Indian Agrochemicals Market Shifts from Transactional to Collaborative Partnerships
The buzz around India as the premier alternative hub for agrichemicals has only grown stronger in the past 18 months. But does the country’s industry have what it takes to compete with China on a grand scale, not only in the near term but in the days and months and years after China’s environmental clean-up is complete?
Or maybe the question is not about how — or if — it can make the quantum leap to competing head to head with China, plant inspections and closures or not. Maybe it’s about learning from the turmoil of the last 18 months and evolving as an industry into one that can truly work together.
Maybe the goal should be, if it isn’t already, for the entire industry to strengthen itself by building trust, communicating better from top to bottom, and becoming more collaborative and less transactional oriented. Protecting the world’s food supply is not an unimportant task, as Stephen Pearce, Director of AWP Associates and Bancella Ltd., put it in his characteristic understated style, speaking to a standing room-only audience at the AgriBusiness GlobalSM Trade Summit in Atlantic City, New Jersey, on July 31.
As a major beneficiary of Japan de-risking its supply chain over the last two years, India is looking to how it can further capitalize on sweeping changes in the industry long term. “And just to make life more interesting,” Pearce pointed out, “here in the land of the free and the home of the brave, the U.S. has decided the playing field needs leveled” by slapping China with tariffs and ending India’s GSP status.
“More opportunities will come faster if Sino-Indian cooperation can be built and implemented,” Pearce said. “The key question is, will it? What is the platform for being able to do that on a sustained basis?” He added, “The Japanese have figured it out in terms of going to India and leveraging expertise; will China do the same? The jury is still out, but a number of conversations going on would indicate that’s an intention.”
Pearce tagged a cautionary note to this: India and China are not the only places to shop. If the value chain in these places can’t get it right, for buyers, “other geographies are going to become more and more attractive,” namely Eastern Europe.
C S Liew, Managing Director of Pacific Agriscience, argues that while potentially there are other geographies, including South America, that could rise to the occasion and emerge as producers of a limited number of molecules, India, by far, offers the greatest opportunities. It has a large and growing domestic market, long-standing experience in ag chem manufacturing and an industrial microcosm, as well as the Make in India mantra and encouragement of the Modi government.
“All that is needed is for the Chinese to provide them the technology and expertise in the manufacturing of key intermediates as well as some of the key building blocks. In return, the Chinese could have a source of Technical that ensures continuity or sustainability of their own business in the face of even greater centrally planned shutdown pressures,” Liew told AgriBusiness Global.
Above and beyond the industry play-by-plays, Pearce shared an important reminder. “We’re all part of the same value chain, but we have to ask ourselves the question: Who pays for the collective inefficiencies that we have in the value chain, however they’re caused? The reality is that we all do. We all stand to lose. … Everybody has to make money, but when you look at how the value chain is changing and evolving, if you’re not providing a value-added step, you’re not going to be around.”
When we asked a sampling of Indian companies at the Trade Summit about the potential for sustained Chinese-Indian cooperation, opinions were sharply divided. Several acknowledged having been approached by the Chinese for contract manufacturing and other ventures. Some sounded optimistic about what the future may hold for working together, while others raised eyebrows at any possibility of the two joining hands.
Kumar Inamdar, President, Crop Protection Division of Mumbai-based Hikal Ltd., is one of the skeptics.
“There is always going to be an issue with capacities,” he said, in addition to the “huge cultural differences in the way that India operates and the way that China operates. Obviously, Indian companies are going to be very skeptical.” As far as Hikal’s de-risking strategy, the company foresaw the current situation four years back, he said, and so it shifted focus to the domestic market and began developing a stable of Indian suppliers.
Bhagiradha Chemicals’ story is slightly more uncommon in that it is already fully backward-integrated in its technical manufacturing of products like chlorpyrifos, azoxystrobin, and imidacloprid. Revenue doubled last year, and the company is expecting 20% to 25% growth for the next five years, driven in part by its reputation for its ability to supply products in difficult times and a plan to add more active ingredients coming off patent to its portfolio, according to Executive Director Ketan Budh.
Budh maintained that the ability of Indians and Chinese to link up — in India, at least — has already been decided by policy. “The Indian government wants Indian companies to grow as one, standalone, without the support of (the Chinese). The aim of Make in India is to create a manufacturing base in India, and not just for chemicals.”
Other conversations would suggest the policy does not cut off all avenues for investment and alliances. Bimal Shah, Director of Sulphur Mills Ltd., has witnessed more courting of the Indians by the Chinese for partnerships in India, involving various chemistries and methods by which to work hand in hand, whether it be for manufacturing of intermediates or finished products.
“We’re evaluating some of these (opportunities),” Shah told AgriBusiness Global at Trade Summit. “I think it will happen. … Everybody wants ‘blue skies,’” he said in reference to the industry’s oft-used metaphor for China’s environmental clean-up. First, “the Chinese will need time to get acquainted with Indian culture and the Indian working style.”
‘It’s About Mindset’
At Rallis India, international business shot up more than 34% last year. It is investing heavily in new facilities over the next three years and will address its growth through reverse engineering. This will be done in two phases, with some supported by backward integration.
“You can’t move away from (China), because, for some of the chemistries, such as phosphorus-based raw materials, they are the best in terms of cost position,” said Subhra Jyoti Roy, Vice President, International Business. “What will prevail and support growth will be strategic partnership models. In the current context of sourcing complications, procurement plays a pivotal role,” he explained, adding, “The second important part is, Indian companies, including Rallis, are going in for strategic investments.”
Roy expects that China’s big players will “get back with a vengeance, with large volumes, in the next three to five years. They are fairly resilient. Indians have roughly a window of four to five years to establish themselves. Regardless of a China comeback, buyers are more cautious now and will balance it out between both nations in terms of sourcing.”
The path forward for China’s mammoth in the making — the still-unannounced presumed merger of Sinochem and ChemChina — will also speak volumes, according to Abhishek Aggarwal, President of Bharat Rasayan Ltd. The Delhi-based company is keeping a close eye on the strategy of Sinochem’s new agrichemical group comprising Syngenta, Adama, and Sinochem’s own agrichemical unit. “We are in talks with some Chinese companies, where we are starting to do three molecules for contract manufacturing. So, I’m not saying it’s a big ‘no,’ but we are going slowly on that, and we’re going fast on collaborations with Japan and other MNCs,” Aggarwal said.
“We have a strong relationship with (Chinese companies). They have really supported us in giving us the raw materials, and we really respect the Chinese chemical industry. It’s not that we cannot collaborate,” he added.
However, “it’s about the mindset. Are they actually looking for a makeshift arrangement or a long-term arrangement?”
Until his company can determine that, it — like many of its counterparts in India — is focused on becoming self-reliant. Bharat Rasayan sources building blocks from China for just over half of the 21 molecules it currently manufactures for customers, such as Syngenta, Sumitomo, Rallis India, and Coromandel, and it is constructing a third plant that is devoted to backward integration and contract manufacturing for Japanese, European, and U.S.-based multinationals.
“We are having a great time in the last three years because of the China factor. And the time has come for India to think beyond,” he said.