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SWOT Analysis of an Indian Fertilizer Industry India is primarily an agriculture based economy. The agricultural sector and its other associated spheres provide employment to a large section of the country's population and contribute about 25% to the GDP. Fertilizer sector is a very crucial for Indian economy because it provides a very important input to agriculture. The fertilizer industry in India has played a pivotal role in achieving self sufficiency in food grains as well as in rapid and sustained agriculture growth. India is the third largest producer and consumer of fertilizers in the world after China and the United States. The growth of the Indian fertilizer industry has been largely determined by the policies pursued by the government. The government exercised extensive controls on the pricing, distribution and movement of fertilizers. The industry is capital intensive and the production process energy intensive with the combined cost of feedstock and fuel accounting for anywhere between 55 and 80 per cent of cost of production, depending on the type of fertilizers. The growth trajectory of the Indian fertilizer industry has camouflaged the impending challenges with which it is faced. Growth and development of agriculture in India derives a significant stimulus from the fertilizer industry. Agricultural milieu in India could be jeopardized by the uncertainties in the fertilizer industry. The government is faced with the piquant situation, which demands a balance between the needs of the farmers and the fertilizer manufacturers. The challenges before the Indian fertilizer industry relate to the incertitude in the supply of fertilizers. There has been a surge in the demand for fertilizers in the past few years. Good monsoonal showers have led to the growth in agriculture, inadvertently increasing the consumption rate of fertilizers. However, the robust growth in consumption propensity has not been met with the required surge in fertilizer production. This has widened the gap between the demand and supply of fertilizers, which has led to an increase in the dependence of the country on imports. This also reflects on the lack of realizing of the domestic capacity utilization of the reserves in the country. Another important factor that has led to the stunted growth of the fertilizer industry is the rise in prices of the feedstock. The fertilizer industry is dependent on gas for the production of urea and phosphoric acid for the production of phosphatic fertilizers and DAP. The country imports its inputs from other countries. The overseas suppliers of raw materials realize the predicament of the Indian fertilizer industry and have started exploiting the shortage through clever pricing. In recent years, some of the private companies, dedicated to the production of fertilizers have affectively taken stakes in the overseas sources of raw materials. Although this has aided the industry, it has however been unable to reduce the government's burden of subsidizing the rates. The fertilizer industry is remained protected under the umbrella of the Retention pricing scheme of the Indian government. The government has introduced policies to decontrol the prices but delayed the implementation of the parameters that have

not augured in favor of the industry. As a result, fertilizer subsidies continue to mount and are expected to cross Rs. 50,000 crore in the year 2008. The pricing of the fertilizers are also dependent on the freight charges that are Baltic dry index. The small size of the older plants and the low efficiency of the public sectors also pose as drawbacks of the industry. Recent policies of the government are directed towards revamping of these industries and restoring them to health. The fertilizer industry is faced with other challenges inter alia infrastructural bottlenecks and the uncertainties in government policies. The delay in decision making and obscurity in setting parameters are among some of the major drawbacks of the government policies directed towards the industry. To retrieve the health and growth of the fertilizer industry, the government of India is in need of long term realistic policies that would enable the industry to overcome the challenges and survive the present impasse.

SWOT Analysis of an Indian Agrochemical Industry The agrochemicals industry is a significant industry for the Indian economy. India has to ensure food security for 1.21 billion populations while facing reduction in cultivable land resource. With increasing population, demand for food grains is increasing at a faster pace as compared to its production. This necessitates the use of pesticides. Moreover, every year, significant amount of crop yield is lost due to non usage of crop protection products. So the industry is bound to experience healthy growth rate in the years to come. India is the fourth largest producer of agrochemicals globally, after United States, Japan and China. The Agrochemical Industry accounts for ~2% of the total Indian Chemical Industry. The domestic market is expected to grow at 8% annually till FY15. Exports are set to grow at a CAGR of 15% during the same period. STRENGTHS India due to its inherent strength of low-cost manufacturing and qualified low-cost manpower is a net exporter of pesticides to countries such as USA and some European & African countries. Exports formed ~50% of total industry turnover in FY08 and have achieved a Compounded Annual Growth Rate (CAGR) of 29% from FY04 to FY08. Competitive cost of production on Pyrethroids, Organo Phosphorous (OP) Esters, IPU Key producers have direct accessibility via distribution to the market. Process of consolidation of Indian manufacturers has already commenced due to global impact and competition pressure within India. Exports to a large number of countries. Managerial / Technical pool of Professionals. Low cost manufacturing base. Quality at par with the MNCs. Development of new and eco-friendly formulations WDG, SC, EQ, etc.

-Technical competence

WEAKNESSES High R&D costs : R&D to develop a new agrochemical molecule takes an average of 9 years and ~ USD 180 Mn Indian companies typically have not focused on developing newer molecules and will face challenges in building these capabilities, while continuing to remain cost competitive. Need for efficient distribution systems: Since, the number of end users is large and widespread, effective distribution via retailers is essential to ensure product availability. Lately, companies have been directly dealing with retailers by cutting the distributor from the value chain thereby reducing distribution costs, educating retailers on product usage and offering competitive prices to farmers.

OPPORTUNITIES Limited farmland availability and growing exports: India has 190 Mn hectares of gross cultivated area and the scope for bringing new areas under cultivation is severely limited. Available arable land per capita has been reducing globally and is expected to reduce further. The pressure is therefore to increase yield per hectare which can be achieved through increased usage of agrochemicals. Indian agrochemical exports accounted for ~50% of total industry size in 2009. Growth of horticulture & floriculture: Buoyed by 50% growth experienced by Indian floriculture industry in last 3 years, Government of India has launched a national horticulture mission to double production by 2012. Growing horticulture and floriculture industries will result in increasing demand for agrochemicals, especially fungicides. Increasing awareness: As per Government of India estimates, total value of crops lost due to non-use of pesticides is around USD 17 Bn every year. Companies are increasingly training farmers regarding the right use of agrochemicals in terms of quantity to be used, the right application methodology and appropriate chemicals to be used for indentified pest problems. With increasing awareness, the use of agrochemicals is expected to increase Growth in demand for food grains: India has 16% of the worlds population and less than 2% of the total landmass. Increasing population and high emphasis on achieving food grain selfsufficiency as highlighted in the FY10 budget, is expected to drive growth. Scope for increase in usage: With ~35-40% of the total farmland under crop protection, there is a significant unserved market to tap into. By educating farmers and conducting special training programmes regarding the need to use agrochemicals, Indian companies can hope to increase pesticide consumption. Huge export potential: The excess production capacity is a perfect opportunity to increase exports by utilizing Indias low cost producer status. Patent expiry: Between 2009 and 2014 many molecules are likely to go off patent throwing the market open for generic players. The total viable opportunity through patent expiry is estimated at over USD 3 Bn. Product portfolio expansion: Threats like genetically modified seeds, Integrated Pest Management, organic farming etc. can be turned into opportunities if the industry re-orients

itself to better address the needs of its consumers and broadens its product offering to include a range of agri-inputs instead of only agrochemicals. THREATS Threat from Genetically Modified (GM) seeds: Genetically modified seeds possess self-immunity towards natural adversaries which have the potential to negatively impact the business of agrochemicals. Integrated Pest Management (IPM) & rising demand for organic farming: Promotion of IPM, zero budget farming and usage of bio-pesticides by Indian Government and NGOs is gaining momentum. With increasing demand for organic food, farmers in certain states like Karnataka have reduced chemical usage and have adopted organic farming. Agrochemical companies will have to tackle the rising environmental awareness and address concerns on negative impact of pesticide usage. Counterfeit Products: The spurious pesticides market size in India is estimated to be USD 233 Mn in 2009. This negatively impacts the revenues of the organized sector.