Government’s Proposal To Ban 27 Pesticides Will Hurt Agrochemical Firms And Farmers, Analysts Say

The Narendra Modi government's proposal to ban 27 generic pesticides could harm both Indian agrochemical companies and farmers, warned analysts.

Almost 70 percent of the total agrochemicals produced in India are covered under the proposed list of banned products, according to rating agency ICRA Ltd. The Ministry of Agriculture has published a draft notification seeking suggestions and objections for its plan to ban the 27 commonly-used pesticides, weedicides and fungicides due to their bio-hazards.

Revenue Impact

If the proposal gets implemented in the current form, it will have a significant negative impact on the agrochemical industry's sales and profits, K Ravichandran, group head and senior vice president of ICRA wrote in a note. "In a scenario when several pesticides were coming off patent, and Indian players were expected to invest in manufacturing these products, the loss of revenue on account of the ban could seriously hamper the ability of the domestic industry to offer new products in the Indian market."

ICRA also warned that farmers would be exposed to fresh pest attacks as the pesticides on the proposed ban list constitute a significant portion of such products used in the country.

The agrochemical industry's revenue could be impacted by Rs 8,000-9,000 crore if the agriculture ministry pushes ahead with the proposal, according to Edelweiss Research's estimates.

The order is unlikely to get fully implemented, especially all at once, since all key stakeholders will end up on the losing side, according to the brokerage Prabhudas Lilladher. Farmers may object unless substitute products are available at affordable prices, Emkay Global analysts wrote in a report.

Agrochemical companies are protesting the government’s proposal and have started discussions with the ministry.

Jai Shroff, the global chief executive officer of UPL Ltd. said in a conference call that 25 out of the 27 generic products are widely accepted and that he is hopeful that the government will reverse the ban on most of them.

The government move isn't justified as the industry is going through a tough time due to the Covid-19 pandemic, Rajesh Aggarwal, the managing director of Insecticides (India) Ltd., said in a conference call. If the government presses ahead, farmers' expenses could increase two-three times, he warned. The current cost of these generic products are as low as Rs 260-300 per acre, while alternatives will be more expensive and not as readily available, Aggarwal added.

Here are the other highlights from what brokerages have to say:

Prabhudas Lilladher

• Out of the 780 registered molecules in India, 120-130 registrations will be impacted.
• Some of the red triangle (most hazardous) products in the list may get phased out along with molecules that have less demand in India.
• The proposed ban is economically unviable and politically risky.

HSBC

• Disallowing manufacturing would not only impact India’s exports market share but may also cause shortages of these products in global markets.
• The move may encourage multinational companies to import more patented products into India, giving them an advantage over domestic players

Emkay Global

• The industry will appeal for a review for most insecticides barring three, which fall under the red triangle category.
• Some molecules, which are banned for lack of relevant data submissions and not banned by many countries, can be salvaged by following up with submissions.
• Don't expect an immediate impact; the final ban will be in phases, spanning over four years.

Edelweiss Research

• Dhanuka Agritech Ltd. and Rallis India Ltd., which have large number of generic products, will be severely impacted.
• Long-term multinational players with access to new-age products, including Bayer and Sumitomo, could benefit
• Domestic companies with strong connections with global innovators like PI Industries Ltd. and Dhanuka Agritech could also benefit.
• The industry is gearing up to provide data and secure products in the proposed ban list.