The origin of the Indian pesticide industry can be traced back to World War II. In 1948, the country imported DDT for malaria control. The agricultural use of pesticides began a year later, when BHC was imported to control the locusts. The agricultural use grew steadily between 1965 and 1990 when it reached a share of 60 per cent of the total consumption, the other 40 per cent being for non-agricultural uses.
The installed capacity also increased significantly to 122 thousand tonnes by 1989-90 due to increase in cropped acreage from 1.6 million hectares in 1970 to 20 million hectares by mid-1980s. Today, Indian pesticide market is a Rs. 3500 crore business. India is also the second largest producer of basic ingredients in Asia after China and is ranked 12th in the world.
But, India accounts for only 3 per cent of the world consumption of pesticides and about 80-85 per cent of it is met by domestic production. (Agriculture Today, April 2001). The country has an average consumption level of 0.47 kg/hectare per annum, which is much lower than that in many other countries like Japan and the European countries.
The current pesticide consumption stands at around 90,000 tonnes. The last few years have seen demand grow at a slow pace of 5.8 per cent. One major factor hampering the growth of pesticide consumption in India is the pattern of farm holding in India. Nearly, 76 per cent of the area under cultivation in India belongs to small and marginal farmers, whose average land holding is 0.38 hectares. This farming community cannot afford the high cost of pesticides.
Market Profile:
Of the total consumption of pesticides in India, 65 per cent is in insecticides, 1.1 per cent herbicides, 22 per cent fungicides, 5 fumigants, and about 2 per cent in other types of pesticides in terms of value. In terms of quantity, insecticides have much higher share (85 per cent) followed by fungicides (8 per cent). Among insecticides, BHC and DDT account for 63 per cent. Thus, the use of all other pesticides put together is very low. As yet only 25 per cent of the cropped area receives pesticides.
Herbicide used in rice is found to be lower in traditional rice areas, but in non- traditional irrigated rice areas such as Punjab and Haryana, substantial expansion in herbicide usage has taken place. This is related to the labour intensity of rice and the shortage of labour or high wages in these areas. However, environmental costs are high.
Nearly 70 per cent of the products sold by the industry go to the agricultural sector where they play a significant role in helping technological transformation, yield increase and growth. The international structures and patterns in demand are frequently good indicators of long-term tendencies, and hence the national patterns very often move towards international patterns in the long run as the development proceeds.
This implies that even though insecticides would continue to be important (especially in the tropical context), a rapid growth would be seen particularly in herbicides, and also in fungicides and other pesticides/chemicals. Even though insecticides dominate in the volume of consumption, their growth is much less rapid.
On the other hand, fungicides show a more rapid rate of growth and herbicides show an even more rapid rate of growth. Thus, the product group composition is undergoing a change and is shifting towards herbicides and fungicides. There is a wide difference in the pattern of pesticide usage in India and in the world (Table 5.1).
Largely, pesticides are consumed in two major kharif crops in India— cotton and rice. These are sown and reaped between the months of July and November. Thus, this is the peak period during which the pesticide consumption increases. Cotton and paddy together account for more than 50 per cent of the pesticides consumption (Table 5.2).
This high crop-wise concentration reflects the nature of the agro-economic potential, but it is also indicative of very limited efforts in converting potential to effective demand. Demand for pesticides is also concentrated largely in the states of Andhra Pradesh and Punjab which together account for 43 per cent of total consumption. But, pesticide consumption per hectare of net sown area is the higher in Tamil Nadu followed by Andhra Pradesh and Haryana.
The market is also highly segmented in terms of pest, crop, crop- stage, spray period, number of sprays and region. There is a significant role of subsidies in the pesticides market along with public opinion. The market is also oligopolistic in nature because of regional competition, fair degree of product differentiation and local barriers to entry.
Structure of Industry:
The pesticide market is highly competitive, due to the nature of supply and demand forces. The supply side is characterised by Technical Grade Manufacturers (TGMs) and the formulators. There are 125 TGMs and 500 formulators in India. A TGM is supposed to supply at least 50 per cent of its produce to non-associated formulators.
This makes a single technical grade available under separate brand names. Sometimes, there may be over 50 brands for a single technical material. On the demand side, a single pest could be treated by several technical compounds and therefore, total options available to the buyer could be quite large. The small sector is only engaged in making formulations.
Whereas the large scale sector produces both technical grade material and formulations. A formulator is generally in a me-too category, an entrepreneur, has low technology of mixing ingredients, is small scale, with low financial resources, sells in limited area of a state, has wide range of product linkages, has tremendous production flexibility, and does not get affected seriously by discontinuation of products.
Among the 65 firms in the large scale sector, there are both multinationals and Indian corporates. The top 10 companies account for 80 per cent of the production and the top 16 companies account for 94 per cent of the production. There is substantial concentration in this industry. The major reason here appears to be the resources and capabilities required, especially the research capabilities and investment required for new molecules and the power this commands.
Of the 16 companies, 13 have the bulk of the market share of the products dealt by them and except BHC, malathion, ethion, fenvalerate and cypermethrin. Most other products have a very marked market concentration, in the sense that a single company has a very predominant market share. All the 51 active companies do not produce every year.
In 1985-86, only 35 companies were in production and out of these 10 companies had a major market share (80.33 per cent) of the total production concentrated with only 20 companies. It may be observed, that the ranking of companies based on quantity of production is quite different from that which is based on the value of production, because the unit values of different pesticides are different.
While BHC and DDT manufacturers account for substantial market share in technical grade materials in terms of quantity of production; there are companies which manufacture third and fourth generation pesticides, with higher unit values, which have the bulk of the market share in value terms.
There is fairly low level of capacity utilisation, as the industry follows a batch process type of production process. This tends to depress capacity utilisation levels. Industry operates at a capacity level of 50-60 per cent. This is the level for the organised players. The unorganised players operate at even lower levels of 30-40 per cent.
The capacity levels of plants in India is much higher than in other developed countries. The reason for this, is that conventionally a separate plant is constructed for each product. However, more than one chemical can be produced in one plant. This practice is not carried out in the west. Less stringent rules and regulation in India make this feasible.
The industry is highly capital intensive. Working capital works out to 45-50 per cent of the total capital employed. High dependence on the monsoon and the seasonal nature of demand, has forced players to maintain high inventory levels.
Pesticides not sold during the season, have to be stocked for another 6 months, till the next season. This makes the holding cost of the finished goods very high for any pesticide firm. Further, the industry operates on the basis of credit to farmers and this makes the industry receive its money only when the farmers sell the crops.
Farmer Behaviour:
Apart from complementarity, there is also competition between yield saving (e.g., pesticides) and yield increasing (fertilisers) inputs. It is found that when faced with yield uncertainty, the farmers who are risk averse, tend to use higher than the optimal level of inputs.
The major motivation of pesticide use is the provision of some insurance against damage. As a result, more pesticide is used than is economically optimal. Besides, large farmers use more pesticides due to their financial capacity.
Pesticides fall into the category of extended problem solving type of decision-making process, as far as the buying nature of farmers is concerned. Impulsive buying is rare. New pesticide firms have to enter into the consideration set, of the buyer. Then, they have to win or find a niche within this set. Thus in a competitive market place, new entrants would not find it easy to enter. Brand equity and brand loyalty are very important.
Pesticides being a highly sensitive product in terms of its positive and negative effects, there are many problems involving in its purchase, usage and storage. It is found that, same pesticides are used for all pests, which leads to pest resistance and killing of the predators. Also farmers resort to the over-use of pesticides, because of the belief that more is better; though in reality it is wasteful.
Sometimes farmers also split those into two or more, for the reason that twice is better than once. This leads to sub-optimal effect of pesticide on the crop and also causes the consequent image loss for the product and the dealer. There are also problems, in terms of inappropriate usage of the product in terms of timings.
So far as the purchase decisions are concerned, it is found that farmers form consideration sets before making a purchase of a particular brand. The determination of such sets of brands or product type is influenced by the type of application of pesticide, intensity of the problem, farm-size, literacy level or awareness, nature and degree of risk and the time available for making a choice.
Whereas, intensity of the problem and literacy level are shown to have negative influence on the consideration sets, the other variables influence in a positive way. Further, it is known that the sets are situation-specific and not buyer-specific.
The consideration set is a set of brands of a product, which a buyer actually considers when making a specific brand choice. The marketers of this product, can benefit from the fact that buyers do form consideration sets prior to shopping. It is also important for them, to recognise critical decision criteria used for the evaluation of brands in a particular set.
Farmers largely purchase pesticides from private traders, followed by government agencies and then co-operative societies, which is partly on credit and partly in cash, with one third of the purchases being in credit alone. Farmers want all pack types to be made available, but majority of them prefer small pack sizes and a particular pack for one acre each. They enquire about competitive prices, brand name and quality. And cost is one of the major factors influencing purchase.
So far as brand and dealer preferences of farmers are concerned, it is found that generally quality of product, habitual use, ready and regular availability of the product promote brand loyalty. But, it is mainly the dealer-loyalty which matters most as majority of the farmers are dealer – loyal due to credit facility.
The other factors in dealer-loyalty could be availability of preferred brand, technical guidance, price, and quality assurance, degree of malpractices, peer group influence, and discount on the price. On the other hand, brand loyalty is largely due to the efficiency of the product in terms of field performance. Sometimes, other factors like price, packing, quality, peer influence, and availability also influence brand loyalty.
So far as the effects and side effects of pesticides are concerned, farmer perception of the significant impact of pesticides on the environment seems to exist, but it is limited to the immediate context of labour, other human beings and animals. It does not go beyond this, to the effects of pesticides on water, air, and residues in food and other agricultural products.
The farmer’s awareness about these effects, as well as when and how to use these pesticides are limited. Further, he is not aware of environment friendly alternatives like biological control, integrated pest management, and homemade formulations. Interestingly, the intensity of pesticide us age is higher on small farms, and the education of the farmer seems to reduce the expenditure on pesticides.
Problems of Farmers in Pesticide Purchase and Usage:
(a) Problems of the quality of the products available in the market because of the sub-standard quality of the products of local formulators.
(b) Non- availability and high cost of credit is a major problem for farmers.
(c) Often, farmers are cheated by dealers, who are under pressure to sell the stock held by them, in terms of expiry date of products etc.
(d) Farmers lack knowledge about the method of application of pesticides. Also, they are not able to recognise the pest attack and type of diseases in their crops. There is generally much confusion about the type and quality of pesticides to be used, to control the pests.
(e) The smaller pack sizes are comparatively costlier than the bigger sizes. Thus, every time they buy, they have to pay more, in relative term.
Marketing Mix:
This consists of:
(a) Product,
(b) Pricing,
(c) Distribution, and
(d) Promotion.
(a) Product:
The products differ in form and use for different crops. But, there are also products, which are insect specific and can be used for many crops. There is also difference in products, in terms of timing of attack and type of seed variety of the crop.
Besides, there are new products like bio-pesticides, which are entering the market fast and are changing the way the market is promoted and sustained. They are from existing as well as new players. The neem-based pesticides are a major area of activity in this market.
(b) Pricing:
Companies follow different pricing strategies for different products at different stages of their evolution and growth. Sometimes, there is same price for a product in all markets whereas in other cases there could be regional variations depending on the paying capacity of the market and local taxes and duties.
(c) Distribution:
The distribution of pesticides are carried out through state departments, co-operatives and private outlets (Fig. 5.1). In the mid 1980s, there were 77,000 outlets for pesticides distribution in India. The largest number of outlets is in Andhra Pradesh, followed by Tamil Nadu, Uttar Pradesh and Gujarat.
But in terms of outlets per 1000 ha of net sown area, the states like Tamil Nadu, West Bengal, Kerala and Andhra Pradesh rank the highest in that order. In terms of market coverage, Rallis had 95 per cent outlets covered in late 80’s as against 65-70 per cent by Ciba and Bayer and 40 per cent by Sandoz. In addition to wide coverage, these companies are also selling their products at high premium.
There is neither a fixed pattern nor any fixed terms, regarding the distribution of pesticides. The same company can be seen to have different policies with regard to the same product in different regions of its market. Thus, it is clear that prevailing market conditions determine distribution policies. Nearly 80 per cent business is conducted against unsecured credit, the period for which varies from 30-120 days.
The dealers extend credit to farmers, but very rarely they invest their own money in this business. By and large, these operations are financed by manufacturers, who depending on the popularity of the product may extend their discount up to 25 per cent. About 5-7 per cent of the discount is retained by the distributors.
In most competitive markets, dealers may sell a product at low price, keeping a margin of only 5-10 per cent for themselves. In fact, in some markets, dealers work on even as low as a profit margin of 1-2 per cent. In such situations, they focus on turn over of money during the season.
Like other input dealers, the pesticide dealers also do not represent any one company exclusively and sell all those products which have high demand and high returns. In this market, the dealer push can be carried out only with those customers who depend on credit from dealers.
In the distribution of pesticides, there are problems of spurious products, lack of long term credit, high liability of non-sold stock, higher cost of small packs, lack of extension service and dependence on dealers for sales promotion. The margins for the distributors range between 5-8 per cent and that for the dealers from 10-17 per cent. The small firms which do not have a very high brand image and customer pull, also run incentive schemes for dealers like target discounts, gifts on certain sales volumes, packaged tours, and incentives on advance booking of stocks.
(d) Promotion:
Other than the sales promotion efforts undertaken by offering better terms to the dealers, a host of other modes are also used. The media generally used are newspapers, advertisements, radio, pamphlets, audio cassettes, cinema slides, and wall paintings.
The manufacturers, generally do not have an interface with the farmer and depend on the dealers for the feedback and promotion. Some companies also use sales- force to influence dealers, farmers and institutions which influence pesticides sales.
Emerging Environment for Pesticides:
An immediate implication for pesticide industry is that there is pressure to reduce subsidies to agriculture in the areas of irrigation, fertiliser and electricity. This is likely to hit the pesticide market to the extent the pesticides are subsidised, and the other subsidised inputs are the determinants of pesticides consumption directly or indirectly.
The improvement in the protection of IPRs in the wake of the GATT and WTO, will result in a better environment for the growth of the agricultural input industry, particularly the seed and pesticide industry, where substantial investment in research and development is needed. With better IPR protection, more firms will be encouraged to undertake R&D efforts and to introduce new products. In a competitive environment, this will help to expand the market.
Over the last decade, environmental concerns have emerged strongly. The environmental costs of growth are being increasingly questioned. This has implications for the pesticide industry, since pesticides are toxic and are seen as a major risk to the environment. Even food related laws, would have an impact on the industry as the chemical residues in food is becoming a big trade and development issue.
Regulations with respect to the introduction of new pesticides and re-evaluation of existing pesticides is already established through the Insecticides Act and will continue to be an important area. The thrust towards integrated pest management, more environment friendly pesticides as well as grass roots remedies/innovations will grow.
At present pesticides use is highly concentrated by area and crop. Efforts for converting the potential into effective demand in terms of spread to new areas is likely to be particularly important for the growth of pesticides use in future—more than spread to other crops.
Other factors that would drive the demand for the pesticides are:
i. Change in the cropping pattern related to the domestic and the international markets e.g., shifting towards cotton, fruits and vegetables.
ii. Growing of crops in more adverse conditions.
iii. The pattern of use of pesticides is very similar to that of fertilisers, which also display geographical and crop concentrations. The pattern is likely to undergo a major change during the next decade. During the eighth plan, the emphasis is likely to be on the acceleration of agricultural growth in rainfed areas and crops like oilseeds and pulses which have received much less attention.
The process has already begun with the identification of 66 districts for intensive development. Efforts have also been made to delineate 15 agro climatic regions, for promotion of optimal cropping mix. This scenario opens up many new opportunities and challenges for the pesticide’s industry.
iv. The industry will have to generate guidelines to the economical use of pesticides, for the crops grown in disadvantaged regions. This has to be supplemented by development of crop specific products, their pricing and promotion in relation to the crop profitability in the disadvantaged regions.
Market development efforts are time consuming and cost intensive as the industry is presently dependent on distributors and dealers to push then- products. A challenge may not automatically be taken up because the turnover per outlet in disadvantaged regions is going to be much smaller than in the traditional markets. Similarly, the promotional cost is also going to be high.