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Plough, Plant and Grow

Explore the agriculture value chain in India, analyzing key factors affecting productivity and profitability. From poor monsoons to rising input costs, understand the need for improved yields and sustainable practices. Discover opportunities in seeds, pesticides, and contract manufacturing to drive growth and innovation in the sector.

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Plough, Plant and Grow

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  1. AGRI INPUTS Plough, Plant and Grow Gauri Anand December 2015

  2. Agriculture value chain • India ranks among the top countries in sheer volumes; however India lags in efficiency • India yields are the lowest and well below the world average • With ~ 50% of the population involved in farming and allied activities, agri and allied activities forms only ~ 15% to overall GDP

  3. India's Position in World Agriculture

  4. Poor Monsoons, is it still an area of concern? Net irrigated area has been on the rise Despite deviation in monsoons (compared to lpa), most factors have growing, underpinning the resilience

  5. Declining per capita land availability (halved to 2.2 ha land per person) has put the onus of increasing food production on existing farm land Projected demand of food in India Declining per capita land availability India’s population by 2050 (in bn)

  6. Dietary shifts - India needs to produce more also to feed the livestock

  7. Scope for yields to improve Scope for yields to improve Yields have to improve, farm inputs to aid growth Between 2005 and 2009, profitability of farmers improved significantly on the back of rise in MSPs and largely stagnant input costs. Major part of the costs (~85 - 90%) include labour, land (rent) and inputs such as fertiliser and agro chemicals Post the 2005 – 2009 period, farmer profitability took a hit on account of increase in labour costs (>50% of cost of cultivation), increase in fertiliser costs (post NBS) and relatively stable MSPs On an average, paddy farmers in AP saw net income decline from ~Rs. 2,700 / acre (2009) to a loss of Rs. 2,320 per acre in 2011 NREGA program is considered to be a key driver for increase in farm labour cost as it reduced availability of labour, increased the base cost of labour especially during the important sowing and harvesting period

  8. Rise in input costs has led to stagnating profits Cost components, agriculture is labor centric Cotton cultivation (high grade) in AP (Rs/ha) Profits stagnate: Rice cultivation in AP (Rs/ha)

  9. Small ownership, falling farm profits and rising land prices to result in consolidation

  10. Contract manufacturing – Agri input industry could be large aggregators of farm produce for modern retail Although FCI has upped procurement it’s a meager 35% - implies only 35% of the produce is sold at MSP More than a tenth of the produce is lost due to poor infrastructure Farmer realizes only 68% of the customer price APMC mandis are located far from farmers

  11. Seeds: sow for high returns Rise in yield & production of cotton after application of BT cotton

  12. Seed pie Crop share in volume terms Crop share in value terms

  13. Rice the next big hybrid opportunity Rice yields though up 18% in the last decade, yields are stagnating over the last 5 years Seed replacement rate though improved it is still very low in cereals

  14. Pesticides: Low gramage to drive growth MSP of rice and cotton on a rise, thus improving pesticide affordability Extent of crop losses(%) with and without crop protection Total agrochem market $ bn

  15. Outlook for generics continues to look good $6 bn worth products going off-patent in 5 years Share of generics rising Average cost of a new product introduction is up ~ 70% in a decade

  16. Monsanto India • The seed business is secular barring the setbacks over the last three seasons. Subdued MSP hikes and inadequate monsoons have led to lower corn plantings; weak glyphosate prices have further pressured earnings in FY15-16. However, Monsanto’s sustainable competitive advantage is derived from its technological superiority and market reach, making it a promising long-term investment opportunity. • Maize hybrid seed industry is set to compound 20% by FY18, Monsanto (leader with 26% share) guides of superior product launches which would help better industry growth (estimate EPS to compound 28% during FY16-18E). It’s an innovation led company steered by high rate management; with attractive dividend payout ~80%, yield 2%. Any approval for GM corn would be viewed as a significant positive (final leg of data submission). At CMP, doesn’t consider any option value for GM maize (a min Rs 2000/sh opportunity).

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