Low offtake, capacity utilisation plague agro chemical industry

Bhagyashree Pande, FE Research Bureau

Indian agriculture is still heavily dependent on monsoon. This over dependence leads to erratic spendings by the domestic farmers and directly affect the offtake of agrochemical products.

The agro chemical industry in India is highly concentrated on the domestic consumption. The domestic market for crop-protection products is characterised by a lack of product variety. The consumption of agrochemicals in favour of kharif crops, make its geographical reach limited to states like Punjab, Andhra Pradesh and Karnataka. States, like Madhya Pradesh, Gujarat and Rajasthan, which have erratic monsoons have reduced pesticide offtake.

About 45 per cent of the total domestic production is used for cotton crops and 22 per cent for paddy. Close to half of the demand for crop-protection products comes from Andhra Pradesh, Punjab and Haryana.

Irratic monsoons and patchy offtake have led to a sluggish offtake. This can be seen in the sales of top six agro chemical companies during April-September 2001 which grew by 1 per cent. The total sales of these companies stood at Rs 1,818.43 crore during April-September 2001, against Rs 1,803.04 crore in the previous year.

Excel Industries saw a growth of 14.5 per cent to Rs 240.88 crore during April-September 2001 over last year. But on the other hand Rallis India saw a decline of 10.2 per cent to Rs 516.68 crore, against last year’s Rs 575.11 crore. Indian arms of MNC giants, Bayer India and Monsanto saw an average growth of 5 per cent. But Syngenta saw a dip of 2 per cent in sales. The dismantling of quantitative restrictions on key agricultural commodities over the past year has encouraged imports and has added to the pressure on prices of cash crops such as oilseeds, sugarcane, copra and cotton. This has diminished the purchasing power of the farmers and consequently shrunk the offtake of crop protection products.

The combined net profit of these companies stood at Rs 69.46 crore during April-September ’01, agianst Rs 35.63 crore registered during the previous year. United Phosphorous’s profit increased by 23 per cent to Rs 15.86 crore. But Bayer India and Syngenta (formerly Novartis) saw a meagre 0.73 and 2 per cent respective increase in net profit over last year. Rallis India saw a turnaround with a profit of Rs 16.06 crore. But Monsanto India and Excel Industries saw a decline of 33 per cent and 19 per cent over last year.

Indian agro chemical industries have very low investments in research and development. And the country have very few proprietery products. The entry of multinational majors, with strong R&D capabilities, is fast changing this scenario. The availability of cheap skilled labour has encouraged many MNC’s to make India a sourcing base. The future will see many new patented being launched in the country. Having a comparatively less stringent environment protection norms, make India an ideal manufacturing base MNCs.

The industry likely to see consolidation as many players will quit the market due to poor offtake resulting from lack of innovative products. With a low capacity utilisation, many more weak firms are expected to call it quits due the increased competition.

The industry requires high working capital due to the seasonal nature of argiculture and long credit period given to farmers. High inventories during off season period and high receivables during poor monsoon would add more pressure on the working capital. Thus, those companies with strong fundamentals would only succeed in the race for survival.