Agrochemical demand is likely to see a sharp uptick during the upcoming Kharif season. IMD's monsoon forecast has also been stable. This is providing a much-needed comfort to the agrochemical industry.
Plenty of Tailwinds
As per their forecast, Southwest monsoon rainfall is expected to remain normal at 98% of the long period average. With the normal monsoon season and timely start to sowing, total acreage area is also likely to increase during FY22, growing on the high base of last year. It augurs well for the agrochemical demand.
The government’s decision to increase subsidies on DAP and NPK is also likely to benefit the agrochemical industry. After the recent intervention from the government, the farmers will be able to continue purchasing DAP at the old price of Rs 1,200/bag as against Rs 2,400/bag without the subsidy. It is likely to be a huge motivating factor for farmers.
Lower DAP prices may result in higher sales of DAP, which earlier was likely to be impacted by a sharp rise in DAP prices. Apart from this, good monsoon, improvement in acreage, and higher MSP on Agri products are likely to be the further driving factors for farmers. This could help to boost the demand for the agrochemical industries.
While several tailwinds are on the side of the agrochemical industry, it is facing severe supply-side disruption. This is due to lockdown in April and May. Limited supply ahead of the peak season has created lower inventory levels in the system. Due to the lower supply, the average prices of most generic pesticides have increased by 5-10% over the last month. And the dealers do see supply-side shortage emerging as an issue as the season progresses.
Apart from the supply squeeze, the spread of COVID-19 in rural areas has also emerged as a major concern for Agrochemicals. While the second COVID-19 wave is declining, there is always a fear of third-wave along with the emergence of new black fungus cases.
Despite the challenges, there has not been any material impact on the demand for Agri inputs. With the monsoon advancing at a normal speed and financial support coming from the government, the new Kharif season is likely to see yet another record agriculture production. And the agrochemical industry is poised to make the most of it.