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Sept. 2011

An Insight into Agri sector...

Contents
1. Seed Sector : Way to Evolution
2. Fertilizer Sector : Nourishing Indian Farms
3. Agrochemicals : Guarding Crops
4. Banking & Agrifinance : Money Matters
5. Commodity : Dealing with Uncertainties
6. Pharmaceuticals : Caring for Lives
7. Tractor Industry : Wheels of Prosperity
8. Dairy Technology : Every Drop Worthy

NIAM Celebrates a Decennium

of Excellence as it completes ten
years of PGDABM foundation.
During this journey, NIAM has
established several milestones
and showcased potential of
untapped sectors of agri
business. NIAM has instilled in its
students a sense of responsibility
and belongingness towards the sustainable development of
agriculture and allied sectors.
This issue of OLIVE brings forth the experiences of students
garnered during their summer internship in serval sectors
such as Input, Social & Development, Food Processing,
Commodity Trading, Pharmaceuticals, Consultancy, AgriInfrastructure & Irrigation. We at NIAM lay special emphasis
on the key challenges and contemporary issue that exist in
each of the agri sectors. In this compilation the students have
made an attempt to focus on the global scenario, current
status and opportunities that each sector holds.

Dr. Kamal Mathur

Director, PGDABM
NIAM

Director General - Dr. R.P Meena, I.A.S.

Director (PGDABM) - Dr. Kamal Mathur
Dy. Director (PGDABM) - Dr. Hema Yadav
Students - NIAM 2010-12 Batch

Seed Sector

Way to Evolution

The Seed Industry

Subeejam Shushereto Jaayaty
Sapadayaty
(The good seed in a good field
produces abundantly)
Seed is the basic, fundamental and
most critical input for sustaining farm
production and productivity. It often
invigorates the use of other yield
enhancing agro-inputs, technologies
and new methods in farms, thus
stimulating an inclusive approach for
crop production. Seed sector has
played a vital role in whatever
Agricultural development that has
taken place in last 5 decades and it
would continue to play this role for
decades to come through development
and adoption of innovative
technologies in this sector.
Organized Indian Seed Industry is just
50 years old but it has shown a
phenomenal growth during this
period.
The industry has made
impressive strides from a modest
beginning in seed production and
distribution in 196263 to over 1
million tons by 2007-08. With an
estimated turnover exceeding 70
billion (USD 1.5 billion) in 2010,
India ranks fifth in the world seed
trade, and is poised to rise higher (at
the rate of 12-13% p.a.) on the strength
of its
dynamic, innovative,
internationally competitive, research

based seed industry.

At present the number of seed
companies engaged in seed
production or seed trade in India is in
the order of 400 to 500. Several
companies have Government of India
(DSIR) recognized research and
development departments and have
produced and released a large number
of varieties and hybrids in several
crops. But still with one-sixth of the
world population and the second
largest cultivable land, the Indian seed
industry presents less than 2 percent of
the global seed business. Commercial
high quality seeds accounts for just
25% of total potential requirement and
rest 75% is farmer own seed. Hence,
production and supply of high quality
seed of improved varieties to the
grower holds lots of potential for the
organized seed industry alongwith
other stakeholders.
Evolution of Indian Seed Industry
The Indian Seed Industry began
developing with the Green Revolution
in 1960's. It was the most eventful
times for Indian agriculture not only
because of introduction of highyielding cereals, particularly wheat
and rice but also for many other
positive developments related to seed
such as, constitution of Seed Review
Team, enactment of Seeds Act, 1966
and formation of National

Commission on Agriculture. This was

the period, during which the private
sector significantly stepped into the
seed business. The Seeds Act
stipulated that seeds should conform
to a minimum stipulated level of
physical and genetic purity and
assured percentage germination either
by compulsory labeling or voluntary
certification. Further, the Act provided
a system for seed quality control
through 13 independent State Seed
Certification Agencies which were
placed under the control of state
departments of agriculture.
A major re-structuring of the seed
industry by Government of India
through the National Seed Project
Phase-I (1977-78), Phase-II (1978-79)
and Phase-III (1990-1991) was
carried out, which strengthened the
seed infrastructure that was most
needed and relevant around those
times. This could be termed as a first
turning point in shaping of an
organized seed industry. Introduction
of New Seed Development Policy
(19881989) was yet another
significant mile stone in the Indian
Seed Industry, which transformed the
very character of the seed industry.
The eighties witnessed two more
important policy developments for the
seed industry, viz. granting of
p e r m i s s i o n t o M RT P / F E R A
companies for investment in the seed

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Seed Bank Scheme (2000) with the
objective of establishment of seed
banks for maintenance and storage of
quality seeds and make them available
for contingent situations. National
Seed Policy (NSP 2002) that featured
establishment of National Seeds
Board (NSB) and compulsory
registration of any seed with the board
before sowing or planting could be
done for commercial purposes. The
Seeds Bill (2004) proposed for
compulsory registration of varieties
(exemption for farmers), accreditation
of Institutions, organizations and seed
testing laboratories, regulation of
import-export, etc. National Food
Security Mission (2007) and Rashtiya
Krishi Vikas Yojna that includes
integrated use of all technologies
comprising seed too act as an
important component. These all
focused directly or indirectly on
improving seed replacement rates by
25% for self pollinated crops, 35% for
cross pollinated crops and 100% for
hybrids.

sector in 1987 and the introduction of

'New Policy' on seed development in
1988. The 1991 Industrial Policy
made a radical departure from the
earlier policy on foreign investment.
Under this policy seed production was
identified as a 'high priority industry'.
The New Policy on Seed
Development greatly liberalized
import of vegetable and flower seeds
in general and seeds of other
commodities in a restricted manner

and also encouraged multinational

seed companies to enter the seed
business.
Current Status of Seed Industry in
India
Indian Seed Industry has shown a
significant growth in size and level
since its inception. It is growing at the
rate of 12% compared to less than 5%
growth of global seed market. In the
last decade, some significant policy
initiatives in Seed sector includes:

Both public and private sector

companies/corporations are involved
in seed production. The public sector
component comprises 2 central
corporations, viz. National Seed
Corporation (NSC) and State Farm
Corporation of India (SFCI) and 15
State Seed Corporations. The private
seed sector includes some twenty or so
large players (with sales turnover
exceeding Rs. 200 million), several
medium companies (sales turn over
between Rs. 200 million and 20
million), and a large number of small,
unorganized players (sales turnover
less than Rs. 20 million) with local
presence. More than 40 companies
have Govt. recognition for their R&D
units.

Source: Compiled by Seeds Division of DAC Share of private sector in value is around 70% (2010)

The share of private sector in value is

greater than its share in volume
because of its focus on production of
high value hybrids and currently,
some 500 hybrids of field crops and
vegetables are being marketed, as
truthfully labeled seeds, mostly by
private seed companies.

Growth in the International Seed Trade

Global Scenario
The global seed industry is valued at
US $42 billion. To keep pace with
population growth it is estimated that
in the next 40 years food production
must equal the amount produced over
the last 12,000 years, and it must be
achieved in the face of climate change,
limited land, water and fossil fuels. In
this scenario, through plant breeding
and other technological innovations,
the seed industry has to play a vital
role to meet the challenge of
increasing agricultural production.
Growth in International Seed Market
Source: ISF

Source: ISF: The top 7 countries control nearly 58% of the world's commercial seed sales. The likely growth in selected countries
elevates India to 3rd position from 5th position by 2013 after US and China.

Factors effecting the development

of Indian Seed Industry

extent and farmers too are retained

within the company's fold.

Over dependence on Cotton

Research and development

The importance of cotton for the top

line of any seed company can be can
be gauged from the fact that high
yielding hybrid cotton seeds fetch
around Rs.400 per packet while
similar maize, bajra and jowar seeds
sell for less than Rs. 35. This has
resulted in more private and MNC
seed companies getting into cotton.
This high dependence on Cotton
exposes the companies to the risk of
lower demand due to changes in area
under cotton cultivation (which in turn
depends on prevailing and expected
prices of cotton) and competitors
coming out with better hybrids and
hampering the prospects of other
players.

R&D is the most critical endeavor for

a seed company. It typically takes Rs.
50 to 100 million over a period of 7 to
8 years to commercialize a hybrid.
With most Indian seed companies
being small, R&D efforts are not very
effective. Even after a hybrid is
successful, challenges remain in
retaining the purity of hybrid season
after season. Also R&D efforts need to
be market oriented to meet the needs
of end consumer, so that when the
variety is released after so much of
efforts and huge expenditure, it is
accepted in the market with a good
response.

This risk can be mitigated by having a

wide product portfolio so that even if
there is drop in demand for one crop,
the top line is protected to a certain

Lifecycle Risk
The lifecycle of a hybrid is on an
average 8 to 10 years after which
newer and better varieties outperform
the older ones. Hence, even though a
particular hybrid might achieve high
sales and better margin in introductory

period, these may not be sustainable

for long. So to keep pace with the
market companies have to bring out
new and desired variety after every 45 years gap. In the long run,
companies with adequate R&D
infrastructure and a management
committed to developing better
varieties have a higher chance of
survival.
Long Production Periods
Hybrid seed production takes place in
2 stages: preparation of foundation
seeds and production of hybrid seeds
from the foundation seeds by crossing
2 varieties. As each stage is seasonal,
production has to be planned 2 seasons
ahead which can be as long as 2 years
in crops like cotton. Hence, no
changes in seed production can be
carried out in based on the current
demand estimates as the actual
production has begun much earlier. In
contrast with the long production
period, sales typically take place
within a few weeks prior to the sowing
season. This short season increases the

company's vulnerability to
fluctuations in demand. The
inflexibility on the production side
and the extremely short sales period
exposes companies to a sudden pile up
of inventories if projected sales
doesn't take place which may block
the flow of money. It also shoots up the
cost in terms of storage and the
consequent risks of damage unless the
company has a good storage capacity.
The only risk alleviators could be
better forecasting mechanism, better
working capital management and the
financial strength to absorb shocks
due to demand fluctuations.

Current Issues associated with

Indian Seed Industry

Risks in contract farming

Low seed replacement rate

In India hybrid seed production from

foundation seeds is outsourced to
thousands of farmers most of whom
have small land holdings. Many such
farmers do contract production for
than one Seed Company besides
growing their normal varieties. This
enhances the possibility of unintended
cross pollination resulting in poor
hybrid quality. In such a scenario,
meticulous testing of hybrids is a must
to maintain the promised yield. But
unlike other industries, in seeds it
takes months which necessitates a
Grow-out-test wherein a sample is
grown in trial fields till the flowering
stage to ascertain the quality of hybrid.
Alongwith the moisture content and
vigor also needs to be checked. Any
lapse on the quality front can spell
disaster both for the farmers and the
seed company too. The risk mitigants
could be strong long term
relationships with contract farmers
and geographical diversity in contract
farming.

The seed replacement rate in India still

continues to be low because of large
acres of self pollinated crops and
private sector not investing much for
these crops. Hence, apparently there
seems to be no alarming gap between
the demand and supply of quality
seeds.

If the seed industry carries these

unique risks, on the bright side, it also
has a lot of positive aspects and
opportunities for growth. Firstly, the

scope for expansion in India is huge

which despite the second largest area
under cultivation has fairly a small
industry. Secondly, seeds being
critical input, farmers are ready to pay
more for a better yielding hybrid.
Moreover, seed sales are mostly on a
cash and carry basis unlike other
inputs like pesticides where
receivables are very high. Cash
realizations reduce the liquidity
pressure on seed companies which
otherwise would have been higher
given the long production periods.

But this low SRR (less than 20% for

most of the crops) is acting as one of
the reason for stagnation in
agricultural production. So it needs to
be improved with both public and
private participation by dealing it at
micro level rather than macro level.
Farmers should be conveyed the
benefits of seed
replacement
clearly in terms
of cost benefit
ratio through
effective
extension
activities and
promotional
programs
o rg a n i z e d i n
PPP mode.

Transgenic seeds
With no scope to bring in more area
under cultivation and having fully
exploited existing genetic diversity
Biotech traits seems to be an
inevitable option. Transgenic seeds
are solutions in the form of traits like
herbicide tolerance, disease-insect
pest resistance, abiotic stress
resistance, output quality
improvement (golden rice), etc. In the
words of Prof. Swpan K Datta, Deputy
Director General (Crop Sciences) of
ICAR, The country imports pulses
worth Rs 5,000 crore every year. If we
spend Rs 5,000 crore as a one-time
investment in the next five years for
R&D of transgenic seeds in pulses, we
sure could achieve self-sufficiency.
But issues that come forward in this
context include bio-safety in long term
as a matter of concern, freedom to
choose between GM and non GM food
product may be lost unless labeling
mechanism is in place (seems tough in
India), environmental concern, etc.
What is needed here is the
transparent approach in the regulatory
process by both the applicant and the
regulatory authorities.
Export Opportunities

Source: Seed Associations of India

References
www.seednet.gov.in
www.nse.gov.in
seedsnews

SEED REPLACEMENT RATE TARGETED FOR THE 11TH PLAN (%)

Source: www.seednet.gv.in

Currently, seed export from India is

very minuscule at around Rs. 1 billion
accounting for just 1% of total global
seed exports. The lack of highly
productive and widely compatible
seeds is the main reason for this dismal
export performance. But India has
great potential because of its varied
agro-climatic conditions and cheap
labor force which can be utilized to
convert it into a seed hub with the help
of initiatives from private sector
players and government policies.

increasing population and pressure on

land. High growth is expected here on
the back of transition from traditional
varieties to high value varieties and
hybrids. Seed replacement rate is
projected to be around 35% by 2013.
This coupled with export
opportunities and favorable
legislations can take this industry to
fresh heights.
Although the credit risk in seed

Conclusion

industry seems to be high but

The Indian Seed Industry is still a very

companies having state of the art R&D

small fraction of the global size

infrastructure, good distribution and

constituting just 2-3%. But there is lot

storage facilities and a wide product

of potential in future as indicated by

portfolio are likely to emerge as

growing demand for agricultural

winners.

products, driven by the ever-

Fertilizer Industry
Nourishing Indian Farms
GLOBAL FERTILIZER
SCENARIO
World fertilizer consumption declined
by 7% in 2008/09, to 156.7 million
metric tonnes (Mt) nutrients. N
fertilizers were much less affected (1.8%) than P and K fertilizers (-11 and
-20%, respectively). Drops in
consumption were registered in all the
regions except South Asia, Eastern
Europe and Central Asia, and Africa.
With the progressive economic
recovery, world fertilizer demand
began to pick up in 2009/10. It is seen
as up by 3.7% in this period, to 162.5
(Mt) with increases of 3.1 and 8.8%
for N and P fertilizers, respectively,
and a 1.2% decline for K fertilizers.
Demand would grow in all the regions
except Latin America, Oceania, and
Eastern Europe and Central Asia. It
would remain strong in South Asia and
would rebound in East Asia, North
America, and Western and Central
Europe. World demand in 2010/11 is
forecast to increase by 4.8% to 170.4
(Mt.) Demand for N, P and K
fertilizers is seen as up by 1.9, 4.5 and
1 8 % , r e s p e c t i v e l y. F e r t i l i z e r
consumption would increase in all the
regions except West Asia, where a
small drop of 0.8% would mostly be
due to early purchases of fertilizers in
the last two months of 2009 in Turkey.
East Asia, South Asia and Latin
America would be the main regions
contributing to the increase in world N
demand. The highest growth in

demand for both P and K fertilizers

would occur in East Asia. Significant
growth in demand for K fertilizer is
also forecast in North America and
Latin America.
In the medium term, the positive
agricultural outlook is expected to
stimulate fertilizer demand. World
demand is projected to be 188.3 (Mt)
in 2014/15, corresponding to an
average annual growth rate of 2.5%
from the base year (average
consumption between 2007/08 and
2009/10). Because of its strong
contraction in 2008/09, K fertilizer
demand is anticipated to rise at higher
rates (+4.3% per annum) than demand
for N (+1.8% p.a.) and P (+3.1% p.a.)
fertilizers.
Asia and the Americas drive the
medium term outlook
At the regional level, the bulk of the
increase in demand would come from
Asia and, to a lesser extent, from the
Americas. East Asia and South Asia

together would account for 59% of

total growth. If Latin America and
North America are added, the four
regions together would account for
82% of the projected increase in

demand in the next five years.

In East Asia, growth in regional
demand is seen as slowing down as
China approaches a 'mature' market
status for N and P fertilizers. K
fertilizer demand is projected to
increase sharply as demand rebounds
in China, Malaysia and Indonesia.

Average regional demand is seen as

increasing by 1.9% p.a. The evolution
of the agricultural and environmental
policy context in China could
significantly influence the outlook.
Regional fertilizer demand is
projected to continue to increase
firmly in South Asia, with an average
growth rate of 3.8% p.a., as larger
amounts are required to meet
countries food security goals. If urea is
included in the Nutrient Based
Subsidy scheme in India, the outlook
could be impacted. North America is
seen as recovering relatively quickly
from the sharp market contraction
recorded in 2008/09. This positive
outlook is driven by strong demand for
maize from the US ethanol industry.
Average growth over the next five
years is forecast at 2.0% p.a. Fertilizer
demand in Latin America is expected
to rebound from 2010. Argentina and
Brazil are anticipated to strengthen
their position on the international
agricultural market. Regional
fertilizer demand is projected to be up
by 3.1% p.a. The market in Western
and Central Europe is seen as
remaining depressed during the next
five years. Regional demand is
forecast as up by 1.1% p.a., but it
would remain at about 1.6 (Mt) below
its 2007/08 level. P and K fertilizer
demand is expected to continue to be
weak. Agricultural production in
Eastern Europe and Central Asia is
expanding rapidly in response to
market opportunities and supportive
policy. As a result, regional fertilizer
demand is seen as growing firmly, at
4.1% p.a. Fertilizer demand in West
Asia is expected to grow modestly, as
the potential for increasing crop

production in this region is limited.

Consumption is projected to be up by
2.0% p.a. Several African countries
are paying increasing attention to
agricultural intensification and
fertilizer use. Some have introduced

or are considering the use of

fertilizer subsidies. Fertilizer
demand is seen as gaining
momentum in the region, with a
growth rate of 4.2% p.a. There are,
however, large differences
between countries. Agriculture in
Oceania was strongly hit by two
consecutive droughts in Australia
and by the economic downturn.
Fertilizer demand is projected to
recover slowly, returning to its
2007/08 level in 2014/15 (+1.9% p.a.).

The forecast remains subject to

major uncertainties
IFA's baseline fertilizer demand
forecast is subject to major
uncertainties. Some of the main ones
are the evolution of the financial and

the evolution of crop prices and

currency exchange rates.

GLOBAL FERTILIZER
SUPPLY
The conditions in the global fertilizer
market stabilized in 2009, as fertilizer
demand started to recover by mid-year
in the main consuming countries.
However, sales and production
dropped to levels unprecedented over
a decade Due to important inventory
carry-overs in worldwide distribution
systems. Production decreased mostly
in the case of potash and phosphate
products, while output of nitrogen
products rose moderately. Global
capacity increased in key exporting
regions, but at modest rates compared
with those of the previous years.
Completion of a few projects was
postponed due to a combination of soft
market conditions and technical
delays. World nutrient production
dropped 8% to 194 (Mt), the lowest
level since 2003. In the nitrogen sector
world ammonia production was rather
stable, while urea output expanded
moderately due to its rising share in
the global nitrogen fertilizer mix.
Phosphate rock production decreased
by 7% and potash production by 40%.

Strong recovery of fertilizer

demand Worldwide in the short
term and sustained growth in the
near term
economic context, the evolution of
policy priorities in China, the
evolution of the fertilizer subsidy
scheme in India, the outcome of
current discussions on the
environmental impact of bio fuels, and

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According to the IFA Agriculture
Committee, global fertilizer demand
in Calendar Year 2009 is projected to
be 159.8 (Mt) nutrients, which
indicates the emergence of a recovery
with a 1.1% increase over the previous

year. In 2008, global fertilizer demand

dropped by 6% compared with 2007.
Demand prospects in the medium term
are quite positive, with global
fertilizer consumption expanding at
an annual rate of 3.5% between 2009
and 2014. The strength of this growth
is partially due to a recovery that will
last until mid-2010, when the level of
consumption in 2007 will be fully
regained. Between 2010 and 2014,
world fertilizer consumption is
projected to grow at an average annual
rate of 2.3%, which is more in line
with the historical growth rate of 2.1%
in the past decade. Demand increases
are projected for all three major
nutrients. Since consumption of
potash and phosphate was severely
depressed in 2008, the recovery of
demand for these nutrients will
register important growth in 2010 and
2011. Beyond 2011, demand for P and
K fertilizers would then increase at an
average annual rate of 3 and 4%,
respectively. Global nutrient uses
showed a slight recovery in 2009,

following a 6% drop in 2008. In the

near term, global nutrient demand is
projected to increase at an average rate
of 3.5% per annum between 2009 and
2014.

Factors impacting future supply

On the supply side, world capacity
increased moderately in 2009. The
combination of depressed economic
and financial conditions, sluggish
international demand and the severe
downward corrections on fertilizer
prices impacted the planning and
construction of most new projects.
Capacity growth in the short to
medium term is seen as expanding at a
slower pace than projected in 2009.
Delays and some cancellations have
reduced the announced expansion of
capacity and the commissioning of
new projects by 6 to 24 months.
However, interest in investing in the
fertilizer sector appears unabated. In
the past year, several new projects
have been announced for the near term
since many countries continue to
promote new capacity and to foster
self-sufficiency. The recent economic
slowdown would have been expected
to create the proper conditions for
rationalization and consolidation in
the fertilizer industry. A wave of
acquisitions and mergers has
characterized the restructuring of the
sector over the past 12 months. It is
anticipated that this trend will
continue in the short term. Several
factors have the potential to influence
future global fertilizer supply

Energy prices
Which are relatively low compared
with the peaks of 2008, have moved
upward since the beginning of 2010.
However, no major variations are
expected in the short term.

Government policies
Relative to resources and exports
would affect investments, trade
patterns and market conditions. The
implementation of high taxes on the
resources sector would reduce the
attractiveness of investing in new
large-scale projects, slow capacity
growth and eventually promote
developments abroad. Export taxes
have affected export availability in
international Markets.

Environmental concerns
Have resulted in new regulations in a
greater number of countries on
atmospheric emissions from the
manufacture of nitrogen products; on
soil and water pollution from
phosphate production and potash
mining; and on the disposal of
phosphogypsum and waste salts. The
emergence of new regulations
influences the level of investments
and increases compliance costs.
Legislation aimed at reducing carbon
emissions may impact the
competitiveness of the nitrogen
industry in a few countries and may
also lead to carbon leakage and higher
production costs.

Nitrogen Outlook
The financial crisis and the subsequent
widespread economic recession since
late 2008 have had a dampening
impact on investments and
construction plans. The bullish
demand prospect for nitrogen
products in early 2008 resulted in a
flurry of announcements of new
projects, leading to a projection of
massive capacity growth in the near
future. In 2009, several projects were
postponed and a few were cancelled.
The same situation seems to prevail in

11

2010, with more caution being given

to the scheduling of new projects.

ammonia market will remain quite

balanced.

Increasing nitrogen capacity in

China, West Asia and North Africa

A large potential nitrogen surplus,

accelerating after 2012

According to IFA, global ammonia

capacity is projected to increase
between 2009 and 2014 at an annual
growth rate of 4%, equating to a net
expansion of 37.4 Mt NH3 over 2008.
Close to 65 new plants are under
construction or planned to be
commissioned during this period, of
which about 23 new facilities in China
alone. Only a fraction of the overall
net capacity increase will be as
merchant ammonia supply since the
majority of these projects are
associated with increases in
downstream capacity for urea and, to
some extent, industrial AN and
processed phosphates. Global
ammonia capacity is projected to be
224.1 (Mt) NH3 in 2014. The main
additions to capacity would occur in
East Asia (China and Viet Nam),
Africa (Algeria and Egypt), West Asia
(Qatar, Iran and Saudi Arabia) and
South Asia (India and Pakistan).
Several other countries will add
capacity or are expected to restart
mothballed or idled units.

The global nitrogen supply/demand

balance will show a potential surplus
of close to 4.7 (Mt) N in 2010, rising to
11.1 (Mt) N in 2013 and accelerating
to 16.7 Mt N in 2014. The potential
surplus in 2010 is equivalent to 3.6%
of global supply, compared to 10% in
2014.
Much of the growth in ammonia

nitrogen products came from urea.

This predominance is reflected in urea
capacity developments, which closely
match those of ammonia.
Despite multiple delays and a few
project cancellations, global urea
capacity will expand by a net 30%
between 2009 and 2014
Between 2009 and 2014, about 55 new
plants are planned to come on stream,
of which about 20 in East Asia. Global
urea capacity is forecast to grow by
51.3 (Mt), or 30% over 2009, to reach
222 (Mt) in 2014. This corresponds to
a compound annual growth rate of 6%.
On a regional basis, East Asia will
contribute 32% of the net increase in
capacity. The other main sources of
new capacity are South Asia (24%),
West Asia (13%), Latin America (8%),
EECA (8%) and Africa (7%).
Excluding China, global urea capacity
would increase by 36%, or 38 (Mt), to
reach 144.6 (Mt) in 2014.
A large potential urea surplus,
accelerating after 2012
Taking into account historical
operating rates by country and the

Seaborne ammonia trade in balance

in 2014
IFA estimates that global seaborne
trade in 2009 was 15.1 (Mt) NH3,
accounting for 85% of global
ammonia trade. The remaining 15% is
considered to be continental trade,
comprising shipments within Europe
and within North America. Global
seaborne ammonia availability would
only grow by a net 1.7 (Mt), to 19 (Mt)
in 2014, but demand would grow
equally so that the global seaborne

ramp-up rates of new

capacity is associated with new urea
capacity
Urea is the major example of sectoral
growth in the nitrogen industry.
Between 1999 and 2009, close to 90%
of growth in the manufacture of

projects with a high probability of

realization, world urea supply is
estimated to be 148.6 (Mt) in 2009,
155.6 Mt in 2010 and 193.4 (Mt) in
2014, with average annual growth of

12
6% over 2009. As regards urea
demand, the market will continue to
recover in 2010 and demand is
expected to accelerate thereafter.
Global urea demand is forecast to
increase from 146.4 (Mt) in 2009 to
151.2 (Mt) in 2010 and 174.6 (Mt) in
2014, representing net growth of 28
(Mt) over 2009 or 3.8% per annum.
The bulk of this increase would come
from the use of fertilizer urea,
expanding 17% over 2009 to reach
152.6 (Mt) in 2014. The derived urea
supply/demand balance for the period
2010 to 2014 shows a sustained
surplus, averaging 5 (Mt)/a through
2012. The potential surplus would
then increase rapidly, from 9 (Mt) in
2013 to 19 (Mt) in 2014. The potential
surplus in the period 2010 to 2014 is
relatively marginal, representing 3%
of global supply, but this ratio will
then expand quickly to 10% in 2014.
The large potential imbalance in 2014
would be caused by massive additions
to capacity through an increasing
number of projects and a relative

slowing of growth in nitrogen

fertilizer application.
Phosphate Outlook
New supply of phosphate rock and
large exportable tonnage expected
World phosphate rock capacity is

projected to increase by an overall

20%, from 190 (Mt) in 2009 to 228 Mt
in 2014. This growth in potential
production would result from a
combination of expansions at existing
operations, new mines opened by
current producers, and new capacity
added by emerging suppliers.
On a regional basis, future rock supply
is projected to increase in almost all
regions although additions would
mainly be in Africa, West Asia and
East Asia. Productive capacity is
projected to decline in North America.
New supply from emerging suppliers
would add close to 17 (Mt), of which
more than half would be available for
exports. However, most new suppliers
have plans for downstream processing
in the longer term. If all these projects
proceed as planned, there will be no
shortage of phosphate concentrates in
the medium term.
Limited addition of merchant
grade phosphoric acid supply in
the near term Global phosphoric
acid capacity is forecast to
Increase by a net 9.2 (Mt) to 55.5 (Mt)
P2O5 between 2009 and 2014. About
90% of this net expansion would be
earmarked for domestic markets and
the rest sold under contracted off take
agreements. The main additions to
domestic capacity would be in China,
Morocco and Saudi Arabia. New
merchant capacity is expected to come
on stream from stand-alone units in
Jordan, Morocco and Tunisia. The net
addition to merchant grade acid
capacity is estimated at 1.6 (Mt) P2O5,
of which 1.5 (Mt) would come from
four large stand-alone units. No new
tonnage of non-committed merchant
grade acid capacity is expected to be
available before 2014.

Relatively balanced market

conditions for phosphoric acidbased products through 2014
The global potential supply of
phosphoric acid is estimated at 39.4
(Mt) P2O5 in 2009, 39.6 (Mt) in 2010
and 47.1 in 2014. Global demand is
forecast to grow at an annual rate of

5% over 2009, to reach 43.7 (Mt) P2O5

in 2014.
The global phosphoric acid
supply/demand balance between 2010
and 2014 shows a potential marginal
surplus of 2.0 (Mt) P2O5 in 2010, about
5% of available supply. This slight
imbalance would increase moderately
to 2.7 Mt in 2012 and 3.4 Mt in 2014
with the commissioning of announced
projects

13
Major capacity expansions for DAP,
but demand growth would absorb
most of this new capacity through
2014
Over the next five years, close to 40
new MAP, DAP and TSP units are
expected to be constructed in ten
countries, half of them in China alone.
New facilities are planned in Africa
(Algeria, Morocco and Tunisia), West
Asia (Saudi Arabia), Asia
(Bangladesh China, Indonesia and
Viet Nam), Latin America (Brazil and
Venezuela) and EECA (Kazakhstan).
The global capacity for the main
processed phosphate fertilizers is
projected to be 42.3 (Mt) P2O5 in 2014,
representing a net increase of 8.2 (Mt)
P2O5 over 2009. Expansion of DAP
capacity would account for
threequarters of this increase. Global
supply/demand balance for DAP
shows relatively balanced market
conditions through 2014, with annual
potential surpluses averaging 2.5 (Mt)
DAP, equating to less than 8% of
potential supply. During the period
2010 to 2014, it is estimated that all
new supply additions will be absorbed
by growing demand requirements.
Potash Outlook
Collapse of potash sales in 2009
and recovery starting in 2010
Potash demand in the fertilizer and
industrial sectors in 2009 was soft.
Potassium fertilizer consumption
dropped for a second consecutive year
with a decline of 8.6% over 2008,
following one of 16% over 2007.
Global potash sales collapsed, as
major carry-over stocks were
available in several consuming
countries at the beginning of 2009.
Widespread interest in new potash

capacity, but most projects are

delayed
In 2010, close to 100 projects were
tracked in about 25 countries. More
than 180 exploration licenses have
been issued in Canada alone over the
past three years. In the medium term,
the IFA 2010 potash capacity survey
identified 20 expansion projects by
current producers and about eight
greenfield projects by new producers.
The main result of the 2010 IFA potash
capacity survey is that a significant
reduction of anticipated growth in
capacity is expected between 2009
and 2014.

This represents 24% growth over 2009

(4.7% per annum). Half of this net
increase in supply would occur in
2013 and 2014.
Sustained demand growth
matching supply growth
Global demand for potash is estimated
at 24.8 (Mt) K2O in 2009, 29.9 (Mt) in
2010 and 35.8 (Mt) in 2014. This
represents average growth of 9% per

Increasing capacity through 2014,

mostly added by established
producers
Global potash capacity is forecast to
increase from 41.6 (Mt) K20 in 2009 to
54.7 (Mt) in 2014. This represents an
additional 13 Mt of capacity, mostly in
Canada and Russia. New tonnage will
also emerge in Argentina, Chile,
China, the Republic of Congo, Israel,
Jordan and Laos.
Moderate capacity growth in the
short term, accelerating in the near
term
On an annual basis, capacity additions
will be moderate in 2010 and 2011,
with a total of 2.0 (Mt) K2O. Capacity
growth would accelerate thereafter.
Close to 8.4 (Mt) of new capacity is
expected in 2012/13, and another 2.5
(Mt) in 2014. Much of these later
additions, if concluded as planned,
would be in ramp-up stages and would
have the potential to add significant
production only after 2014. The world
potash supply is projected to increase
from 37.1 (Mt) K2O in 2009 to 38 (Mt)
in 2010, reaching 45.9 (Mt) in 2014.

annum.
The resulting supply/demand balance
shows a reduction of potential large
surpluses in the short term, expanding
quickly after 2012. Assuming a oneyear slippage on new capacity, growth
in supply would then be fully absorbed
by the projected increase in potash
demand.

14
Sulphur Outlook
Between 2009 and 2014, world
production of elemental sulphur is
projected to grow at an average annual
rate of 8%, to 67.1 (Mt) S in 2014.
Close to 60% of the 19 Mt increase
would be generated in the natural gas
processing sector. Sulphur importing
countries would contribute 8 (Mt) S,
or 40% of the world's net supply
increment between 2009 and 2014,
while sulphur exporting countries
would add11 Mt. Significant
production growth is expected in East
Asia, West Asia, EECA and North
America. Together, these four regions
would account for 85% of the net
increase in production between 2009
and 2014.
Q u i c k re c o v e r y i n s u l p h u r
consumption in the fertilizer and
industrial sectors
Global consumption of elemental
sulphur is projected to grow at an
annual rate of 6% over 2009, reaching
62.1 (Mt) S in 2014. This increase
would result from a quick recovery in
consumption of sulphuric acid in the
manufacture of phosphoric acid-based
fertilizers and its growing use in ore
leaching. Global sulphuric acid
consumption, which accounts for 84%
of total sulphur demand, is forecast to
grow at an annual rate of 5% over
2009. The manufacture of fertilizers,
which contributes half of total
sulphuric acid use, is projected to
increase at an annual rate of 4.5% over
2009.
Balanced sulphur market
conditions in the short term,
shifting to increasing potential
surpluses after 2012
In the short term, the sulphur market
appears to be in balance, given the

strength of the recovery in the

phosphate sector and the shortfall in
production from announced projects.
A moderate surplus of 2.0-2.3 (Mt) is
seen in 2011 and 2012, assuming new
supply was then available from
delayed projects. At the end of the
forecast period, a significant surplus
may emerge on the basis of a large
increment of supply in 2014.
However, if future sulphur production
grows at lower rates than anticipated
due to delays in large projects, tight
sulphur market conditions will prevail
through 2013.

Medium-term Trade Prospects

Global trade will recover its 2007
level within the next two years, as
world fertilizer demand rebounds
quickly and registers sustained growth
through 2014. In the short term, world
supply/demand conditions are
expected to include resilient annual
potential surpluses of phosphate rock,
potash and urea due to the emergence
of large capacity in the main exporting
regions. Over the next five years,
market conditions for phosphate
fertilizers, notably DAP, merchant
phosphoric acid, merchant ammonia
and sulphur, are seen as relatively
balanced due to firm demand growth
and a gradual increase in capacity.
Over the period 2009 to 2014, global
trade will expand by 15 to 33%,
depending on the nutrient products
and regions. International trade of
urea and merchant ammonia is
projected to expand by 15 and 20%,
respectively, between 2009 and 2014.
Phosphate imports would increase by
an overall 3-4 (Mt) P2O5 (15% over
2009). There could be an overall
increase in global potash imports of
35% between the 2008/09 average and
2014.
West Europe is seen as experiencing
an increasing import reliance on
nitrogen, urea and phosphate products
while maintaining a stable potash
surplus. The bulk of the increase in
urea demand will come from the
industrial sector, which will account
for more than half of total urea
consumption in 2014.
Central Europe will continue to
experience a deficit in phosphate and
potash (Poland) while maintaining a
slight nitrogen surplus.
EECA will remain a major exporting

15

region for all three major nutrients, but

will have an expanding surplus of
potash and urea.
North America will register a massive
increase in its potential potash surplus
due to emerging capacity in Canada
however, this region will increase its
imports of nitrogen products,
especially urea, while stabilizing its
phosphate surplus.
Latin America will remain one of the
world's major importing regions, with
increasing requirements for urea,
potash and phosphate fertilizers
through 2014. However, its nitrogen
balance shows a rising surplus due to
new capacity expected in Peru and
Venezuela.

as new capacity is commissioned in

Israel and Jordan. Oceania is expected
to become self-sufficient in nitrogen
and urea in 2014 if the announced
projects in Australia are fully realized,
but this region will remain in deficit
for phosphate and potash products.
Factors affecting fertilizer demand
Increasing food grain consumption is
a major demand driver for
fertilizers.According to food
agriculture organisation of the united
nations (FAO) the 2010 world cereal
output is expected to reach 2.28 billion
tons. This would be 2%
Increase over the previous year. World
cereal utilization, currently at 2.25

South Asia (essentially Bangladesh,

India and Pakistan) will become the
world's leading importing region, with
expanding import demand through
2014 for urea and phosphate products
(DAP). It will rank as the world's
second largest potash importing
region, with imports exceeding 5 (Mt)
K2O in 2014.
East Asia will be the world's largest
potash importing region (8.5 (Mt) K2O
in 2014), based on firm demand in
China and South-east Asia. Imports of
nitrogen products, urea and phosphate
fertilizers in East Asia are seen as
declining due to rising and sustained
surpluses in China and the
commissioning of new capacity in
Viet Nam and Indonesia.
In the other regions, West Asia and
Africa will increase their exportoriented urea and DAP surpluses due
to new capacity developments in
Algeria, Egypt, Iran, Morocco, Qatar
and Saudi Arabia. The potential potash
surplus will also expand in West Asia,

demand. About one-third of US maize,

55% of Brazillian cane and two-thirds
of EU rapeseed were used as feedstock
for biofuel in 2009. Increased demand
for biofuels would require higher
production of these feedstocks.
Biofuel production also influences the
prices of these feedstocks which has a
large indirect impact on fertilizer
demand.

The forecast for fertilizer

demand is subject to major
uncertainties

billion tons, has been rising at 2.02.5% over last 8 years.

Scope for expanding cultivated land in
the next five years is limited. The per
capita land availability is expected to
go down to 0.15 ha by 2015. Hence
yield gains are expected to contribute
to most of the output growth. This will
lead to increased usage of fertilizer per
ha of land.
Bio fuel production using cereals,
sugar cane and oilseeds as feedstock is
another major driver for fertilizer

The evolution of current economic

situation poses a major uncertainty for
fertilizer demand. If the economic
situation in some of the major
economies does not improve, it could
lead to increased speculation in
agricultural commodities which
directly affects fertilizer demand.
Some other uncertainties include
evolution of policy priorities in China,
the fertilizer scheme in India (two
large fertilizer consuming countries)
and bio-fuel consumption which will
be affected by governments' priorities
on climate change.
India is one of the major regions
contributing to the rising fertilizer
demand. A better monsoon and higher
prices of farm goods are expected to
increase fertilizer consumption in

16

FY11 compared to FY10. Monsoon

rains in June- September this year, a
key factor in fertilizer demand, was
2% above the normal.
The fertilizer demand in India is
expected to grow at 4% CAGR from
FY09 to reach 63Mn tons in FY15,
higher than the global growth rate of

annual increase in demand. India's

urea demand is expected to reach
31Mn tons in FY14 whereas domestic
capacity is only expected to supply 24
Mn tons.
Fertilizer sector is 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 fertilizer in
world after China and USA. The
growth of the fertilizer highly
dependent on govt. policies. The govt.
exercise extensive controls on pricing,
distribution and movement of
fertilizers.

India Urea outlook

Indian Phosphatic
Outlook

Fertilizer

Domestic DAP production declined in

FY09 as there was a fall in
international prices of DAP without a
similar fall in the prices of raw
material. The rise in DAP
consumption was met by increasing
imports. India is currently the largest
importer of DAP in the world.

India currently relies heavily on

import to fulfil its urea demand. India
imported 5.7Mn tons of urea in FY09

This dependence on import is

expected to continue in near future
since urea capacity is not expected to
increase enough to meet the 4%

dear incentive for cost cutting.

India DAP demand is expected to

increase by 5% CAGR and reach 11.9
Mn tons by 2014

3% during the same period.

to meet its demand of 26.2Mn tons.

lower. But traditionally majority of

urea manufacturing in India were
neptha based. Retention pricing
scheme (RPS), introduced in 1977,
assured 12% return on net worth of
fertilizer plant and hence there was no

Urea production in India

Import of DAP is increased to rise

from 6.2 Mn tons in FY09 to 8 Mn tons
in Fy14

In India approximately 85% of urea

production is based on captive
ammonia production while ammonia
is procured externally only for the
remaining 15% major feedstocks used
for urea manufacturing are natural
gas, naptha, coal, fuel oil or LSHS of
all the feedstock mentioned here ,
natural gas is most cost effective and
resultant urea manufacturing cost is

DAP and other complex fertilizers can

be manufactured in same unit. The
availability of other complex
fertilizers is very limited in the
international market compared to
DAP availability. Hence producers are
expected to manufacture greater
quantities of other complex fertilizers
in the same unit and meet DAP deficit
through import.

17
Fall in DAP price made import
sustainable
Rock phosphate, ammonia and
sulphur are the main feedstock for
manufacturing DAP/MOP. Of these
three,rock phosphate is the main
critical feedstock and is not available
in India.
When DAP prices peaked in 2008 the
subsidy bill increased for Gov. of
India(GOI). This led the govt. to
improve Indian DAP manufacturers to
scout for rock phosphate reserves
globally. Syria, with high phosphate
rock reserves was allocated as a good
investment opportunity. India's Oswal
chemicals and fertilizer limited has
plans to operate a phosphate-refining
plan in Syria, it has signed an MOU

with the Syrian govt.

International DAP prices have
moderated after reaching its peak in
2008. This has made import of DAP
more sustainable.
India Potash Outlook
Consumption of 'K' nutrient declined
from 3.3 Mn tons in FY09 to 3 Mn tons
in FY10. The demand for 'K' nutrient
in India is expected to grow at 4.5%
CAGR from FY09 to FY14 to reach
4.1 Mn tons (nutrient) by Fy14.
The demand for complex fertilizers is
expected to increased by 7% CAGR
and reach 9.7% Mn tons (product) by

Fy14.
Going forward, the domestic
production of other complex
fertilizers is expected to meet the
domestic demand.
FERTILIZER INDUSTRY
STRUCTURE IN INDIA
The fertilizer industry in India is
mainly characterized by govt. control.
Since the fertilizer sector is of national
importance, traditionally GOI has
controlled the sector by regulating the
investment, production, distribution
and pricing. The most distinct
characteristic of Indian fertilizer
sector is partial dependence on
monsoon for demand.

chunk of the market. The share of top 5

companies in total urea production in
India is 65% and in case of DAP is

Ownership Structure
The private sector leads in capacities
in urea as well as phosphatic fertilizer
sector. As of Nov. 2009, out of 37
plants in India with a nitrogenous
fertilizer capacity of 5.9 Mn tones. In
case of phosphetic fertilizers, 57% of
total capacity was held by private
sector.
Concentration
Due to the capital intensive nature of
the fertilizer manufacturing projects,
the industry is relatively concentrated,
where a few player capture large

84%.

Major Companies
IFFCO is India largest urea
manufacturing company producing
3.2 Mn tones of urea annually. It has
urea plants in UP and Gujarat and
achieved net sales of Rs. 5,876crore in
FY09 for its urea division. Other
prominent company in India urea
industry are National Fertilizers,

18
Potash Corp Industry report
Global Supply and Demand outlook
for Fertilizers, IFA, December 2009
Global Fertilizers and Agricultural
Chemicals, Data monitor, February
2010

The production, sales and location of 6

major urea manufacturers etc. is
provided in the table above.
IFFCO is India's largest DAP
manufacturer as well. It has an annual
capacity of 3.7 Mn tones capacity.
Other leading manufacturers are
Godawari Fertilizers, GSFC, Tata
chemicals.

Revision in NBS rates for 201112 to increase government's

subsidy bill
On 5th May 2011, the GOI notified
nutrient subsidy rates for 2011-12
which are higher compared to the rates
announced in February 2011. This will
ensure adequate trading volumes for
fertiliser companies but government's
subsidy bill is expected to increase due
to revision in subsidy rates. We expect
fertiliser subsidy for 2011-12 to
increase to Rs 820-850 billion from
around Rs 690-700 billion (an
increase of around 20 per cent).
The fertilizer industry has been under
strict government control, which
ensures affordable prices and uniform
distribution across the country. The
main purpose of government
intervention was to improve
agricultural productivity. According
to the new policy, subsidy now would
be given based on content of the
fertilizer not on the final products. By
implementing the NBS policy, the
government decontrolled the retail
prices of all non-urea fertilizers and
increased urea price by 10%.

According to the NBS policy, subsidy

component becomes fixed in nature,
changes in raw material prices are
likely to impact the profitability of
players in the complex fertilizers
segments more than before. In such a
scenario, only the players possessing
strong operating efficiencies and
backward linkages, healthy supplier
relationships and flexibility to alter
their product mix in accordance with
the demand are able to ensure
profitability in volatile global
commodity price scenario. In long
run, the NBS is likely to bring in more
efficiency into the whole fertilizer
space and bring down the subsidy. We
believe the NBS policy proves to be
the crucial turning point for the
industry. Producers may get much
more freedom in pricing their products
and healthy competition could enforce
greater efficiency in the industry.

References
Annual Report 2009-10, Department
of Fertilizers
Yara Fertilizer handbook

19

Agrochemicals
Guarding Crops

General Scenario:
The global market of pesticides and
agro industry is very huge $44 billion.
Globally, due to higher productivity,
decline in the green movement, tight
regulations and better crop
management, the pesticide industry is
not growing very rapidly. In fact, it is
stagnant or slightly declining. In India,
the agro industry has grown
significantly over the last 30-40 years
from a mere Rs.400 Cr. to over Rs.
8,000 Cr. today.
The Indian Agrochemical industry is
the fourth largest in the world only
after the US, Japan and China and has
undergone many changes over the
years. Insecticides account for the
largest share of the Indian crop
protection market - 55%. Fungicides 20%, Herbicides - 20% and Biopesticides and others - 5%. The
consumption pattern is: paddy
pesticides - 28%, cotton pesticides 20% and others 52%. Exports account
for over 47% of total Indian
agrochemicals industry turnover.
In India 60%-70% of the population
lives on agro income. Nearly, onethird of our GDP is agro based. We
earn a very significant part of foreign
exchange from it. The agrochemical
industry can play a very important and
a very vital role. Our agro industry
management is something we should
debate about, with over Rs.1, 40,000
Cr. of food grains wasted in
transportation after production. We

can always compare global numbers

on the use of pesticides in India - about
600 grams per hectare versus 7 kg in
USA and 13 kg in China, This shows
lack of pesticide usage or technology
in terms of crop management? We
need to address some of the issues of
low productivity in our rural crop
management. The industry needs to
take a step beyond selling the product
to helping in better crop management
practices, which will in turn contribute
to the growth of the domestic industry.
There is tremendous opportunity for
the Indian Pesticide Industry to
manufacture and introduce off patent
products. However due to ambiguity
in registration the progress of the
industry has been on hold. With our
huge talent pool of qualified Indian
scientists and technicians, we should
look at increasing investments. Ample
opportunities are available for growth.
With better infrastructure and R&D
programmes funded by Government,
the Indian agrochemical industry
could look forward to a very robust
15%-20% growth in the future.
The Indian agrochemical industry,
which is Rs. 15,000 Cr today, could
grow well beyond its aspirational
target of Rs. 50,000 Cr by 2020. The
opportunity lies in developing and
executing innovative farming
solutions that address the needs of the
Indian farmer with very low
landholding size, resources and
knowhow available to him. Farming

solutions would require a

collaborative approach together with
seed technology, IT, nutrients and
other service providers. For the
agrochemical companies it implies
that to achieve such growth, capacity
additions of over 100,000 tons would
be required with significant capital
investments of over Rs 3,000 Cr. In
addition, substantial investment will
be required for R&D and farmerawareness activities. Current per
capita consumption of pesticides in
India continues to be very low at 0.6
kg/ha compared to 7 kg/ha in USA and
13 kg/ha in China. It is estimated that
crop losses in India due to non usage of
agrochemicals amount to Rs. 90,000
Cr p.a.
Introduction to Agrochemicals
Introduction
With increasing population, demand
for food grains is increasing at a faster
pace as compared to its production.
Moreover, every year, significant
amount of crop yield is lost due to non
usage of crop protection products.
Agrochemicals are used to improve
crop performance, yield or control
pests, etc. Agrochemicals are
substances manufactured through
chemical or biochemical processes
containing the active ingredient in a
definite concentration along with
other materials which improve its
performance and increase safety. For
application, these are diluted with
water in recommended doses and

20

applied on seeds, soil, irrigation water

and crops to prevent the damages from
pests.
There are broadly 5 categories of
crop protection products:
Insecticides:
Insecticides protect crops by killing
insects or preventing their attack.
Insecticides may attack a particular
type of insect or could be broad
spectrum insecticides. Insecticides are
used to manage the pest population
below the economic threshold level.
E.g. Chlorpyrifos is used to control
insect pests in crops such as cotton,
corn almonds, etc.
Fungicides:
They are used to prevent the
deterioration of crops due to fungi
infestation. Fungicides are classified
as protectants or eradicants. Protectant
fungicides prevent or inhibit fungal
growth and may have to be applied at
regular intervals. Eradicant
fungicides kill the pests on
application. E.g. Anilazine is used to
control fungal attack on lawns and
turfs, cereals, coffee and various
vegetables and other crops.

substances like plants, animals,

bacteria and certain minerals and
control pests by nontoxic
mechanisms. Bio-pesticides are
considered ecofriendly and easy to
use. They could be classified as
microbial pesticides, plant
incorporated protectants and
biological pesticides. They are of low
volume and high effect formulations
and require lesser dosages as
compared to chemical pesticides. A
growth area for bio-pesticides is in the
area of seed treatment and soil
amendments. Example of biopesticides includes Bacillus subtilis
which is used as soil inoculants in
horticulture and agriculture.
Others (Nematocides, Rodenticides
etc):

Herbicides:
Herbicides or weedicides are used to
prevent the growth of unwanted plants
in a crop field. Herbicides could be
selective, which kill the unwanted
plants without any harm to the crop, or
non-selective which kill all the plants.
E.g. Glufosinate ammonium, a broadspectrum contact herbicide, is used to
control weeds after the crop emerges
or for total vegetation control on land
not used for cultivation.
Bio pesticides:
These are derived from natural

Fumigants and rodenticides are used

to prevent the attack of pests during
storage of crops. Plant growth
regulators control or modify the plant
growth process and are most
commonly used in cotton, rice and
fruits. As per Govt. of India, crop
losses due to non-usage of pesticides
were 28% of the yield amounting to
Rs. 90,000 Cr per annum (2002
estimated). It is estimated that the
present food grain production can
jump from 3 trillion to 4 trillion by

using crop protection products.

Therefore, right usage of crop
protection chemicals is essential in
increasing agricultural production by
preventing crop losses before and after
harvesting.
Global market overview
The global crop protection industry
has registered a growth of 6% p.a.
from 2005 to reach USD 43.2 bn in
2009. This market is expected to grow
further owing to the increasing food
and fuel needs and is expected to grow
at 4% p.a. to reach USD 54 bn in 2015.
Geographical distribution
The crop protection chemicals market
is mainly concentrated in the major
developed countries such as United
States and Western European nations.
Europe has the largest share in the

agrochemical market followed by

Asia, Latin America and North
America. There is an increased usage
of products in Europe due to high
commodity prices and in order to
boost yield and quality. Increased
demand for palm oil has led to
increasing usage of herbicides in
Japan, Malaysia and Indonesia.
Strong rice prices and other food
grains are driving the agrochemical
consumption in India. In Latin
America, increased production of
soybean and sugarcane for animal
feed as well as for bio-fuels is the

21

driving the growth of agrochemical

consumption.

almost all agriculture markets of

It is believed that the crop protection

chemicals market has reached its
saturation in developed regions such
as North America and Western Europe
whereas regions such as Asia Pacific,

presence in emerging markets of India

and Italy.
Distribution of global crop
protection market - Product
category

Middle East and Latin America will

offer high growth opportunities in the
future.
Global market scenario
The global crop protection market is
fairly consolidated with top nine
companies accounting for over 80% of
the market. Syngenta, Bayer and
BASF are the market leaders in the
global crop protection market.
Global crop protection market is
characterized by large number of
mergers and acquisitions in the recent
years. Several large companies have
consolidated their presence in the
existing geographies or ventured into
newer areas through acquisitions of
local companies. Some of the recent
acquisitions include Arysta Life
Science's acquisition of Volcano
Agroscience Limited in 2005,
Nufarm's acquisition of Agripec
(Brazil) in 2007. In 2010, Cheminova
acquired insecticide business from
Isagro (Italy) to strengthen its

Herbicides are the most widely

used agrochemical products
globally, followed by insecticides
and fungicides. Fungicides is the
highest growing segments as it
helps increasing yield, improving
quality and in seed treatment.
Individual sales of various
categories however depend on
climatic conditions and crop
variance.
Herbicides are used in most of the
regions of the world. However,
major markets for herbicides are
North America and Europe due to
the favourable climatic conditions
in these regions. Insecticides are
more prevalent in Asian countries.
This is due to higher growth of
cotton, cereal, fruits and vegetables
in these regions which have higher
incidence of insect attacks.
Increased usage of genetically
modified crops in North America
has reduced the usage of
insecticides. Fungicides are used in

the world due to favorable climatic

conditions for the fungal growth.
Distribution of global crop
protection market - Crop-wise

Globally, fruits and vegetables and

cereals account for the largest share

of the crop protection industry.

Global Trade of crop protection
products

India, China, France, Germany and

US are the largest exporters of crop
protection products while Brazil,
Canada, Poland, Russia and
Mexico are the major importers.

22
Global Industry Challenges
Market saturation:
The crop protection market is believed
to have reached a saturation point in
most of the developed regions such as
North America and Western Europe.
Hence, there is limited scope for
growth in these markets.
Evolution of biotechnology:
Development of genetically modified
crops in recent years, especially for
pest resistance would result in
relatively lesser need for traditional
crop protection chemicals. However,
this could lead to newer strains or
pests driving need for other
agrochemicals. E.g. new sucking pests
have emerged causing significant
harm to the BT cotton.

local companies who are forced to

reduce prices in order to compete,
thereby leading to lower margins.
A l te r n ate m e t h o d s fo r c ro p
protection:
Alternate methods such as natural
products are being increasingly used
which would affect the chemicals
market. For example, more and more
biological pesticides are being
introduced.
Indian market overview
The crop protection chemicals
accounts for 2% of the total chemicals
market in India. The domestic crop
protection market is estimated at USD
1.8 bn and has grown at 5 % p.a. in the
last five years. However, owing to
greater export opportunities and
introduction of newer molecules the
industry is witnessing high growth
rates in recent times. Currently, the
exports of crop protection chemicals
are estimated at USD1.6 bn.

Stringent regulations:
Stringent environmental regulations
across all countries increase the cost of
developing new products. These
regulations are primarily affecting the
older products while at the same time
resulting in delay in introduction of
new products.
Mergers and Acquisitions effecting
SMEs:
Larger companies are acquiring/
entering into strategic alliances with
smaller companies to increase their
market reach. This poses a threat to

industry consists of technical grade

manufacturers, formulators producing
the end products, distributors and end
use customers. According to Pesticide
Monitoring Unit, GOI, there were
about 125 technical grade
manufacturers, including about 10
multinationals, more than 800
formulators and over 145,000
distributors in India in 2007. Over 60
technical grade pesticides are being
manufactured indigenously.
Technical grade manufacturers sell
high purity chemicals in bulk
(generally in drums of 200-250 kgs.)
to formulators. Formulators, in turn,
prepare formulations by adding inert
carriers, solvents, surface active
agents, deodorants etc. These
formulations are packed for retail sale
and bought by the farmers.
Indian market scenario
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 and African
countries. Exports formed 47% of
total industry turnover in FY10. The
industry suffers from high inventory
(owing to seasonal and irregular
demand on account of monsoons) and
long credit periods to farmers, thus
making operations 'working capital'
intensive.

Industry structure

Domestic consumption

The crop protection industry in India

is generic in nature with 80% of the
molecules being non patented. Hence,
strong distribution network and brand
image act as competitive factors. Crop
protection chemicals are
manufactured as technical grades and
converted into formulations for
agricultural use. The crop protection

Consumption of crop protection

products in India is among the
lowest in the world. Per capita
consumption of crop protection
products in India is 0.6 kg/ ha
compared to 13 kg/ ha in China and
7 kg/ ha in USA. Some of the
reasons for low consumption in India

23

Source: Ministry of Chemicals and Petrochemicals (In focus, 13th July, 2011)

are low purchasing power of farmers,

lack of awareness among farmers,
limited reach and lower accessibility
of products. This presents an immense
opportunity for the crop protection
industry to grow in India
Distribution of domestic crop
protection market - Product
category
Insecticides form the largest segment

of the domestic crop protection

chemicals market accounting for 55%
of the total market. It is mostly
dependent on rice and cotton crops.
Herbicides are the largest growing
segment and currently account for
20% of the total crop protection
chemicals market. Sales are seasonal,
owing to the fact that weeds flourish in
damp, warm weather and die in cold
spells. Rice and wheat crops consume
the major share of herbicides.
Increasing cost of farm labour will
drive sales of herbicides going
forward. Fungicides, accounting for
20% of the total crop protection
market, are used for fruits and
vegetables and rice. Farmers moving
from cash crops to fruits and
vegetables and government support
for exports are increasing the
fungicides usage. Bio-pesticides
include all biological materials
organisms, which can be used to
control pests. Currently a small
segment, bio-pesticides market is
expected to grow in the future owing
to government support and increasing
awareness about use of non-toxic,
environment friendly pesticides. With
increasing penetration of BT cotton,
usage of insecticides has witnessed a
decline in the recent past. Its share in
the total crop protection chemicals has
reduced from 69% in 2004 to 55% in
2009. On the other hand, share of
herbicides and fungicides has
increased from 17% and 13%
respectively in 2004 to 20% each in
2009. This is due to increased focus on
fruits and vegetables and higher
awareness levels among end users.

Source: Research on India

th
(In focus, 13 July, 2011)

24
Distribution of domestic crop
protection market - Crop-wise

Paddy and cotton are the major

consumers of crop protection
chemicals accounting for 28% and
20% respectively of the total
domestic crop protection
chemicals market. Fruits and
vegetables also account for a
significant share of the crop
protection chemicals market.
In recent years, consumption of
insecticides has decreased due to
the introduction of BT cotton,
which has lower risk of pest
attacks. As a result, pesticides
usage on cotton as % of total has
decreased from 33% in 2005 to
20% in 2009. On the contrary,
pesticides usage in paddy has been
increasing mostly due to increased
popularity of hybrid varieties of
rice, which require higher amount
of pesticides. Share of paddy in the
total crop protection chemicals has
increased from 24% in 2005 to
28% in 2009. Consumption of
pesticides by fruits and vegetables
has been relatively stable in the
recent years.
Distribution of crop protection

Market - State-wise

ten companies control almost 80%

of the market share. The market
share of large players depends
primarily on product portfolio and
introduction of new molecules.
Strategic alliances with
competitors are common to reduce
risks and serve a wider customer
base.

The top three states Andhra

Pradesh, Maharashtra and Punjab
account for 50% of the total
pesticide consumption in India.
Andhra Pradesh is the largest
consumer of pesticides with a share
of 24%.
Competitive Landscape
Table 1: Agrochemical sales of R&D-based
Companies USD million (2009-10)

The Indian crop protection

chemicals market is highly
fragmented in nature with over 800
formulators. The competition is
fierce with large number of
organized sector players and
significant share of spurious
pesticides. The market has been
witnessing mergers and
acquisitions with large players
buying out small manufacturers.
Key market participants include
United Phosphorus Ltd, Bayer
Crop science Ltd, Rallis India Ltd,
Gharda Chemicals Ltd, Syngenta
India Ltd, BASF India Ltd, etc. Top

25

Table 2: Agrochemical sales of

generic Companies USD million (2009-10)

Company

2009 2010

Distribution and Sales Channel

Maximum sales of crop protection
chemicals are in rural areas. Hence for
a wider reach, large manufacturers
with all India presence use a three-tier
sales and distribution network
comprising distributors, wholesalers
and retailers. Regional participants
cater only to local markets.

Typically, a company with all India

presence could have 400-1000
distributors catering to 25,000-30,000
retailers. Companies keep their stocks
in warehouses or depots from where it
is supplied to distributors.
Multinationals, at times, enter into comarketing and co-distribution
arrangements with Indian companies.
For example, Syngenta entered into
an agreement with Rallis for
marketing of its products in India.
Mid size and small scale companies
operate through direct marketing of
their products. Most companies also
engage in extension services or field

demonstrations to increase farmer

awareness and promote their
products.
Import/ Exports
Indian exports of pesticides have been
witnessing a strong growth in recent
times. This is primarily due to its
competence in low-cost
manufacturing and technically trained
manpower. Seasonal domestic
demand, domestic overcapacity and
better price realization in the overseas
market have also led to this trend.
India has emerged as the thirteenth
largest exporter of pesticides in the
world. However, most of the exports
are off-patent products. Currently, the
total export value of crop protection
chemicals amount to USD 1.6 Bn.
America, Asia (excluding Middle
East) and Europe are the major
exporting destinations.

Source: Research on India (In focus, 13th July, 2011)

26
Key market drivers for Indian crop
protection market export are:

Key growth drivers include:

Excess capacity:

Increasing demand for food grains:

India's production capacity is 146,000

MT against the production of 85,000
MT. This excess capacity against
domestic demand is a key growth
driver for exports.

India has 16% of the world's

population and less than 2% of the
total landmass. Increasing population
and high emphasis on achieving food
grain self sufficiency as highlighted in
the FY10 budget is expected to drive
growth.

Low processing cost:

Availability of cheap labour and low
processing costs has made India a
manufacturing hub with several
multinationals setting up their
manufacturing facilities in India.
Availability of process
technologies:
India has a very strong presence in
generic pesticide manufacturing and
has process technologies for more
than 60 generic molecules. However,
complex registration procedures and
decreasing market size for generic
molecules in United States and Europe
pose a major challenge for the Indian
crop protection chemicals export

7.3 bn. by FY20.

Limited farmland availability:

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.

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

Future Outlook
Since the Indian agricultural sector is
highly dependent on monsoons, the
market for agrochemicals is expected
to grow at a conservative growth rate
of 8% p.a. to reach USD 3.5 bn by
FY20. Exports are expected to grow at
a higher rate of 15% p.a. to reach USD

Growth of horticulture and

floriculture:
Low Productivity:
India has low crop productivity as
compared to other countries. Average
productivity in India stands at 2
MT/ha as compared to 6 MT/ha in
USA and world average of 3 MT/ha.
At the same time, India's pesticide
consumption is also low at 0.60 kg/ha
as compared to the world average of 3
kg/ha. Hence, increased usage of
pesticides could help the farmers to
improve crop productivity.

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.

27

Increasing exports:
Indian companies have successfully
expanded into other geographies for
exports and this trend has been
increasing in recent times.
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.

Linking the production areas with the

market would help in easy distribution
of pesticides. IT services would help
create awareness among farmers and
educate them for optimum use of crop
protection chemicals.
Increasing awareness:
As per Government of India estimates,
total value of crops lost due to non-use
of pesticides is around Rs. 90,000 Cr
every year (2002 estimates).
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 identified
pest problems. With increasing
awareness, the use of agrochemicals is
expected to increase.
Product portfolio expansion:

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.
Availability of credit facilities:
Govt. initiatives to provide credit
facilities to farmers in the rural areas
will provide boost to the agriculture
industry. Access to finance would
encourage them to use more pesticides
in order to improve the crop yield.
Govt. of India has set a target of Rs.
375,000 Cr for 2010-11. Loans are
provided at lower interest rate of 6%
with 2% rebate on timely payment.
Rural Infrastructure and IT:

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 Agriinputs instead of only agrochemicals.
Key Challenges
Product registration:
According to the Insecticides Act
1968, the government regulates
manufacture, sale, usage, export and
import of pesticides. No pesticide is
allowed to be manufactured, exported
or imported without registration.
Companies face a restricted market for
exports due to the different
registration procedures fixed by
different countries. Registration of
pesticides in countries like US/EU is

time consuming since lot of tests are

required to be carried out.
According to CARE Rating, a leading
rating agency in India, one product
registration takes about 3-5 years and
costs about $10-15 million.
Registration process in the domestic
market takes about 1-3 years. Hence,
such an investment - both in terms of
time and money - acts as a virtual entry
barrier. Companies with high number
of product registrations, therefore,
have an edge.
Distribution network:
Demand for agrochemicals is seasonal
in India and is dependent on the
monsoon; hence companies that have
wide distribution network are in an
advantageous position to deal with the
uncertainties. This also provides them
a channel for educating the farmers
about their new products and their
usage. Hence, companies with wide
distribution network are better placed
to take on the intense competition.
R&D requirement:
Patent protection generally enables
producers to command higher prices
in the market. This act as an incentive
to invest more on R&D. Due to the
lack of a viable patent regime, MNCs
introduce successful molecules only
after they go off-patent. Sometimes,
due to frequent use of the same
pesticide, insects mutate and develop
resistance to a particular molecule.
Hence, there is a dire need for
manufacturers to invest in developing
new products.
References
Indiachem 2010 Handbook on Indian Chemical
Industry, Tata Strategic & Roland Berger
Global crop protection chemicals markets 2009,
Frost & Sullivan, Business Press, Chemical Weekly,
Yara Fertilizer Handbook

28

Banking & Agrifinance

Money Matters
Agriculture plays a crucial role in the
development of the Indian economy.
It accounts for about 14.2 percent of
GDP and about 60 percent of the
population is dependent on the sector.
The importance of farm credit as a
critical input to agriculture is
reinforced by the unique role of Indian
agriculture in the macroeconomic
framework and its role in poverty
alleviation. Recognising the
importance of agriculture sector in
India's development, the Government
and the Reserve Bank of India (RBI)
have played a vital role in creating a
broad-based institutional framework
for catering to the increasing credit
requirements of the sector.
Agricultural policies in India have
been reviewed from time to time to
maintain pace with the changing
requirements of the agriculture sector,
which forms an important segment of
the priority sector lending of
scheduled commercial banks (SCBs)
and target of 18 percent of net bank
credit has been stipulated for the
sector.
The Approach Paper to the Eleventh
Five Year Plan has set a target of 4
percent for the agriculture sector
within the overall GDP growth target
of 9 percent. In this context, the need
for affordable, sufficient and timely
supply of institutional credit to
agriculture has assumed critical
importance. The evolution of
institutional credit to agriculture could
be broadly classified into four distinct

phases - 1904-1969 (predominance of

co-operatives and setting up of RBI),
1969-1975 [nationalisation of
commercial banks and setting up of
Regional Rural Banks (RRBs)], 19751990 (setting up of NABARD) and
from 1991 onwards (financial sector
reforms).

capital formation;
Stochastic surges in capital needs
and saving that accompany
technological innovations.
Credit, as one of the critical non-land
inputs, has two-dimensions from the
viewpoint of its contribution to the
augmentation of agricultural growth
viz., availability of credit (the
quantum) and the distribution of
credit.
Agricultural Credit: Discernible
Trends:

The genesis of institutional

involvement in the sphere of
agricultural credit could be traced
back to the enactment of the
Cooperative Societies Act in 1904.
The establishment of the RBI in 1935
reinforced the process of institutional
development for agricultural credit.
The RBI is perhaps the first central
bank in the world to have taken
interest in the matters related to
agriculture and agricultural credit, and
it continues to do so (Reddy, 2001).
The demand for agricultural credit
arises due to:
Lack of simultaneity between the
realisation of income and act of
expenditure;

Lumpiness of investment in fixed

In India a multi-agency approach

comprising co-operative banks,
scheduled commercial banks and
RRBs has been followed for
purveying credit to agricultural sector.
The policy of agricultural credit is
guided mainly by the considerations
of ensuring adequate and timely
availability of credit at reasonable
rates through the extension of
institutional framework, its outreach
and scale as also by way of directed
lending. Over time, spectacular
progress has been achieved in terms of
the scale and outreach of institutional
framework for agricultural credit.
Some of the major discernible
trends are as follows:
Over time the public sector banks have
made commendable progress in terms
of putting in place a wide banking
network, particularly in the aftermath
of nationalisation of banks. The
number of offices of scheduled
commercial banks is 82485 by March

29

2009 and average population per bank

office is 14000.
One of the major achievements in the
post-independent India has been
widening the spread of institutional
machinery for credit and decline in the
role of non-institutional sources,
notwithstanding some reversal in the
trend observed particularly in the
1990s. The share of institutional
credit, which was little over 7 percent
in 1951, increased manifold to over 66
percent in 1991 reflecting
concomitantly a remarkable decline in
the share of non-institutional credit
from around 93 percent to about 31
percent during the same period.
However, the latest NSSO Survey
reveals that the share of noninstitutional credit has taken a reverse
swing which is a cause of concern.
Notwithstanding their wide network,
co-operative banks, particularly since
the 1990s have lost their dominant
position to commercial banks. The
share of co-operative banks (22
percent) during 2005-06 was less than
half of what it was in 1992-93
(62percent), while the share of
commercial banks (33 to 68 percent)

including RRBs (5 to 10 percent)

almost doubled during the above
period.
The efforts to increase the flow of

credit to agriculture seems to have

investment for future growth process.

yielded better results in the recent

The disaggregated picture as per sizewise distribution of credit reveals that

the growth of direct finance to small
and marginal farmers witnessed a
marked deceleration from about 24
percent in the 1980s to little over 13
percent during the 1990s.

period as the total institutional credit

to agriculture recorded a growth of
around 21 percent during 1995-96 to
2004-05 from little over 12 percent
during 1986-87 to 1994-95. In terms

cooperative banks registered a fall

Sectoral deployment of gross bank

credit reveals that the share of
agriculture since the second half of
1990s has ranged between 11-12
percent. As at end March 2009-10, the
share stood at around 13.09 percent.

(over 14 percent to over 10 percent)

Some Recent Policy Initiatives:

during the above period.

The Finance Minister in his Union

Budget 1995-96 speech stated that,
Inadequacy of public investment in
agriculture is today a matter of general
concern. This is an area which is the
responsibility of States. But many
States have neglected investment in
infrastructure for agriculture. There
are many rural infrastructure projects
which have been started but are lying

of total credit to agriculture the

commercial banks recorded a
considerable growth (from around 13
percent to about 21 percent), while

However, the growth of direct finance

to agriculture and allied activities
witnessed a decline in the 1990s1 (12
percent) as compared to the 1980s (14
percent) and 1970s (around 16
percent). Furthermore, a comparative
analysis of direct credit to agriculture
and Allied activities during 1980s and
since 1990s reveals the fact that the

average share of long-term credit in

the total direct finance has not only
been much lower but
has also
decelerated (from over 38 percent to
around 36 percent), which could have
dampening effect on the agricultural

incomplete for want of resources.

They represent a major loss of
potential income and employment to
rural population.
Rural Infrastructure Development
Fund (RIDF) was set up in NABARD.
Since then, 11 tranches of allocations
have been made towards the Fund.
Commercial banks make

30

contributions towards the Fund on

account of the shortfalls in their
priority/agriculture sector lending.
The scope of RIDF has been widened
to enable utilisation of loan by
Panchayati Raj Institutions (PRIs),
Self-Help Groups (SHGs), NonGovernment Organisations (NGOs),
etc., since 1999-2000. The Fund has
continued with additional corpus
being announced every year in the
Union Budget. The RIDF XI was
announced in the Union Budget for
2005-06 with an allocation of
Rs.8,000 crore making a total corpus
of Rs.50,000 crore. RIDF XI accorded
special emphasis for setting up of
Village Knowledge Centres by
providing Rs.100 crore out of the
corpus of Rs.8,000 crore.
Two innovations, viz., micro-finance
and Kisan Credit Card Scheme
(KCCS) have emerged as the major
policy developments in addressing the
infirmities associated with the
distributional aspects of credit in the
recent years. The KCCS has emerged
as the most effective mode of credit

delivery to agriculture in terms of the

timeliness, hassle-free operations as
also adequacy of credit with minimum
of transaction costs and
documentation. Around 84.66 million
KCCs were issued till end-March
2009. The commercial banks (43.33

microfinance in India 2008-09

Indian Banking2010- Mc Kinsey
Report
Remarks by Dr. D. Subbarao,
Governor, Reserve Bank of India at
the Bankers' Club in Kolkata on
December 9, 2009.

percent) had a major share followed

by cooperative banks (42.48 percent)
and RRBs (14.18 percent).
The micro credit programme, which
was formally heralded in 1992 with a
modest pilot project of linking around
500 SHGs has made rapid strides in
India exhibiting considerable
democratic functioning and group
dynamism. The programme has now
assumed the form of a micro finance
movement in many parts of the
country. There was a massive
expansion during 2004-05 with the
banking system establishing credit
linkage with 539 thousands new
SHGs, taking the cumulative number
of such SHGs to 2.9 million at endMarch 2007. Banks extended loans
aggregating Rs.18,041 crore at endMarch 2007 registering a growth of
58.3 percent over the previous year.
Several Committees were set up from
time to time to look into the various
issues relating to credit delivery for
agriculture, the recent one being
Advisory Committee on Flow of
Credit to Agriculture and Related
Activities from the Banking System
(Chairman: Prof. V.S. Vyas, June,
2004).
References:
www.rbi.org.in: Report on trend and
progress of banking in India 2009-10
w w w. n a b a r d . o r g : S t a t u s o f

Presentation by Dr. K.C.Chakrabarty,

Deputy Governor, RBI at 'National
Seminar on Launching a National
Initiative' for Financial Inclusion'
organised by DFS, GOI at New Delhi
on September 18, 2009
www.rbi.org.in: Report on trend and
progress of banking in India 2010-11

31

Commodity
Dealing with Uncertainties
Introduction:
Commodity trading is an age-old
phenomenon. Modern markets came
up in the late 18th century, when
farming began to be modernised.
Though the trade's mechanisms have
changed, the basics are still the same.
In common parlance, commodities
means all types of products. However,
the Foreign Currency Regulation Act
(FCRA) defines them as 'every kind of
movable property other than
actionable claims, money and
securities.'

information and give the producer a

better price and a platform to hedge.

that are traded are as mentioned

below:

The futures market will allow the

farmer to see the upside of the price
over two to three months and help him
decide where to sell.

1) Cereals Paddy, Wheat, Jowar,

Bajra, Maize, Ragi, etc.,

List of traded Agricultural

Commodities:
Broadly, the agricultural commodities

2) Pulses Green gram, Red gram,

Black gram, Horse gram, Bengal
gram, Beans, etc.,
3) Oil seeds Mustard, Coconut,
Castor, Groundnut, Gingelly, etc.,

Following is the list of traded Agricultural commodities:

Agricultural commodities can be

traded by taking a buy or sell position
based on the future performance of
commodity derivatives (futures).
Agri-commodities are traded mostly
in futures markets. Forward markets
commission (FMC) is regulatory
authority for commodity futures
exchanges in India.
The other contacts include forwards,
options and swaps.
Agricultural produce is unpredictable
and seasonal. The prices of the
Agricultural commodities are driven
by demand and supply factors. Unlike
other commodities, the agricultural
commodities are perishable.
Vision:
The vision for the commodity market
in India is to reduce information
asymmetry and make a robust market
available to the producer or farmer. It
is also expected to balance out price

Apart from the above commodities, animal products like milk, meat, eggs are also traded.

32
4) Sugar
5) Spices
6) Fibre crops Cotton, Jute, Lint
7) Narcotics Arecanut
8) Forest products
9) Fruits & Vegetables
Not all the varieties of above
agricultural commodities are traded.
Only agricultural commodities of a
specified variety and quality are used
for trading.
History:
The history of the commodity trading
in India goes back to 19th century,
when the cotton trade association
started the futures trading in 1875,
barley about a decade after the
commodity derivatives started trading
in Chicago. Following cotton,
derivatives started trading in oil seeds
in Mumbai (1900), raw jute and jute
goods in Kolkata (1912), Wheat in
Harpur(1913).
H o w e v e r, m a n y f e a r e d t h a t
derivatives fuelled unnecessary
speculation in healthy functioning of
the markets for underlying
commodities and hence to the farmers.
With a view to restrict the speculative
activity in Cotton market, the
government of Mumbai prohibited the
options business in cotton in 1939.
Later in 1943, forward trading was
prohibited in Oilseeds and some other
commodities including food-grains,
spices, vegetable oils, sugar and cloth.
After Independence, the parliament
passed Forward Contracts
(Regulation) Act, 1952 which
regulated forward contracts in
commodities all over India. The Act
prohibited options trading in goods
along with cash settlements of forward

trades, rendering a crushing blow to

the commodity derivative market.
Under the act only those
associations/exchanges, which are
granted recognition by the
Government, are allowed to organize
forward trading in regulated
commodities. The Act envisages
three-tier regulation: (1) The
Exchange which organises forward
trading in commodities can regulate
day-to-day basis; (2) the Forward
Markets Commission provides
regulatory oversight under the powers
delegated to it by the Central
Government, and (3) the Central
Government Department of
Consumer Affairs, Food and Public
Distribution is the ultimate
regulatory authority.
The already shaken commodity
derivatives market got a crushing
blow when in 1960's, following
several years of severe draughts that
forced many farmers to default on
forward contracts, forward trading
was banned in many commodities
which are considered primary or
essential. As a result, commodities
derivative markets dismantled and
went underground. Much later, in
1970's and 1980's the Government
relaxed forward trading rules for some
commodities.
Commodity options trading and cash
settlement had been banned since
1952 and until 2002 commodity
market was virtually non-existent.

Committee (headed by Prof. K.N.

Kabra) recommended strengthening
of the futures trading in 17 commodity
groups. It also recommended
strengthening of the Forward
Contracts (Regulation) Act 1952,
particularly allowing options trading
in goods and registration of brokers
with Forward Markets Commission.
The Government accepted most of
these recommendations and futures
trading was permitted in all
recommended commodities.
Commodity futures trading in India
remained in a state of hibernation for
nearly 4 decades, mainly due to doubts
about the benefits of derivatives.
Finally a realization that derivatives
do perform a role in risk management
led the government to change its
stance.
Present scenario:
Presently, there are 3 National
exchanges (MCX, NCDEX, NMCE)
and 21 regional exchanges for the
commodities trading in India.
Forward Markets Commission
(FMC), which comes under the
Department of Consumer Affairs
(Ministry of Consumer Affairs, Food
and Public Distribution) regulates the
functioning of all the commodity
derivatives. The major products that
are traded in the respective regional
exchanges are as mentioned below:

Government policies:

Future prospects of Agricultural

After the Indian economy embarked

upon the process of liberalisation and
globalisation in 1990, the Government
set up a Committee in 1993 to examine
the role of futures trading. The

commodities in India:
Commodity Options: Both futures
and options are very much necessary
for the healthy functioning of the
markets. So, there is an immediate

33
The Regulator: Like Securities and
Exchange Board of India (SEBI)
which regulates securities markets,
more power should be granted to
Forward Markets Commission (FMC)
which regulates the commodity
derivatives and also it should be
treated as an independent body.
Lack of Economy of Scale: There are
too many commodity exchanges (3
national level exchanges and 21
regional exchanges). There is a need
to consolidate some exchanges which
would bring economies of scale.
Tax and Legal bottlenecks: At
present, there are many restrictions
from one state to another. Regulatory
changes are required to bring about
uniformity in octroi and sales tax etc.,
Conclusion:

need to bring about necessary legal

and regulatory changes to introduce
commodity options trading in India.
The Warehousing and
Standardisation: For commodity
derivatives, it is necessary to have a
sophisticated, cost-effective, reliable
and convenient warehousing system
in the country.
Cash versus Physical settlement: It
is probably due to the present
warehousing system that only 1-5% of
the total commodity derivatives
traded in the country are settled in

physical delivery. Therefore the

problem obviously has to be handled
on war footing. A particular difficult
problem in cash settlement of
commodity derivative contracts is that
at present, under the Forward
Contracts (Regulation) Act 1952, cash
settlement of outstanding contracts at
maturity is not allowed. So, most
contracts are settled in cash but before
maturity. There is a need to modify the
law to bring it closer to the widespread
practice and the participants from
unnecessary hassles.

India is one of the top producers of a

large number of commodities, and
also has a long history of trading in
commodities and related derivatives.
The commodity derivatives market
has seen ups and downs, but seems to
have finally arrived now. There is a
great need and vast scope of
commodity derivative market in India
provided the mistakes of the past are
not repeated and the Government
promptly addresses the problems
facing the market. Introduction of
commodity options, warehousing,
cash settlement at maturity and
standardization.
References :
www.agriwatch.com, www.icrier.org,
www.planingcommission.nic.in,
www.ncdex.com, www.rbi.org.in

34

Pharmaceuticals
Caring for Lives

Background

and USA- US$191.

The Indian pharmaceutical industry

is a success story providing
employment for millions and ensuring
that essential drugs at affordable
prices are available to the vast
population of this sub-continent.

Current Status

Richard Gerster
The Indian Pharmaceutical sector is
highly fragmented with more than
20,000 registered units with severe
price competition and government
price control. It has expanded
drastically in the last two decades.
There are about 250 large units that
control 70 per cent of the market with
market leader holding nearly 7 per
cent of the market share and about
8000 Small Scale Units together
which form the core
of the
pharmaceutical industry in India
(including 5 Central Public Sector
Units). These units produce the
complete range of pharmaceutical
formulations, i.e., medicines ready for
consumption by patients and about
350 bulk drugs, i.e., chemicals having
therapeutic value and used for
production of pharmaceutical
formulations.
The total Indian production
constitutes about 13 per cent of the
world market in value terms and, 8 per
cent in volume terms.
The per capita consumption of drugs
in India, stands at US$3, is amongst
the lowest in the world, as compared to
Japan- US$412, Germany- US$222

India's US$ 13.22 billion

pharmaceutical industry is growing at
the rate of 14 percent per year. It is
one of the largest and most
advanced among the developing
countries. The Indian pharmaceutical
industry has reached a market size of
US$ 11.6 billion by 2009 and US$
13.22 in 2010.

Source: Epsicom

The Indian pharmaceuticals market is

expected to reach US$ 20 billion in
2015 from US$ 13.22 billion in 2010.
The market has the further potential to
reach US$ 55 billion by 2020.
There are 74 U.S. FDA-approved
manufacturing facilities in India, more
than in any other
country outside
the U.S, and in
2005, almost 20
per cent of all
Abbreviated New
Drug Applications
(ANDA) to the
FDA were filed by
Indian companies.
Growth in other
f i e l d s

notwithstanding, generics are still a

large part of the picture. London
research company Global Insight
estimates that India's share of the
global generics market will have risen
from 4 per cent to 33 per cent by 2007.
The focus of the Indian pharma
companies is also shifting from
process improvisation to drug
discovery and R&D. the Indian
companies are setting up their own
R&D setups and are also collaborating
with the research laboratories like
CDRI, IICT etc.
Market Share of Different
Pharmaceutical Product
Categories

35

Exports
India's exports of drugs,
pharmaceutical & fine chemicals
stood at US$ 9.26 billion during April
2010Feb 2011, up 16.15 per cent as
compared to US$ 7.97 billion in the
same period during the previous year.
India's exports has recorded a growth
rate of over 20.07 per cent, during the
period of the two financial years in the
study and the exports to rest of the
world has grown by 9 per cent,
according to DGCIS data from
Pharmexcil Research.
Growth Drivers
India's population is just over one
billion at present and projected to rise
to 1.6 billion by 2050 and India will
become the world's most populous
country. It is estimated that by 2025,
189 million Indians will be 60 or
older up from about 63 million in
year 2004. This projection shows the
demand of pharmaceutical drugs will
rise in coming years.
The government had promised to
increase public expenditure on
healthcare from 0.9 per cent of GDP in
1999 to 2 per cent of GDP by 2010.
Indian government has framed a
favorable policy to boost foreign
investment in the pharmaceutical
sector. Tax holidays are offered to
industrial operations established in
specified Special Economic Zone or
under developed areas, deduction of
profits earned from exports, liberal
depreciation allowances, deduction of
capital R & D expenditure; and relief
on all contributions to approved
domestic research institutions are
some examples.
Foreign Direct Investment up to 100
per cent is permitted through the
automatic route and Automatic
approval for Foreign Technology
Agreements also is available in the
case of all bulk drugs cleared by

Drug Controller General (India), all

their intermediates and formulations,
except those restricted by the
Government of India.
India has excellent skilled and
educated manpower.
Clinical trials account for over 40 per
cent of the costs of developing a new
drug, and Rabo India Finance (a
subsidiary of the Netherlands based
Rabo Bank) estimates that a standard
drug could be tested in India for as
little as $ 90 million 60 per cent of
the sum it would cost to test in the US.
Maximum US FDA approvals
outside USA are with Indian
Companies - approx 197. Largest No.
of US Drug Master File's (DMF) 213
(38 per cent of DMFs filed in First half
of 2005 are from India)
COMPETITION OVERVIEW
Key Indian Players

Key Foreign Players

C H A L L E N G E S A N D
OPPORTUNITIES
Challenges
Underdeveloped new molecule

discovery program
The main weakness of the industry is
an underdeveloped new molecule
discovery program. Even after the
increased
investment,
market
leaders such as Ranbaxy and Dr.
Reddy's Laboratories spent only 5-10
per cent of their revenues on R&D,
l a g g i n g b e h i n d We s t e r n
pharmaceuticals like Pfizer, whose
research budget last year was greater
than the combined revenues of the
entire Indian pharmaceutical
industry.
The drug discovery process is further
hindered by a dearth of qualified
molecular biologists.
In clinical testing persons from
developing countries will be used to
generate data about possible effects of
a drug. A feeling of unrest among them
or some section of society might
develop that we are being used as
guinea pigs. It might lead to
demonstrations or legislations which
will hamper the growth of industry.
Back lash against outsourcing
Similar to BPO there might be unrest
in developed nations that outsourcing
of clinical trials will lead to job loss
culminating into legislation banning
the whole procedure.
IP leakage
IP leakage is one of the major
concerns by companies outsourcing
research work to India. So any major
incident of IP leakage by Indian
company can taint the image of
whole industry.
Restricted items
There are a lot of items that are
restricted under the EXIM policy
from free trading. These restrictions
are a weakness for the industry and
hence pose to be a threat for its
development.
Reservation for small scale

36
industries
Some drugs are reserved for
exclusive manufacture by the small
scale units. These are Niacinamide,
Paracetamol, Glycero Phosphates,
Nicotinic Acid.
No brand value
India has a low beep on the radar
screen of MNC drug companies as no
potential clinical testing has been ever
outsourced to India. So we have a low
brand value in global arena.
Safety concerns
With recent high profile product
withdrawals, there are also concerns
that regulatory agencies will tighten
up safety and efficacy testing
requirements. A particular focus will
be on the application of
pharmacogenomic techniques to
improve safety profile, but the advent
of such techniques in the long r u n
will improve industry productivity as
more pharmacogenomic data is
collated.
Generic competition
Generic substitution is a policy for
healthcare cost containment. National
reimbursement and insurance bodies
are providing physicians and
pharmacists with incentives for
prescribing cheaper generic drugs.
There is increased pressure on
revenues
for pharmaceutical
companies,
which
have
to
concentrate
on lifecycle
management. The pharmaceutical
industry will experience a significant
reduction in the revenues associated
with their blockbuster products as
generic competition captures market
share. As a result, given that R&D
productivity is low and the cost of
developing new drugs at an all time
high, the pharmaceutical industry
faces considerable hurdles with
respect to maintaining revenue and
earnings growth in the future.

Opportunities
Competent workforce
India has a pool of personnel with high
managerial and technical competence
as skilled workforce. It has the largest
English speaking population in the
world. Professional services are easily
available.
Cost-effective Chemical Synthesis
Its track record of development,
particularly in the area of improved
cost-beneficial chemical synthesis for
various drug molecules is excellent. It
provides a wide variety of bulk drugs
and exports sophisticated bulk drugs.
Legal & Financial Framework
India has a 53 year old democracy and
hence has a solid legal framework and
strong financial markets. There is
already an established international
industry and business community.
Information & Technology
It has a good network of world-class
educational institutions and
established strengths in Information
Technology.
Globalization
The country is committed to a free
market economy and globalization. It
has a 70 million middle class market,
which is continuously growing.
Consolidation
The international pharmaceutical
industry
is
finding
great
opportunities in India as the process
of consolidation has started taking
place in India.
Low priced products
The industry has thrived so far on
reverse engineering skills exploiting
the lack of process patent in the
country. This has resulted in the Indian
pharmaceutical players offering their
products at some of the lowest prices
in the world.
Quality assurance

The quality of the products is reflected

in the fact that India has the highest
number of manufacturing plants
approved by US FDA (61 plants),
which is next only to that in the US.
Dominance in the market
Multinational companies have
traditionally dominated the industry,
which is another trend seeing a
reversal. Currently, it is the Indian
companies which are dominating the
marketplace with the local players
dominating a number of key
therapeutic segments.
Self-reliance
Displayed by the production of 70 per
cent of bulk drugs and almost the
entire requirement of formulations
within the country.
Low cost of production, Low R&D
costs, Innovative Scientific manpower
and Increasing balance of trade in
Pharma sector are also significant
strengths of the Indian pharmaceutical
industry.
R&D
Both the Indian central and state
governments have recognized R&D
as an important driver in the growth of
their pharma businesses and conferred
tax deductions for expenses related to
research and development. They have
granted other concessions as well,
such as reduced interest rates for
export financing and a cut in the
number of drugs under price control.
Government support is not the only
thing in Indian pharma's favor,
though; companies also have access to
a highly-developed IT industry that
can partner with them in new molecule
discovery. Two major institutes in
pharmaceutical R&D are :Primary Research Facility Mumbai
It gets technical and financial
assistance from NIH, USA. It is
established on 25 acres of land with an
Investment of US$ 16.7 million and

37

has a facility to house 7500 breeding

stocks. The center has received US$
3mn grant from US and US$ 4 million
from ICMR.
International Animal Research
Facility Hyderabad
Government of Andhra Pradesh has
allotted 100 acres of land at the
Biotech Park in Genome Valley for
International animal research facility.
Department of Biotechnology has also
provided US$ 4.4 million for the
same. The facility will be of
international standards with animal
testing facilities, hi-tech equipment,
a strong technical board and ethical
committee.
Clinical Research
Indian clinical research industry is
estimated at over US$ 100 million. It
complies with ICH- GCP protocols. It
is a growing body of trained and
experienced investigators. India is
expected to capture about 10 per cent
of the global clinical research market
by 2010.
Indian Scenario of Vaccine market
The current revenue of the Indian
vaccine market is estimated around
US$ 900 million in 2011 and is poised
to grow at the rate of 23% during
2011-12. Around 70% of the total
volume manufactured is exported.
India is the major supplier of vaccines
to UNICEF which in turn supplies
40% of the total vaccine demand for
childhood vaccination in more than
100 countries. The share of private
sector in the total volume of vaccines
exported is roughly around 40%. The
once neglected vaccine market is now
considered as a source of steady
income. The evidence for this being
the take over of Shantha Biotech by
Sanofi Aventis and the possible
takeover of Biological Evans by GSK.
The reasons which makes the Indian
companies very attractive for take

over are, Opportunity and assured

income from exports and facilities on
par with Global standards which could
be used for manufacturing to meet the
global demand.
The rewarding vaccine market was
brought to the limelight by the
introductions of Prevnar, a vaccine for
childhood infections by Wyeth and
Gardasil, a vaccine for cervical cancer
by Merck & CO. The last few years
witnessed a remarkable growth in the
vaccine market due to Avian
influenza, Bioterrorism organisms
and infections like SARS.
Major players in india in vaccine
market
Serum Institute of india, Panacea
biotech limited, Venkateshwara
hatcheries private Ltd., Indian
Immunological Ltd.,
GlaxoSmithKline Pharmaceuticals
Ltd., Aventis Pharma Ltd., Shantha
Biotechnics, Eli Lilly india, Haffkine
Bio Pharmaceutical Corporation
Ltd.(HBCL), Intervet india, Lupin,
Avesthagen, Wyeth , Sanofi, Merck
Key drivers for the Vaccine market
1. R e l a t i v e l y l o w c o s t o f
manufacturing.
2. Reasonable R&D expenditure.
3. Leading Edge technology/
Combination vaccines.
4. Low cost of clinical trials.
5. Skilled manpower and scientists.
6. Huge demand in the local market.
7. Blockbuster potential of new
vaccines.
Key challenges for the vaccine
market
1. The most important challenge
faced by the vaccine manufacturer in
india is the Price point pressure. The
six government listed vaccines are
sold at a rate of Re.1 to Re.1.5.
Consideringthe import duties on raw
materials and of the cost of

production, storage and distribution

the manufacturers face a grim
situation to run the business. The
model of low cost high volume
business has created margin pressure
for some vaccines to their
manufacturers.
2. The supply chain of vaccines has to
be strictly monitored for specific
temperature which adds to the cost. A
short fall in the private investments is
strongly felt by vaccine
manufacturers. The Cost of
institutional loans is high in
comparison with returns. The meek
margins realized for certain vaccines
strongly impact the relapse of funds
into their R&D capabilities.
Uncertainity in demand forecasting
for the vaccine market may affect the
profitability of manufacturers.
3. Clear regulatory guidelines are still
under development in india. The
success of vaccine depends upon the
results of clinical trials and the
prevailing regulatory guidelines. The
loses in this high cash intensive
market can mitigated by support from
Government and NGOs in the form of
immunization financing which
secures the capacity of national
Governments to engage in
comprehensive planning for their
vaccine production initiatives.

Referenceshttp://www.cci.in/pdf/surveys_rep
orts/indias_pharmaceutical_industr
y.pdf
http://www.consultbv.com/en/case
studies/BizVantage%20Consulting%
20-%20Pharmaceuticals.pdf
http://www.ibef.org/industry/phar
maceuticals.aspx
http://m.biotecharticles.com/Others
-Article/Vaccine-Industry-in-India968.html

38

Tractor Industry
Wheels of Prosperity
Agricultural Machinery in India
The Indian agricultural machinery
market had a total revenue of $2.8
billion in 2010, representing a
compound annual growth rate
(CAGR) of 8.6% for the period
spanning 2006-2010.Market
consumption volumes increased with
a CAGR of 7.7% between 2006 and
2010, to reach a total of 305.2
thousand units in 2010.The
performance of the market is forecast
to decelerate, with an anticipated
CAGR of 6.9% for the five-year
period 2010-2015, which is expected
to drive the market to a value of $4
billion by the end of 2015.The
agricultural machinery market is
defined as the sale in each country of
compact tractors (rated up to 50 metric
horsepower), other tractors (over 50
HP), and combine harvesters. Tractors
include two-wheel and four-wheel
drive tractors, as well as crawlers. The
market is valued at average
manufacturer list prices multiplied by
units sold. All currency conversions
are at 2010 average annual exchange
rates.
Tractor Industry Overview
The strong recovery witnessed in the
tractor market during 2009-10, after a
period of cyclical downturn, has
continued in the current fiscal with the
Apr-Dec 2010 (9M 2010-11) period
reporting a growth of 25.2% over the
corresponding previous year. The key

factors enabling the demand growth

during the current fiscal have been
good south west monsoons in majority
of the states resulting in robust farm
sector growth (expected to be around
5.4% for 2010-11); strong rural
liquidity sustained by higher
minimum support price (MSP) for
crops and double digit food inflation
supporting prices of agricultural
produce; enhanced employment
opportunities under National Rural
Employment Guarantee Act
(NREGA) and other Government
schemes leading to shortage of
migrant labour; adequate
credit
availability; and replacement demand.
On a regional basis, the performance
of the western, central and southern
parts of the country has been healthy
during 9M 2010-11, while the
northern and eastern regions
performed below par. The volume
growth in northern region was
impacted by floods in some pockets of
Haryana and Punjab as well as the
already high tractor penetration levels
in the region while that in Eastern
region was impacted by the drought
like conditions in Bihar, Jharkhand
and West Bengal in addition to the
high base on account of strong growth
during the last fiscal. Tractor volumes
in the western and central regions
reported strong growth during 9M
2010-11 benefiting from satisfactory
kharif crop in these states, improved

realizations of the crops, improved

credit availability and low tractor
penetration levels. The southern
region reported an improvement in
growth after below par performance
during 2009-10 on back of strong
growth in Karnataka and Andhra
Pradesh (AP).
The Indian tractor market is primarily
a medium HP market; however, there
is a gradual shift towards higher HP
segments supported by a number of
factors including increasing tractor
penetration in Southern region which
has traditionally been a higher HP
market, replacement demand for
higher HP tractors in Northern region,
increasing use of tractors in nonagricultural applications and the
growth in exports which again is a
high HP market. The shift towards
high HP segments is expected to
improve the profitability per tractor
due to higher realizations.
Additionally, the sub 20 HP segment
targeting the marginal farmers, which
has in the past been catered largely by
smaller local players, has now
attracted major players like M&M and
is likely to see renewed activity over
the medium term. These small tractors
have a potential to replace bullock
carts in the field and the demand
potential remains high with around
39% of the area under cultivation
owned by marginal/small farmers; this

39
segment, however, is expected to face
competition from the second hand
market of higher HP tractors.
The profitability of tractor
players has declined during the current
fiscal, after sequential quarter on
quarter rise during last fiscal, with the
commodity prices hardening; in spite
of robust demand allowing the
manufacturers to affect price
increases. The profitability, however,
is expected to remain healthy on back
of the robust underlying demand and
inherent Government support for farm
mechanization in form of excise duty
exemptions and priority sector
lending. The profitability, however,
remains
exposed to commodity
cycles and irregular monsoons (which
remains a key determinant of tractor
demand as over 50% of the area under
cultivation has no irrigation
facility).Additionally the capacity
addition plans of major tractor players
may put some pressure on the margins
in near to medium term. Overall, with
the tractor demand being closely
linked to agricultural output, growth
in farm mechanization and farmers'
remuneration the long-term demand
drivers for the industry remain robust.
Healthy volume growth during the
current fiscal; future growth expected
to be driven by states with low tractor
penetration
Chart 1: Annual Trend in Tractor

Sales Volumes

by volumes is expected to remain

moderate.
Market Share of different Tractor
Companies:

Chart 2: Trend in Tractor Sales

across regions
During 9M 2010-11, the performance
of Northern states has been below par
with single digit growth rates mainly
on account of the high tractor
penetration levels as well as floods
resulting in crop failures in pockets of
UP, Haryana and Punjab. The volumes
in Punjab and Haryana were
particularly hit with the volumes degrowing during 9M 2010-11 as the
penetration levels remain high and
majority of the incremental demand is
contributed by replacement market
and non-agricultural applications.
This trend is evident from the fact that
82% of 9M 2010-11 sales in Punjab
and 52% in Haryana are in higher HP
segment (>41 HP tractors) due to the
farmers upgrading to higher HP
tractors and higher HP tractor
requirement in non-agricultural
applications. The future volume
growth in Punjab and Haryana, thus, is
expected to remain under pressure.
UP, though, is expected to grow at a
relatively higher rate on account of
low penetration in various pockets
such as Eastern UP even though the
penetration levels in Western UP
remain high. Going forward, the
volume growth in northern region,
traditionally the biggest tractor market

The Indian tractor industry has 13

national players and a few regional
players. The industry is dominated by
Mahindra and Mahindra (M&M) with
a market share of around 39.8% during
9M 2010-11, followed by Tractors and
Farm Equipments (TAFE), which
holds around 22.8% of the market.
The other major players include
Escorts (12.8%), L&T-John Deere
(9.6%), and International Tractors
Limited (8.4%).
With the industry growing at a healthy
rate and the demand outlook being
strong, majority of the tractor players
have announced capacity expansion
plans in near to medium term. M&M
plans to invest Rs.800 crore to
Rs.1,000 crore over the next three
years in its farm equipment business
on setting up a green field
manufacturing unit in Chennai and
developing new tractor models for
India and overseas. Escorts plans to
invest Rs. 150-200 crore during next
1-1.5 years to enhance its production
capacity by 20,000 tractors, L&T-JD
plans to invest Rs. 450 crore to set up
another tractor facility in India by
2012 and ITL also plans to setup
another facility in Bihar in next 1-2
years. The huge investment
commitments of the tractor players
points to the industry's confidence in
strong underlying demand for farm
mechanization which is expected to be
a strong driver for increasing crop
yields necessary for India to feed its
ever increasing population.

40
Table 1: Trend in market share of various tractor players

Table2: Capacity expansion plans of major tractor players

Some of the Long Term Demand

Drivers remain favorable

continues; the key driver for growth

in farm mechanization

Chart 3: Movement in HP wise

segment mix

(a) The Government support for

agriculture and rural development
continues with increase in budget
outlays for agriculture and allied
activities, support to farming through
increase in MSPs of various crops and
increase in allocations to various rural
welfare schemes.

Although agriculture contributes only

15.7% to India's GDP, its role remains
critical in Indian economy as it
provides employment to 58.2% of the
workforce, which is why this sector
remains a strong focus area for the
Government. The Government
support for rural development and
agriculture, thus, remains strong as
evident from various supportive
policies implemented by the
Government of India. The total
budgeted outlay for rural development
has grown sharply during the last three
five year plans; the outlay for
agriculture and allied activities has
risen from Rs. 37,546 crore in the 9th
plan to Rs. 1,36,381 crore in 11th plan
while the outlay for rural development
has grown from Rs. 73,439 crore in
9th plan to Rs. 3,01,069 crore in the
11th plan. There has also been
significant allocation towards
Rastriya Krishi Vikas Yojana (RKVY)
for achieving the target of 4 percent
agricultural growth in the Eleventh
Plan. An outlay of Rs. 25,000 crore for
the Eleventh Five Year Plan has been
earmarked for RKVY. The healthy
growth in allocation of budgets for
rural development and agriculture has
provided support to agriculture in
terms of better infrastructure
availability as well as improved
accessibility of various agricultural
inputs including farm mechanization
tools such as tractors and power tillers.

The shift towards higher HP segments

is supported by a number of factors
including increasing tractor
penetration in Southern parts of the
country which has traditionally been a
higher HP market due to higher HP
tractor requirement in paddy fields,
replacement demand for higher HP
tractors in Northern region, increasing
use of tractors in non-agricultural
applications and the growth in exports
which again is a high HP market. The
penetration levels in Northern region

(b) The structural growth factors

including credit availability (under
priority lending), irrigation potential
and low penetration levels continue to
remain intact.
(c) Increasing non-agricultural use of
tractors in transportation and haulage
is expected to provide another demand
avenue for tractor sales on back of the
Government's focus on infrastructure
development.
(d) The replacement cycle for tractors
is also shortening with a gradual shift
of incremental tractor demand
towards higher HP segments,
especially amongst mature user
segments.
(e) Original Equipment Manufacturer
led initiatives to increase the tractor
usage amongst marginal farmers with
low cost sub 20 HP tractors. These
tractors are also being increasingly
favored by growers of sugarcane,
cotton, orchards and vineyards as
second tractor.
Government support for
agriculture & rural development

41

are high so majority of the incremental

demand is replacement demand
wherein the farmers are upgrading to
higher HP tractors. During 9M 201011, around 82% of the sales in Punjab
have been in the >41 HP segment. The
other states where higher HP tractors
are preferred include Maharashtra, TN
and Haryana (where over 50% of
incremental volumes are from >40HP
segment). These are also the regions
where the tractors are increasingly
being used for non agricultural
applications and also witnessing
labour shortage as the migrant labour
movement to these states has reduced
post NREGA introduction. The shift
towards higher HP segment augurs
well for the tractor industry as it
results in higher realization per tractor
leading to lower overheads and higher
EBIDTA11 per tractor.
The high HP markets in the Southern
states are expected to grow at a healthy
rate on back of lower than national
average penetration levels and
increasing credit availability in these
regions. The shift towards the high HP
segments is thus expected to continue
on back of growth in Southern
markets, replacement demand from
Northern states, increasing nonagricultural use of tractors in
infrastructure industry and growth in
exports.
Outlook
Tractor sales are expected to remain
healthy in fiscal 2011-12 mainly on
back of good rabi crop expected this
time around with normal monsoons
and continuing firmness in the prices

of agricultural products as reflected in

food inflation running in double
digits. Moreover, improving farm
mechanization levels (with cheap
labour availability in rural areas
declining), increasing nonagricultural use of tractors, higher
credit disbursements for agriculture,
and Governmental focus on the farm
sector (larger budgetary allocations)
are also expected to encourage tractor
sales. The industry's profitability is
expected to remain healthy on back of
robust demand and Government
support in spite of the high
competitive intensity and
vulnerability to adverse movement in
commodity prices and irregular
monsoons.
While some States in the northern
region have achieved high levels of
tractor penetration and farm
mechanization, on an all-India basis,
the penetration remains low, which
along with the current shortage of
farm labour and consequently rising
labour costs, are expected to lead to
greater farm mechanization levels and
use of tractors. The long-term
prospects for the Indian tractor
industry hinge on agricultural growth
and Government support in areas such
as financing availability, tax
exemptions, and fiscal stimulus for
rural development. Overall, ICRA
expects the long-term growth rate for
the Indian tractor industry to trend
around 8-10%; marginally higher than
the historical average of 6-8%,
supported by increasing tractor
penetration.

References :
www.icra.in/files/ticker/tractor-notemarch%2011.pdf
www.slideshare.net/researchonindia/
agricultural-equipments-market-inindia-2010-sample
www.scribd.com/doc/21105878/agric
ulture-machinery-sector-of-indiacourtesy-ficci.

42

Dairy Technology
Every Drop Worthy
INDIAN DAIRY INDUSTRY
India is the world leader in milk
production and home to the largest
dairy herd. The Indian dairy sector is
the largest contributor to the
agriculture Gross Domestic Product
(GDP) which is estimated to be 30%
of total agriculture sector. In terms of
output, milk is now the single largest
agricultural commodity in India. The
fact that dairying could play a more
constructive role in promoting rural
welfare and reducing poverty is
increasingly being recognised.
The dairy cooperative movement was
the main reason to the development of
dairying in India. The inspiration of
this movement was the success of the
Kaira District Cooperative Milk
Producers Union, better known as
Amul. Later on various institutions
have contributed to the development
of dairying, these include the National
Dairy Research Institute (NDRI),
Karnal, various agricultural
universities, veterinary colleges and
proud to say, the National Dairy
Development Board (NDDB).
Milk Production in India is growing at
a rate of 4 % per annum which is much
ahead of world average growth rate of
1.35% per annum. The demand of
milk is expected to be 180 million
tonnes by 2020. To achieve this
demand, the annual growth rate in
milk production has to be increased to
5%. Major factors driving growth in
Milk Consumption are Population
growth, Growing Household

Incomes, Increased demand for value

added Milk products, Preference for
liquid milk as a principal protein
source, India's tradition of
vegetarianism & cultural significance.
The tremendous growth in production
can be accounted for increased
number of milking animals (56%) and
by the higher productivity of the
crossbred cows (34

Per capita availability of milk in India

is around 265 grams/day which is
lower than that of world's average of
280 grams/day. There is high
fluctuation of per capita availability of
milk according to the states.
STRUCTURE OF INDIAN DAIRY
INDUSTRY: Dairy Cooperatives account for the
major share of processed liquid milk
marketed in the country. Milk is

processed & marketed by177 Milk

Producers' Cooperative Unions,
which federate into 15 State
Cooperative Milk Marketing
Federations. The Dairy Cooperative
Network (as on March 2010) operates
in 346 districts covering 140227
village level societies.
Dairy Cooperative Network is owned
by 14 million farmer members of
whom 4 million are women. The
organized sector still remains a minor
stake holder and handles about 20% of
the milk whereas the unorganized
sector of local vendors, sweets shop
etc. Still controls about 80% of the
industry. The demand for milk and
milk products is income elastic and
growth in per capita income is
expected to increase the demand for
milk and milk products. In 2009-10,
average daily cooperative milk
marketing stood at 21.12 million
litres; annual growth has averaged
about 6.2 per cent compounded over
the last five years. The annual value of
India's anticipated milk production
amounts Rs.1745 billion in 2009-10.
Milk travels as far as 2,200 kilometres
to deficit areas, carried by innovative
rail and road milk tankers.
India, given the highest milch bovine
population of 115.487 million in the

43

world, exhibits tremendous potential

to further strengthen its position in the
world dairy market.
Out of total milk produced in India,
55% or slightly more comes from
buffaloes & the remainder from dairy
cows. In India, the average milk yield
per animal on a daily basis is 6.5kg for
crossbred dairy cows which is quiet
less in comparison to the yield of
exotic varieties in other developed
countries.
MILK PRODUCTS
Around 46 per cent of the milk is
consumed in the form of liquid milk,
47 per cent as traditional dairy
products and 7 per cent as Western
dairy products. The value-added
versions like ghee, butter, yogurt,
paneer, cheese, along with a
cornucopia of flavoured milks, ice
creams, UHT processed milk and
shredded

Food Safety and Hygiene

Consciousness, Need for
convenience, On- the-go
consumption, Palate diversification,
Growing Health and wellness
consciousness
Challenges ahead
Big challenges are productivity and
quality. If these are addressed, the
industry is bound to grow as the
consumer gets a product that he
considers as value for money.
Managing costs in the value chain and
thereby get the ability to deliver the
products at affordable prices in a
competitive environment. Improved
practices to ensure quality of milk
from "farm to fork" or better said
would be "the teat to the lip." Genetic
quality and support services need to be
improved. Despite being the world's
largest milk producer, India's share in
the world dairy trade is almost
negligible. However, India is a net
importer of dairy products.
Solutions for Indian Dairy Industry

liquid cheese is making the sector attractive

for growth.

The share of value added products in

the overall packaged dairy products
has increased from 27% to 36%
between 2005 and 2009 but share of
milk has decreased from 73% to 64%.
The per-capita consumption in India
for value added dairy products is at 0.5
kgs while in European countries the
average is around 30 kgs. The market
of curd is increasing at a rate of 25%
per annum. Consumer mega trends
promoting these figures are Increased

The apex bodies such as National

Dairy Development Board (NDDB)
have drawn up a National Dairy Plan,
two years ago in order to match an
estimated demand of 180 million
tonnes of milk 2021-22. The plan
recommends two strategies. First,
doubling of the milk production over a
period of 15 years and second,
increasing the share of marketable
surplus of the organised sector, both
cooperative and private dairies from
30 per cent to 65 per cent.
Better feed management practices can
definitely improve the milk
production. Animal feeds play an
important role in animal production.
Feeds supply the nutrients required by
animals for efficient production.
Nutrition is a means to achieve desired
effects in animals which includes
improving growth, influencing

fertility, reducing environmental

impacts, matching the quality of the
animal product to consumer demands,
improving the processing efficiency
of the animal products, supporting
animal health or influencing
behaviour. The multiple influence of
nutrition on various animal body
functions as well as on the
environment means that dairy farmers
must cooperate with experts in various
fields for innovations. Meanwhile,
the domestic challenges for the sector,
such as the supply chain management
and transport facilities need some
permanent solutions. The industry
needs more attention and that can
happen with a separate ministry for
dairy, as the challenges are aplenty in
several areas of this sector such as
breeding of cattle, automation and
technology upgrade. If the
productivity increases there is scope
for development of milk processing in
the country, whereby it will add to
more income than any other sector in
the country.
Global scenario
Globally, China and India are
expected to lead a 30 per cent increase
in the global liquid dairy consumption
over the current decade, as per a
research by Tetra Pak, which provides
processing and packaging solutions
for food and beverage. Particularly,
the Indian dairy sector sees immense
potential for future growth. A growing
population, rising prosperity and
urbanisation are all expected to
conspire to bring about a boom in
global dairy sales.
The Tetra Pak report states that the
global demand for milk and liquid
dairy products, like infant milk and
drinking yoghurt, stood at 270 billion
liters in 2010, whereby it was expected
to increase to around 350 billion litre
by 2020.

44

Last Word...
The PGDABM at NIAM pays special attention to the key challenges
and contemporary issues that exist in agriculture and allied sectors. This
compilation is an effort towards the philosophy of See, Explore, Emerge
and Develop skills of students in existing market scenario.
'OLIVE' is an attempt to diversify the knowledge in various segments of
agribusiness scenario. While celebrating decennial of PGDABM course
at NIAM, OLIVE presents a broad view of agribusiness sectors and
their achievements in the past decades.
Olive, this year brings forth the views and experiences of students in
different sectors. It signifies professional and resource base of NIAM as
well as caters the knowledge base of multidimensional and
unidirectional thoughts. Through various learning models, the students
of PGDABM have tried to put up their effort in various sectors as input,
marketing, FMCG, food processing and finance and provided a
prominent resource pool of knowledge. We look forward for your
valuable feedbacks and suggestions.

Dr. Hema Yadav

Deputy Director,
PGDABM,
CCS NIAM, Jaipur