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Pesticides, also referred to as agrochemicals are chemical compounds used for crop protection.
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The Indian pesticides segment comprises of large MNCs, Indian companies and small-scale units. The small-scale sector is extremely fragmented and most units manufacture pesticide formulations.
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Pesticide demand is seasonal in nature as it feeds on agricultural production. Demand is at its peak in July-November. Most manufacturers cannot optimise production facilities and operate at approximately 65% capacity.
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Rice and cotton (grown in July-November) account for close to 67% of the pesticides produced in the country. Pesticide consumption is skewed geographically with Andhra Pradesh and Punjab accounting for 47% of total pesticide production. Therefore, the socio-economic conditions of these two states dictates pesticide demand.
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| Supply |
There is an excess supply of technical grade pesticides.
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| Demand |
Skewed towards rice and cotton, which account for 67% of pesticide demand. Geographically, Andhra Pradesh and Punjab account for 47% of production.
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| Barriers to entry |
Capital-intensive as working capital requirements account for 45-50% of capital employed.
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| Bargaining power of suppliers |
Low, since prices of basic raw materials are dictated by international prices and those of technical grade pesticides are dictated by the demand-supply trends in the industry which at present is tilted in favour of formulators.
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| Bargaining power of customers |
Relatively high for formulators in view of large supply.
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| Competition |
Manufacturers compete by offering lower priced products. |
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With the cotton production falling to 10.4 m bales, which is among the lowest over the last five years (the average cotton production over the last five years hovered around 13.0 m bales), the pesticide demand for cotton was adversely hit. However, rice production (at 88 million tonnes) was among the highest achieved by the country in any single year. This saved the industry in what otherwise would have been a very bad year.
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If genetically modified seeds find acceptability from the farmers (the cotton seed has been granted permission for cultivation into India), global players will be more aggressive. The larger MNCs such as Monsanto, Agrevo and Syngenta should benefit.
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The phase-out of certain older generation agro-chemicals such as phosphamidon is expected to affect Indian companies such as United Phosphorous.
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MNCs are expected to post better performances in view of their better product-mix (higher proportion of new-generation products and weedicides and herbicides). However, these companies are import-sensitive which could pose a problem if the dollar weakens vis-à-vis the Indian rupee.
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