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India currently supports nearly a 1.3 billion population, with 2.4% of global land resources and 4% of global water resources. Agriculture is one of the primary contributors of national GDP with food grain output having grown to reach 316 million tonnes in 2021, accounting for nearly 18 % of National GDP during this period. This growth has been driven by increase in production of pulses, coarse grains, natural fibres, sugarcane, vegetables, and fruits.
Due to the rising population and shrinking arable land, demand for food grains is increasing faster than production. However, about 15-25 % potential crop production is lost due to pests, weeds and diseases. The need for improving crop productivity with focus on effective use of pest control measures and adoption of weed management practices has been recognized as an important factor to increase the agriculture output. And the sourcing of raw materials for production and distribution of agrichemicals to the consumption points are essential gamechangers to achieve this goal.
Agrichemical Consumption
India has emerged as of one of the largest producers of agrochemicals in the world, mainly due to the government’s agriculture-focused initiatives to increase production and reduce crop loss. This agrochemicals market reached an estimated value of USD 7.2 billion in 2021 with a total pesticide consumption is of 62,000 metric tonnes in 2021. This consumption depends heavily on weather and rainfall patterns. Higher temperatures and moisture lead to a higher possibility of infestation from pests thus driving a higher consumption of pesticides.
The agrichemical market in the country is dominated by the demand for insecticides and fungicides which together accounts for 75 % of the total consumption. As the Central Government focuses on rethinking agriculture practices, there is an increase in the use of bio pesticides which now accounts for 15 % of the market.
With approximately 50% of the demand coming from outside its borders, India is also currently among the top ten exporters of agricultural products. Agrochemical exports is estimated at $3.8 billion in 2021 having grown at a CAGR of 16% between 2016 and 2021. Unlike domestic demand growth which fluctuates depending on the rainfall pattern, agrochemicals exports have been increased steadily. Top export destinations of agrochemicals include Brazil, United States of America, Japan, Vietnam, France and China.
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Supply Chain Challenges
The COVID pandemic has exposed vulnerabilities in the agrichemical supply chain which witnessed temporary disruptions in manufacturing and exports. India used to heavily rely on imports of raw materials and intermediates to manufacture agrochemicals. The shortage of these supplies during the pandemic and the congestions in ports resulted in delays in procurement, thereby impacting production and export schedules. As a result, manufacturers and suppliers are re-evaluating their production and distribution strategies to overcome potential challenges.
On the domestic front, state government agencies, cooperative societies and private dealers play key role in the distribution of agriculture chemicals. About 90 % of the distribution points are located in three major agriculture producing regions namely North, West and Southern region. Due to widespread nature of land holding patterns located in remote areas, distribution of agriculture chemicals is one the biggest challenge facing the industry.
Considering growth potential of the agrichemical sector, the Indian government has identified this sector as one of the 12 industries which has the potential for establishing global leadership position. However, it is crucial for businesses and related industry bodies to undertake initiatives and measures to revitalize and overcome challenges associated with the industry’s logistics and supply chain network in order to optimise this opportunity and grow exponentially. In addition, substandard, counterfeit pesticides which accounted for nearly 25 % of the total agrichemicals seeps through to the distribution network affecting quality of arable land, health and environment.
Roadmap to Success
Aligning with Backward Integration Strategies
To reduce dependence on external sourcing of raw materials, more companies are looking at localizing supply of raw materials by building or acquiring plants to manufacture raw materials and intermediates themselves. This calls for a re-alignment of supply chain and logistics requirements with developments and changes within the overall value chain of the sector to ensure a seamless production of agrichemical products.
Strengthening Distribution Network
The large number of end users across a wide geography and increasing use generic (off-patented) agrochemicals make it essential to have a strong and efficient distribution network for the crop protection market. This also refers to a network that will limit the entry of spurious and banned products entering the overall distribution. On the domestic front, poor distribution network restricts agrochemical companies to reach out to remote rural areas for providing the latest products and developments and increasing the awareness of their benefits to crop management and cultivation.
Supply Chain Digitization
Agrichemical consumption fluctuate depending on weather conditions and rainfall pattern. Nearly 30% of arable land in India is dependent on rainfall and hence this should be considered for forecasting demand for insecticides, fungicides, weedicides, and rodenticides to avoid oversupply of agrochemicals at distribution points. Adoption of digital tools for increased visibility and tracking will greatly enhance monitoring the movement of agrochemicals products through the supply chain network.
Government and Industry Collaboration
Considering the significant role played by the state agencies in procurement and distribution of agrichemicals, a collaborative approach by the industry, government & regulatory bodies to remove the bottlenecks associated with transportation, storage and distribution. This will enhance seamless movement of agrochemicals through the supply chain network and result in expansion of both domestic and international customer base.
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