Top 5 Factors Driving India’s Agrochemical Market

Fallout from COVID-19 continues to affect Indian pesticide manufacturers, but it isn’t the only factor. Here are the top five factors that are impacting the market:

1. Cash Is King

Payment terms from clients both domestic and for their export partners are being stretched, and requests for changes to contract terms are common amidst the pandemic. Credit terms that were once 90 days to 120 days are now going to 30 to 60 days.

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“Cash is going to be king in the months to come,” due to widespread virus-related payment disruptions, said Samir Jayant Deosthali of Spectrum. “Cash will definitely play a very, very important role and the credit terms are going to be extreme. We have started observing in the key raw materials where credit terms are (declining) … Companies which are not cash-based will find some difficulty in procurement.”

2. Plant Capacities, Transport Improving — Tentatively

Amidst the pandemic, manufacturing and distribution of plant protection chemicals, seeds, and fertilizers were brought under the Essential Commodities Act by both Central (Federal) and State governments. However, district authorities are empowered to decide the restart/level of activity depending on COVID-19 cases in their jurisdiction.

In Rallis’ district, for example, authorities at the onset of the pandemic permitted operations to run with minimal manpower (10% to 50%), but as of early June have significantly relaxed those parameters.

From the standpoint of U.S.-based FMC Corp., the country’s agrochemical industry has now stabilized, after a rocky start around coronavirus mitigation efforts, Andrew Sandifer, Executive Vice President and Chief Financial Officer, told investors on a call on May 13. India represents its third-largest market globally and FMC bases a significant share of its manufacturing in the country.

“It was a bit chaotic at first but we’re getting to a much better rhythm now in terms of availability of manufacturing labor and keeping product logistics flowing,” he said, while cautioning that, while inventory levels and demand are healthy, “there is definitely volatility in India.”

Indian agrochemical players iterated that manufacturing will remain challenged until June, hindered by labor shortages of migrant workers and skilled manpower.

“Slowly, when production gets streamlined, we foresee a better month in July when availability of raw materials from the ports, container movement, and logistics (improve),” said Deosthali of Spectrum.

Subhra Jyoti Roy, Vice President of International Business with Rallis, described a lack of container availability as shipments into India dried up. In the last two weeks of April, leading French container transportation company CMA CGM abandoned stocks altogether in India, because there was not enough business for them to dock their ships. The port at Maharashtra was hit hard, and Hazira port also was backed up.

“Even if you managed to work well with administration, and get your factory up and running, and somehow get your labor and get your product out, you are challenged with outbound transportation to  get it on the ship,” he said.

“The good news is that there is a degree of normalization that’s happening with respect to factory operations, production is going up, and transportation movement is improving. We do hope this moves well going forward,” Roy said.

3. Labor Shortages Continue

“The key challenge lies with inadequate manpower, with many migrant workers having left for their native places. It may take two more weeks post withdrawal of the lockdown for normalcy to resume. The situation is quite dynamic and things are changing at a rapid pace,” Roy said.

Ankit Patel, Chief Executive Officer at Meghmani Organics Ltd., told AgriBusiness Global that the labor issue is complicated by the start of the peak season for both the domestic market and exports.

“Nobody will be able to keep up with the demand; they will be short for a couple of months,” he said. “With  limited manpower resource you cannot run your plant with a good capacity. These are plants with a lot of hazards and technical issues. If you don’t have sufficient manpower, then you will have all kinds of risky operations,” he explained, adding that Meghmani was taking precautionary steps to ensure its plants run smoothly and safely. “I think gradually, it is getting better, but it will take another two months (through June) to get it settled, for sure.”

4. Push for Derisking, More Self-Sufficiency

It’s yet to be seen if the coronavirus fallout will cause a meaningful shift in production from China to India and other countries. Nevertheless, the risks of heavy reliance on China have perhaps never been clearer.

“There’s been a great effort over  last two years, and I think India already has a lot of newly installed capacity to feed the vacuum left by China for select molecules,” Roy said, continuing, “I don’t think a lot more new capacity will be set up, because India is focused on the molecules it wants to be in. It’s never going to be China in glyphosate.”

Rajesh Aggarwal, Managing Director of Insecticides India and Vice Chairman of Crop Care Federation of India, urged the government to issue faster clearances for imports and to facilitate manufacturing licenses so that India can become self-sufficient, according to an article in The Hindu.

“We need to use this opportunity to backward integrate and put up capacity, so that we are not dependent on imports,” he said.

Pesticides Manufacturers & Formulators Association of India President Pradip Dave agreed.

“As manufacturing and logistics are paralyzed in China, it’s a good time for India to increase its share in global markets. The government must help local manufacturing companies by granting registration from the Central Insecticide Board and manufacturing licenses by States,” he said to The Hindu.

Outgoing FMC CEO Pierre Broundeau, on the company’s first-quarter earnings call, noted the COVID-19 pandemic has highlighted its bid to rebalance its supply chain between China and the rest of the world – India included.

“China used to be 95% of our raw material and active ingredient supply; today it’s down to less than 50%. We are increasing our investment in places like India, Europe, and North America,” he said.

5. Government Moves to Ban Key Products

In a move not directly related to the pandemic, India’s government moved to ban 27 widely used pesticides, including key products like mancozeb, 2,4-D, and chlorpyrifos, prompting backlash from the country’s crop protection industry.

The Ministry of Agriculture and Farmers Welfare issued a draft order on May 18 outlining the pesticides set to be prohibited from manufacturing, sale, and import, which it said are “likely to involve risk to human beings and animals.” The Ministry has given 45 days for the industry and manufacturers to file objections to the ban, which it said will be considered by the Central Government.

PMFAI’s Pradip Dave expressed shock at the order, and said that PMFAI “will be making a presentation to the Ministry and asking the court for relief.”

“These generic products which have been banned have a market size of Rs 40-50 billion and have been used for the last three to four decades by Indian farmers without any complaints, unless misused,” Dave said.

Indian manufacturers had been supplying Rs 35 billion worth of the products to the domestic market, with the balance being exported. Most local manufacturers that may now not be able to sell in the domestic market, already have or can yet obtain export registrations, and can continue exporting.

“Prices of replacement products are almost three to six times higher than existing prices of Indian products. This will be added burden on the Indian farmers,” Dave added, explaining that many organophosphorus compounds can cost Rs 500/liter, which would need to be replaced with far more expensive imports.

“The bans are not going to result in any incremental investment by (multinational corporations) in India. Even for products that are currently not being manufactured by the Indian companies, were the MNCs to get product registration for the same, the government will have to issue such registrations to the Indians too, and they will be far more cost-competitive versus their counterparts,” Dave said.