CRISI Forecasts 3% Decline in Agrochemicals Revenue for FY24 Due to Weak Demand
CRISI Forecasts 3% Decline in Agrochemicals Revenue for FY24 Due to Weak Demand
The agrochemical industry plays a pivotal role in supporting global agriculture by providing essential tools for pest control, crop protection, and enhancing crop yields.
However, the sector is currently facing headwinds as CRISIL, a leading credit rating and research agency, predicts a decline of approximately 3% in revenue for agrochemical manufacturers in the financial year 2024 (FY24).
This dip in revenue is primarily attributed to tepid demand, which can be attributed to various factors.
The global economic environment has been characterized by uncertainty in recent years, largely due to geopolitical tensions and the lingering economic impacts of the COVID-19 pandemic. Such uncertainty can discourage farmers from making significant investments in agrochemical products, thereby dampening demand.
For the first time in ten years, Indian producers of agrochemicals are predicted to see a decline in income in fiscal 2024 of up to 3 percent on an annual basis. According to the analysis, this would be caused by declining prices worldwide as a result of an influx of Chinese supply, muted export demand (about 53% of income), destocking by international manufacturers, and the effect of decreased reservoir levels on rabi planting.
It further stated that due to decreased volumes and realisations, operating margins may also fall by 400–450 basis points (bps) to a decadal low of 10–11% this fiscal, affecting cash accruals for agrochemicals firms.
In terms of important monitorables, CRISIL stated that the demand momentum – both domestically and internationally, weather patterns in significant export markets, and pricing of significant goods and raw materials, particularly Chinese, will need to be closely monitored going forward.
Unpredictable weather patterns and the increasing frequency of extreme weather events have become a significant concern for farmers.
Erratic weather can disrupt planting and harvesting seasons, making it difficult for farmers to determine the optimal time to use agrochemicals. This uncertainty can lead to reduced demand.
Growing awareness about environmental sustainability has led to increased scrutiny of agrochemical use. Farmers are under pressure to adopt more sustainable and eco-friendly agricultural practices, which may involve reduced chemical inputs. This shift can impact the sales of traditional agrochemical products.
The production of agrochemicals involves various raw materials, including petrochemicals and minerals. Any increase in the prices of these inputs can raise the cost of manufacturing agrochemical products. Manufacturers often pass on these increased costs to consumers in the form of higher prices, which can, in turn, lead to reduced demand.
Agrochemical manufacturers often face stringent regulations related to product safety and environmental impact. Changes in regulatory requirements can lead to delays in product approvals or necessitate costly reformulations, affecting both production schedules and costs.
Lower revenue without corresponding reductions in costs can put pressure on the profit margins of agrochemical companies. This could lead to cost-cutting measures, including workforce reductions or delays in research and development efforts.
The industry may witness increased consolidation as smaller players face greater challenges in the face of declining revenue. Larger companies with more significant resources may acquire struggling competitors to gain market share and streamline operations.
In response to tepid demand, agrochemical manufacturers may shift their focus toward developing more innovative and sustainable products. This could lead to the introduction of eco-friendly alternatives and precision agriculture solutions.
The decline in demand for agrochemicals in one region can have ripple effects on the global market. Manufacturers may need to explore new markets or adjust their strategies to mitigate the impact of reduced sales in specific regions.
The projection of a 3% drop in revenue for agrochemical manufacturers in FY24, as indicated by CRISIL, underscores the challenges facing the industry.
Tepid demand, influenced by economic uncertainty, changing weather patterns, environmental concerns, rising input costs, and regulatory challenges, has put pressure on agrochemical companies. To navigate this challenging landscape, manufacturers must adapt by focusing on innovation, sustainability, and cost efficiency to ensure long-term viability in the evolving agrochemical sector.
