Low capacity use dogs pesticide units

By Ramnath Subbu

MUMBAI, JULY 28. The Indian pesticides industry, dogged by low capacity utilisation, has been struggling for the last couple of years. The huge capacity of 1.30 lakh tonnes is run at 70 per cent.

The total market size is around Rs. 4,100 crores while exports in 2000 were for Rs. 1,600 crores. Over the last three years, however, capacity utilisation has improved with marginal rise in production. In 1998-99, the output was around 89,000 tonnes at 69 per cent capacity utilisation. This improved to 94,500 tonnes along with capacity use at 73 per cent in the next year while in 2000-01 the output rose further to 1.03 lakh tonnes with the capacity utilisation around 80 per cent. The problem is that most of the capacity has been built up in anticipation of a spurt in demand for agrochemicals which did not materialise due to erratic monsoon patterns. Another constraint is that the present capacity is for the older molecules to which many pests have actually built up resistance.

According to the Pesticides Manufacturers & Formulators Association of India (PMFAI), there are 55 basic producers - large and medium scale (including 10 MNCs) - and 300 pesticide formulators.The Indian pesticide industry is the fourth largest in the world and second in the Asia-Pacific region after China. However, its turnover constitutes hardly 1.5-2 per cent of the world market.The industry is mainly into generics as Indian companies are not investing in discovering new molecules. Of the total market, around 75 per cent is accounted for by insecticides. Almost half the production of the industry is aimed at the cotton crop and about a fourth at paddy.

Rallis India, United Phosphorus and Excel Industries are some of the indigenous players while Bayer India, Cyanamid Agro, Aventis CropScience, Monsanto and Syngenta are the major MNCs operating in India.

``Domestic players account for 60 per cent of capacity/production and MNCs for the balance. In a working capital intensive industry, the MNCs with their deep pockets have an advantage. Indian companies rely on institutional finance and when the industry is not doing well, bankers turn,'' said Mr. Pradeep Dave, president, PMFAI, and chairman and managing director, Aimco Pesticides Ltd.

``Pesticides consumption in India is low - less than 800 gm per acre against 16 kg per acre in the U.S. We want the government machinery to educate farmers about the use of pesticides through scientific programmes. All over the world better crop protection is used and here the government discourages the use of pesticides,'' said Mr. Dave.

With a lacklustre domestic market, exports should be an attractive option. But, according to Mr. Dave, the biggest hurdle is registration. The cost of registration is $10-15 million per product. ``If my plant cost is Rs. 15 crores and I want to export to the U.S., I have to spend Rs. 60 crores to register my products there. As a result, exports to the U.S. are not more than Rs. 50 crores a year. Exports to Europe are better at Rs. 200-300 crores a year.''

Mr. Dave said pesticide manufacturers were doing their best to expand market. ``They are trying to educate farmers but this requires large manpower. Export is remunerative - payments are through LCs but exports to the U.S. are difficult with barely two companies from India being successful. From India, synthetic pyrethroids, chloropyriphos, some insecticides and pesticides are also exported. It is a mix of high value and low value - volume items.''

The PMFAI says ``the registration procedure is the biggest problem. One has to wait for months to get a registration. In China, export registration takes just three days and here it takes a minimum of three months. The registration committee meets once every three months to process applications,'' said Mr. Dave.

Consolidation is taking place in the industry and smaller players are getting marginalised. ``Every year around 20 smaller and 5-6 large companies are in trouble with a host of them referred to the Board for Industrial and Financial Reconstruction (BIFR)."

Mergers and takeovers are becoming common at the global level and get reflected in Indian operations. Syngenta India comprises the agrochemical operations of Novartis India which had hived off the agrochemical business into a separate entity last year following the global merger of the pharma business of Novartis AG and AstraZeneca. Aventis CropScience India represents the combined operations of the erstwhile AgrEvo India and Rhone Poulenc Agro. Cynamid Agro merged with BASF India following the global acquisition of Cynamid's crop protection business by BASF.

There were 15 MNCs a few years back but the number has come down to six and this could drop further to 3-4, according to Mr. Dave who felt that in India, management quality was a problem. ``There is difficulty as globally these companies are run by professionals. In India, it is the other way around with the owners in management positions. But things will change here as well,'' he said.

The industry does not enjoy any sops from the government. But the PMFAI is confident about the future. ``The Department of Science & Technology has set up a fund that offers assistance at low interest to users of technology developed by various institutions under CSIR or proven technology developed by local Indians. This has just started and a few companies have taken advantage. There is a cost advantage for MNCs to produce here and overheads are very low. In spite of a high tax structure, the industry is still globally competitive. The future of the industry is good with indigenously available raw materials and intermediates. I foresee a lot of MNCs having manufacturing bases here and India will see many joint ventures and contractual work over the next few years,'' Mr. Dave said.

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