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Project Report on Agrochemicals

Nov 16, 2014

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MBA Project Report on Agrochemicals

Executive Summary

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31

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Executive Summary

The sheer size of Indian agriculture has attracted virtually every multinational company from all over the world to come to India and tap its potential. However despite its huge potential, the actual usage of agrochemical products in India is lowest in the world. Uneducated farmers with small plots of land, erratic nature of rainfall, primitive methods of farming, unreasonable land lease, rentals, etc. have all contributed to the slow progress of the Agrochemicals Industry in India.

Despite this gloomy picture, there are also a large number of rich and prosperous farmers whose agricultural practices match up with the best anywhere in the world.

Agrochemicals usage is restricted to only 1/3rd of the cultivated land in India, which represent the prosperous farms. Hence, despite the low coverage of agrochemicals products, India is today the 14th largest market estimates at Rs.2700 crores in the year 1999.

Agrochemicals play an important role in increasing agricultural production as they protect crops from insects, pests, plant diseases and weeds before harvesting and post harvesting. Initially manufactured as technical grade products they are subsequently converted into formulations for agricultural use.

The industry is generic in nature as nearly 70% of the molecules are off patent. Among off patent products, wide distribution network, strong brand image and superior product quality act as entry barriers. Environmental concerns have resulted in high regulation for the agrochemical industry making prior registration for a large number of products mandatory.

The production process is essentially conversion job with raw materials, power and labor acting as the major cost elements. The industry is working capital intensive as the players give long credit periods to the farmers due to their poor economic status.

Pesticides attract excise duty of 16%whereas other agricultural inputs like seeds and fertilizers are exempt from levy of duties. Both technical grade pesticides and implements are charged a maximum customs duty of 35% rate that makes it expensive to manufacture pesticides based on imported intermediaries.

The size of the global agrochemical market was placed at US $32.4bn in 1999 and is likely to grow at 5% per annum. The global consumption is skewed in favour of herbicides that account for nearly 48% of the pesticides usage. Manufacturers in developed countries are advocating safer means of pesticides application and shifting towards biotechnology to increase crop yield.

India is the second largest manufacturer of basic agrochemicals in Asia with 145 pesticides registered in the country. Even though India has a large capacity in volume terms it accounts for less than 2.5% of the world markets in value terms. Consumption is also low in India at 600gm compared to 10000gm per hectare in developed countries. Insecticides account for nearly 76% while herbicides account for only 10% of the pesticides usage in India.

The Indian agrochemical market is at Rs30bn in 1998-99. The industry has a total current investment of Rs 15bn comprising 80players in the organized sector and more than 500 players in the small-scale sector. Nearly 125 producers are engaged in manufacturing technicals while 500 units are engaged in making pesticides formulations. In terms of production capabilities, Indian players are highly integrated and have already made inroads in the export markets. Multinationals have expressed concerns over launching new products in India because of insufficient patent protection.

Pesticides demand is expected to improve to90000 MT tonnes in FY2000 from 86600 MT in FY1999. The peculiar feature of this sector is that the consumption is skewed in favor of a few cash crops. The geographical spread of usage is also restricted to a few states like Andhra Pradesh, where the consumption profile matches that of the developed countries.

The agrochemical industry is highly dependent on monsoon and consumption is skewed in favour of Kharif crops with maximum use of pesticides in July to September period. In India the industry is almost similar to commodity industry, therefore the players have little pricing power. In the current year the industry is suffering from over capacity and poor offtake due to erratic monsoons and lower acreage. The industry has witnessed intense price competition from unorganized players that has severely affected the margins of organized players. The last two years have seen a single digit growth rate compared to 14% growth per annum recorded earlier.

In future the industry is expected to witness higher consolidation as several players are trying to exit due to poor profitability and bad market conditions. The government regulations and ban on certain pesticides has encouraged research and development to identify new and effective products that are safe for the environment. Also, new patent regime with emphasis on patent protection and emergence of biotechnology will lead to new developments and future growth in this sector. Generally patent protection enables producers to command higher prices which is an incentive for R&D, as Indian players usually lack the resources to invest in R&D.

The outlook for the industry remains dependent on normal monsoons and increase in farm income. The ease of undertaking research and development activities and cheap availability of skilled labour force has encouraged Indian subsidiaries of global giants to make India a sourcing base. The gradual shift towards higher consumption of herbicides and introduction of new high margin products is expected to improve the profitability of organized players in the long run. Besides consolidation among the global players is expected to realign the market share among the domestic players similarly and will result in greater research and development products to be introduced in the country.

In future the firms will have to set up integrated world class manufacturing facilities employing state of the art processes and technologies developed through in-house research and development to survive in the fiercely competitive market. Indian companies will have to develop technological capabilities and focus more on research and development by identifying new and better generation molecules in order to compete with MNCs.

Introduction And Definition

Contribution Of Agricultural Sector To The Economy

Agriculture occupies a dominant position in Indias economic structure. The success of the Green Revolution enabled the country to achieve selfsufficiency in food grains production. Over the last five decades the industry has expanded with more than 500 players, making India the second largest manufacturer of basic crop protection chemicals in Asia in volume terms. In terms of turnover the industry is worth Rs. 3,600 crores and given the low rate of consumption there is huge potential for growth waiting to be tapped. There is also another factor that could bring about a major upsurge in the industrys fortunes if properly addressed exports. With the global generic pesticide market forecast to grow by 54% to $27,000 million by 2005, many MNCs are keen to leverage Indias strategic location for their Asia Pacific activities. India is also being viewed as a major contract-manufacturing base by leading global players.

The demand for food grains 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.

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 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. Theyre in technical parlance defined as products with high chemical purity. Whereas further processing of technicals with emulsifiers and other agents (sometimes referred to as excipients) result 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

Major Products

Purpose

Insecticides

Monocrotophos, Phosphamidon,Parathion, Endosulphan,Quinalphos

To kill inse

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