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Plough, Plant and GrowAGRI INPUTS
Gauri Anand
December 2015
Agriculture value chain
INR Bn US$ Bn % of GDP
Seeds 120 2.0 0.1 ~ 25% is organised, rest is saved seeds of last year
Fertilisers 1300 21.7 1.4 overall ~ 55 mmt of which urea is 30 mmt
Pesticides 100 1.8 0.1 CRAMs an emerging opportunity
Irrigation equiments 60 1.0 0.1 Micro, drip/ sprinkler irrigation
Tractors,Tillers 300 5.0 0.3
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
India's Position in World Agriculture
Item India World % Share 's Rank Next to
Area (mn hectares)
Total Area 329 13442 2.4 Seventh Russian Federation, Canada, U.S.A.,
Land Area 297 13009 2.3 Seventh Russian Federation, Canada, U.S.A.,
159 1411 11.3 Second USA
Population in mn
Total Population 1181 6750 17.5 Second China
Agriculture 583 2617 22.3 Second China
Crop Production (mmt)
Total Cereals 267 2521 10.6 Third China, USA
Total Pulses 15 61 24.6 First
Fruits & Vegetables (mmt)
(A) : Vegetables & Melons 90 932 9.7 Second China
(B) : Fruits excluding Melons 67 580 11.6 Second China
Commercial Crops (mmt)
(A) : Sugarcane 348 1736 20.1 Second Brazil
(B) : Tea 0.81 3.9 20.7 Third China, Turkey
(C) : Cotton(lint) 3.77 22.85 16.5 Second China
Poor Monsoons, is it still an area of concern?
25
30
35
40
45
50
1988
-89
1990
-91
1992
-93
1994
-95
1996
-97
1998
-99
2000
-01
2002
-03
2004
-05(
p)
2006
-07(
p)
2008
-09(
p)
(%)
0
50
100
150
200
250
FY96
FY98
FY00
FY02
FY04
FY06
FY08
FY10
FY12
-20.0
-15.0
-10.0
-5.0
0.0
5.0
10.0
Food production (lhs) Fertilisers (lhs)Pestisides (lhs) Rainfal (rhs)l
0
20
40
60
80
100
120
140
160
180
FY96
FY98
FY00
FY02
FY04
FY06
FY08
FY10
FY12
-20.0
-15.0
-10.0
-5.0
0.0
5.0
10.0AgriGDP (lhs) Rainfall (rhs)
Net irrigated area has been on the rise
Despite deviation in monsoons (compared to lpa), most factors have growing, underpinning the resilience
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
3
4.4
6
7.54.3
3
2.21.8
0
2
4
6
8
1960 1980 2000 2020
Popu
lati
on R
s bn
0
1
2
3
4
5
Arab
le la
nd p
er p
erso
n (h
a)
Population, bn (lhs) Arable land per person, hectares (rhs)
0
20
40
60
80
100
120
Ric
e
Wh
ea
t
Pu
lse
s
Ed
ible
oil
Su
gar
(mmt) FY00 FY11 FY21
1.00
1.25
1.50
1.75
FY10 FY12 FY20 FY50
Declining per capita land availability Projected demand of food in India
India’s population by 2050 (in bn)
Dietary shifts - India needs to produce more also to feed the livestock
Consumption (mmt) FY12 CAGR 2007-12
Rice 104.32 2.2
Wheat 93.9 4.4
Cotton (mn bales) 35.2 9.2
Meat* 4.10 15.8
Egg* 0.65 6.5
Fruits* 0.08 6.2
Vegetables* 0.14 11.1
Eggs, Meat & Fish
110
130
150
170
190
210
230
250
270
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2009 2010 2011 2012
FRUITS & VEGETABLES
110
130
150
170
190
210
230
Jan
Feb
Mar Ap
r
May Jun
Jul
Aug
Sep
Oct
Nov
Dec
2009 20102011 2012
Yields have to improve, farm inputs to aid growth
Scope for yields to improveScope for yields to improve
000 Kgs/ha India World %Paddy 3.37 4.31 -21.8Wheat 2.80 3.09 -9.2Maize 2.32 5.11 -54.5Groundnut 1.07 1.55 -31.0Sugarcane 68.88 71.51 -3.7
Yield/ha - India vs. WorldBetween 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
MSP of Key Kharif & Rabi Crops
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
Rs/Q
tl
PaddyMaizeMoongCottonSoyabeanWheat
Rise in input costs has led to stagnating profits
All India avg daily wage rate for Agricultural Labour (Rs/day)
98114
135
163
189
0
50
100
150
200
FY08 FY09 FY10 FY11 FY12
Others 7%Insecticide
6%
Fertilisers9%
Seeds8%
Machine labour15%
Human labour55%
Cost components, agriculture is labor centric
46,427
24,31924,577
-
10,000
20,000
30,000
40,000
50,000
FY09 FY10 FY11 FY12 FY13
Estimated Cost Estimated Profit
48,748
28,23827,742
-
10,000
20,000
30,000
40,000
50,000
60,000
FY09 FY10 FY11 FY12 FY13
Estimated Cost Estimated Profit
Cotton cutlivation (high grade) in AP (Rs/ha)
Cotton cultivation (high grade) in AP (Rs/ha)Profits stagnate: Rice cultivation in AP (Rs/ha)
Small ownership, falling farm profits and rising land prices to result in consolidation
Category of Holdings __Number of Holdings (PPL in mns)__ ______Area (mn hectares) _______ ___Avg Size of Holdings (hectares)___
2000-01 2005-06 2000-01 2005-06 2000-01 2005-06
1 2 3 4 5 6 7
Marginal (< 1 hect) 75 84 30 32 0.4 0.38
(62.3) (64.8) (18.7) (20.2)
Small (1 to 2 hect) 23 24 32 33 1.42 1.38
(19.0) (18.5) (20.2) (20.9)
Semi-Medi (2 to 4 hect) 14 14 38 38 2.72 2.68
(11.8) (10.9) (24.0.) (23.9)
Medium (4 to 10 hect) 7 6 38 37 5.81 5.74
(5.5) (4.5) (24.0) (23.1)
Large (>10.0 hect) 1 1 21 19 17.12 17.08
(1.0) (0.8) (13.2) (11.8)
All Holdings 120 129 159 158 1.33 1.23
Contract manufacturing – Agri input industry could be large aggregators of farm produce for modern retail
APMC mandis are located far from farmers
Sq km
Implied radius (km)
Punjab 115 6Rajasthan 823 16Uttaranchal 940 17Himachal Pradesh 1465 22Sikkim 7096 48Average 435 12Benchmark 80 5
More than a tenth of the produce is
lost due to poor infrastructure
%
Potato 11
Onion 11
Other vegetables 13
Fruits 19
Food grains and oilseeds 10
Average 12150
155
160
165
170
175
180
185
190
195
200
205
FY07 FY08 FY09 FY10 FY11 FY120%
5%
10%
15%
20%
25%
30%
35%
40%Foodgrain Production (in mmt) LHS
Procurement by FCI (%) RHS
Although FCI has upped procurement it’s a meager 35% -
implies only 35% of the produce is sold at MSP
Farmer realizes only 68% of the
customer price
Seeds: sow for high returnsRank Country Area
(mn hectares)
Value (US$ bn)
Biotech Crops
1 69.0 12 Maize, soybean, cotton, canola, sugarbeet, alfalfa, papaya, squash2 30.3 2 Soybean, maize, cotton3 23.7 0.6 Soybean, maize, cotton4 10.6 2 Cotton5 10.4 0.55 Canola, maize, soybean, sugarbeet6 3.9 9.5 Cotton, papaya, poplaar, tomato, sweet pepper7 2.8 NA Soybean8 2.6 NA Cotton9 2.3 0.37 Maize, soybean, cotton
10 1.3 NA Soybean, maize11 0.9 NA Soybean12 0.7 0.4 Cotton, canola
0
5
10
15
20
25
30
35
40
FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY120
100
200
300
400
500
600Production mmt
Yield kg/hectare (RHS)
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY100
20
40
60
80
100No.of farmers (in mn)
% of acreage under BT cotton (RHS)
Rise in yield & production of cotton after application of BT cotton
Seed pie
Corn, 7Cotton, 1
Rice, 45Wheat, 32
Vegetables, 0.7
Others, 14.3Corn, 11
Cotton, 26
Rice, 18Wheat, 9
Vegetables, 12
Others, 24
Crop share in volume terms Crop share in value terms
Rice the next big hybrid opportunity
Rice yields though up 18% in the last decade, yields are stagnating over the last 5 years
1.2
1.4
1.6
1.8
2.0
2.2
2.4
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11*
2011-12**
Seed replacement rate though improved it is still very low in cereals
0
20
40
60
80
100 %
Pesticides: Low gramage to drive growthPer capita pesticides consumption Kg/ha
0
2
4
6
8
10
12
14
16
18
Taiwan China Japan USA Korea France UK India
MSP Trend
0
1000
2000
3000
4000
5000
FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13
Rs/
Qtl
Paddy (F) Cotton WheatMaize Tur (Arhar) Soyabean Black
MSP of rice and cotton on a rise, thus improving pesticide affordability
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Wheat Rice Maize Potatoes Soybeans Cotton
With Without
Extent of crop losses(%) with and without crop protection
34
35
36
37
38
39
40
41
42
43
1990 1995 2000 2005 2010 2015E
Total agrochemical market ($bn)
Total agrochem market $ bn
Outlook for generics continues to look good
0
10
20
30
40
50
60
2000 2005 2010
Patented Proprietary Off patent Generic
Share of generics rising
9.3
0.3
2.3
1.7
2.1
2
0.9
0
1
2
3
4
5
6
7
8
9
10
2010 2012 2014 2016 2018 2020 Total
$6 bn worth products going off-patent in 5 years
Average cost of a new product introduction is up ~ 70% in a decade
0
20
40
60
80
100
120
140
160
1995 2000 2005-08
Research Development Registration
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).