India Report: Bounty And Boom Times
1 October 2010 India’s economy is red hot. Despite a global recession, the country has bolstered consumption, incomes, jobs, currency and investment. And the rising middle class is growing and fueling a prosperity like never seen before.
India’s Finance Ministry reported in August that the country’s GDP grew in the second quarter at 8.8% compared to the same period last year, and the government expects annual growth to exceed 9%, led largely on industrial manufacturing.
The country’s private sector is showing strong gains as a result of heightened consumption. The Bombay Stock Exchange’s Sensitive Index, or Sensex, topped 19,000 for the first time since January 2008, rebounding from a May 25 low by 20%, the level that signifies a bull market according to some analysts.
India’s relative prosperity is the envy of many developed countries that have struggled to enjoy meaningful economic recovery. For the first time in modern history, it will likely be emerging economies that lead a reversal of the global economy instead of the West. The International Monetary Fund said recently that major emerging economies like China, India, Indonesia and Brazil are, in fact, leading the global economic recovery.
But India’s tale among these other major developing economies is a bit different. Unlike its counterparts, India’s growth is fueled largely by domestic consumption instead of exports. Indian exports account for less than 20% of its GDP. Instead, growth in India is led by services, which is 55% of India’s economy and is enjoying close to double-digit growth. Manufacturing expanded almost 12.5% so far this year, and mining rose almost 9%.
This phenomenon is touching almost every sector of the economy, including electronics, cars, housing, and services.
And agriculture is reaping its rewards as well. Although the sector is not experiencing the meteoric rise of other parts of India’s economy, its steady increases continue to cater to a rising middle class who increasingly demand more diversity in their diet.
Agriculture output in India is expected to rise about 3% this year, although an extended monsoon season is hampering the ability to update those estimates. Agriculture’s total share of GDP might be declining: Agriculture is responsible for 20% of India’s GDP, down from 50% in 1950. However, India still is an agrarian economy providing employment to more than 65% of the population, and the practice of crop diversification in India holds larger importance in light of the changing consumer preferences.
The changing food consumption patterns of India’s population is expected to grow the sector in real terms to $230 billion by 2013, and a richer diet will also instigate heightened purchasing of major commodities as diets shift increasingly toward more processed foods.
Of course, India’s robust crop protection sector is reaping the rewards of this burgeoning adoption of a more diverse diet. Largely fueled by the fungicide market for higher-value fruits and vegetables, Indian pesticide manufacturers are experiencing a boom that correlates to rising discernment of the middle-class palate.
In the past three years, India’s crop protection industry has enjoyed double-digit growth, rising at a rate of 10% to 15% per year, according to data from PMFAI (Pesticide Manufacturers and Formulators Association of India). The total industry reached more than $3.35 billion in global sales in 2009, more than half of which — $1.8 billion — was used for domestic consumption. Many industry players expect the value of the domestic market to continue to rise.
“Agriculture practices are changing in India,” says Abhimanyu Jhaver, director of Tagros Chemicals India, a $300 million company in Egmore, Chennai. “Farmers are starting to use more modern molecules, and cropping practices are changing, too. Even the multinationals are introducing new products to capitalize on this, which has never happened in India.”
Indian farmers are experiencing a sort of renaissance, with support from private industry, academia and the government. A new generation of farmer is making its way into the Indian heartland. Government subsidies for education, crop production and inputs have made farmers more profitable in recent years, in turn creating a perpetuating cycle of more education — especially for farmers’ children — and more sophisticated agronomic practices.
Combined with land reform, these better-educated farmers and more diverse crops are expected to usher in a period of rapid expansion for agriculture, and for crop protection, which is expected to double in value by 2014. There are 11 multinational companies with a presence in India, along with 60 producers of active ingredients and 450 formulators. About 80% of the market share is controlled by generic products.
“Over a period of time, we are going to see a consolidation of land happening in India,” says Vijay Mundhra, director of Willowood Limited, which is based in Hong Kong but does its research, development, manufacturing and a majority of its sales in India. “More corporate groups are getting into farming, so there is going to be significantly greater use of modern techniques.”
India has already been a large user of insecticides, largely due to its huge cotton cultivation. Insecticides represent almost 60% of the country’s total domestic-use value, although the insecticide market is shrinking as the adoption of Bt cotton continues to climb.
The fungicide market is growing rapidly as well as a result of higher-quality fruits and vegetables making their way to the tables of India’s middle class. Second to China, India is the largest producer of fruits and vegetable in the world with 11.7 million hectares in cultivation, roughly 10% of global production.
“We are planning to introduce more fungicide combinations from group companies in India (to meet domestic need),” says Dinesh Prajapati, director of registrations and regulatory affairs for Punjab Chemicals in Mumbai.
Herbicides might be the largest growth sector in India. Rising incomes in the manufacturing and service sectors have created more employment options across the country, making farm labor more difficult to find. This, combined with smaller families, is creating a broader adoption of chemical weeding.
“The only answer in an economy where workers no longer want to do field labor is for farmers to use modern agriculture,” Mundhra says.
India, thus far, has been rather unprepared for the loss of labor in agriculture; about one-third of crop losses in 2009 were attributed to poor weed management.
Prospects for growth in the herbicide and fungicide markets are so favorable that leading manufacturers are investing in their infrastructure to satisfy burgeoning demand and to stave off competition within the country as well.
Punjab Chemicals acquired IA & IC Chem Ltd. in 2006 to gain a modern facility to manufacture WDG formulations that are increasingly popular with Indian farmers. Today, the company is able to produce modern formulations of sulphur WDG, hexaconazole and metalaxyl, and the it is developing tebuconazole formulations.
“We have a strong team that works with dealers, distributors and development that has resulted in better coverage of the domestic market,” Prajapati says. “Now we are in the process of developing newer, more effective fungicide combinations to combat the phenomenon of resistance, if any.”
More consolidation of facilities is expected to continue, but Willowood is growing more organically in India. Willowood is in the process of building manufacturing and research facilities to supplement their current operations. The company is planning to build a synthesis plant in India, as well as a research and development facility with enough plantable area to do field trials of its formulations.
The challenge for Indian manufacturers remains the registration of products. A woeful 194 products are currently registered in India, according to PMFAI, less than half of neighboring Pakistan (495) and other emerging economies.
“The government is emphasizing the need for increased agriculture production to meet the demand of current trends as well as the demands of an increasing population to ensure food security and to compensate for possible agricultural shifts due to climate change,” says AIMCO Pesticides Managing Director Elizabeth Shrivastava, who cited Prime Minister Manmohan Singh’s recent address that called for the country to double the farm growth rate.
“For this to happen, farmers must have access to new technologies and products more quickly,” she says. “Considering our diversity of crop, regions and pest complexities, we need more new products and the best crop protection technologies that are available to the rest of the world.
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