Revolution that turned India from an
importer to exporter of foodgrains.
Raising
agricultural productivity is paramount. It has languished at one of the
lowest in the world due several factors including fragmented land holdings,
lack of mechanisation, and use of traditional practices that have outlived
their utility. Raising this will require diverse approaches including
consolidation of land holdings to benefit from economies of scale; use of
mechanised farming; wider adoption of high-yielding seeds, including
genetically modified ones; better nutrient management, including balanced
fertiliser usage; and integrated pest management (IPM) combining chemical and
biological approaches.
The
conventional agrochemical industry, supplying chemicals needed for pest
management, and its modern avatar, offering seeds and chemical treatments as
part of integrated solutions, are a vital part of this effort. Estimates of
crop losses due to pests are difficult to come by, but a figure of 25% cannot
be far off the mark. Infestations are getting more frequent and acute, and
this has been attributed to a variety of reasons including climate change. In
a constant game of one-upmanship, the chemical armoury needs to be
replenished continuously to combat resistance. The strategy needs to
constantly evolve but it is clearly not just about spraying toxic chemicals.
Robust agrochemicals industry
Agrochemicals and pharmaceuticals
India’s
agrochemicals and pharmaceuticals industries have often been compared, and
there are similarities. From a manufacturing standpoint, both leverage
strengths in chemistry and (batch) process technology development. The
companies involved make active ingredients or formulations or both, and
technology barriers are greater in the former than the latter, though
marketing challenges are the other way around. India is now the leading
producer of several large volume technical agrochemicals and active
pharmaceutical ingredients, though China has an edge in some value chains.
Both industries are also dependent on for imports of critical raw
materials and inteChinarmediates – a matter of concern that needs to be urgently
addressed.
In
the marketplace, the agrochemical and the pharmaceutical industries are very
different. The integrated model of life science companies is no longer in
vogue and most companies split up in the early part of the century to focus
on one or the other.
Vulnerabilities of Indian companies
While
there is much to be proud of when it comes to the progress of India’s
agrochemicals industry, it is important to recognise its vulnerabilities. The
market is skewed towards insecticides – not surprising given India’s tropical
climate – and the share of fungicides and herbicides is still small. But the
distribution is slowly becoming more balanced for several reasons. For one,
the introduction of genetically modified cotton (Bt-cotton), with an inherent
resistance to pests, has dramatically shrunk usage of insecticides (though
not eliminated it). For another, the evolution of the agricultural basket –
with a larger proportion of horticultural products, fruits & vegetables,
at the expense of foodgrains and cotton – have led to greater use of
fungicides. A shortage of labour – surprising for a populous country – is the
drive for greater herbicide usage, as mechanical removal of weeds gives way
to chemical approaches.
Much
of the industry is focussed on making and marketing older generation products
that could be edged out by newer ones, protected by patents, that are more
efficacious, targeted and safer to human health and the environment. These
molecules are without exception being brought in by multinational companies
that have spent tens of millions of dollars in their innovation. While they
appear expensive, the value proposition they offer to farmers seems
attractive enough.
Growth approaches
Given
the limitations posed by their individual and collective size, it would be
far fetched to expect Indian agrochemical companies to invest in research for
new molecules. Their continued participation in the India growth story will
hence hinge on their ability to adopt one of four broad business strategies:
going global, forging marketing alliances, entering into toll & contract
manufacturing arrangements and focusing on formulation development. Several
companies are adopting one or more of these, but more need to do so for a
sustainable future.
A
select band of companies in agrochemicals and pharmaceuticals have built
integrated capabilities and now get more revenues from exports or
international operations, than domestic sales. The number is greater in
pharmaceuticals, and their focus has been on the discerning and developed
markets in the US, Western Europe and Japan. Likewise, about half a dozen
companies in the Indian agrochemicals space have also built on their
strengths and established a presence in the big markets of the world – in
North and South America, and parts of Asia and Africa. They will continue to
expand geographically and in terms of the portfolio on offer.
At
the same time, several new products innovated by multinationals are now being
offered to the Indian market in partnership with domestic companies with the
necessary infrastructure to service this fragmented and geographically
dispersed market. This is a win-win strategy: the international major can
operate with their lean structures in focussed segments, leaving others to
the Indian partner; and the latter can offer a more complete basket of
products, including tried & tested generics and more recent
introductions.
Toll
& contract manufacturing is commonplace in the pharmaceutical industry
and is increasingly seen in agrochemicals as well. India brings well-known
skills that enable low-cost operations, and for generics, in particular, this
is crucial. The opportunity is likely to expand as nearly 15 actives, with a
market value in excess of $4-bn, are expected to go off-patent by 2020.
The
leading Indian companies are also well placed to carry out innovations in
formulations and delivery systems. There are several public sector
laboratories that have the technical expertise and these should be encouraged
to partner with the industry in greater numbers than hitherto. This is an
opportunity to create intellectual property, offer a better value proposition
to end-users and stand out in the crowded space of generics.
Industry in the throes of change
The
business of agrochemicals is changing dramatically. The industry is now seen
as a part of a holistic set-up with a portfolio of seeds and biotechnological
capabilities complementing the traditional chemicals business. The global
business landscape is also seeing significant reorganisation with several
mega-deals in the making: the Dow-DuPont merger; the acquisition of Syngenta
by ChemChina; and the most recent announcement by Bayer to buy Monsanto.
These
dynamics will play out directly in the Indian market where all of the
multinationals have a presence, but they could also impact existing
relationships with Indian vendors and realignment of marketing strategies as
well.
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Ravi
Raghavan
Chemical
Weekly 20 Dec 2016
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