Chairman's Statement to Shareholders


Chairman’s Statement
18^th May, 2011.
Mumbai.

Dear Shareholders,

I will touch upon the broader context in which your Company is operating because the future of your Company will be shaped by changes in the macro environment. The Company performance and financial results will be presented by the Managing Director. It is noteworthy that your Company has crossed revenue milestone of `1000 Crore and has posted its highest-ever net profit after tax, of `126 Crore for the year ended March 31, 2011. Another significant achievement for your Company is the commissioning of a new manufacturing unit in Dahej which should be in commercial production during this quarter and would provide a new growth platform through contract manufacturing.

In the past, I have spoken about how factors like increasing world population, growth in developing nations and increasing urbanization are spurring the demand for food. When it comes to India, the pressure to meet food requirements becomes even more acute. There have been estimates that India will grow at 8 to 9% in the coming years. This means that India’s ‘trillion dollar’ GDP will double every eight years. Consumption expenditure constitutes a major component of India’s GDP. This will include food, personal transportation, housing etc. Further, India’s population is going to increase gradually though at decelerating pace for the next two decades. This means more people with more income, and hence the need for more food.

Higher food inflation in India continues to be of concern and, in turn, is punishing poor people hard. A 10% increase could push close to 30 million Indians below the poverty line, says an ADB study titled ‘Global Food Price Inflation and Developing Asia’. As per IMF’s Asia desk, “India is a chronically supply-constrained economy, with chronic excess demand. In the course of the economic cycle, therefore, price pressures tend to be exaggerated.”

A scenario where food demand is far in excess of supply, is not unlikely in the years to come. Last year, I reiterated this fact through a chart on anticipated supply-demand gap for key food items with the gap escalating over the years.

The crux of the matter is that world at large, and India in particular are short of food. There have been noteworthy initiatives by the Government to address this evolving situation. The ministry of agriculture has designed interventions to get more acreage for certain crops and to use better high-yielding seeds. The problem however, is complex and requires attention from several sectors.

Your Company is well placed to play a positive role as it deals with increasing food production and productivity. Rallis can convert this challenge into an exciting opportunity, by leveraging its current product portfolio and extending into other agro-inputs and services to emerge as a complete service provider to the Indian farmer. Your Company realizes that for it to have a consistent and meaningful growth in the agricultural space, it must put together two halves of the same fruit: (a) Increasing crop productivity & production and (b) Reducing barriers to marketing for farmers.

a. Increasing Crop production:

Rallis has invested time and resources to understand farmer’s needs and created products that address impediments towards greater productivity. Its comprehensive range of crop protection chemicals and services are spread across 80% of India’s districts through an extensive distribution network of loyal and supportive dealers and retailers. Through its extensive relationship initiatives your Company listens to the evolving needs of farmers and comes out with new and relevant products. Your Company keenly monitors what is internally called ‘innovation turnover index’ to ensure that the sale from new products is a significant proportion of total sales. Over the last few years your Company has introduced new products, a testimony to the technical expertise and innovative streak that your Company has exhibited to cater its most important customer: the Indian farmer. As a progressive move towards sustainability, the Company has eliminated ‘red triangle’ products from its portfolio.

Your Company has also done a noteworthy job in marketing and branding several new products so that ready adoption and consumption by farmers follows. The Company is now widely known for its quick establishment of brands through farmer-centric launches, field demonstrations and leveraging the immense goodwill garnered through farmer-relationship initiatives like Rallis Kisan Kutumba. A customer engagement survey by Gallup reveals that when it comes to awareness of brands in Indian crop protection market, your Company has 7 of the top 12 brands in the country. Top 3 brands of your Company by revenue also contribute close to ` 250 Crore in total sales.

This year your Company completed acquisition of a majority stake in Metahelix Life Sciences, a research led seeds Company. Seed is the most important and primary Agriculture input. Its quality has a direct impact on production.With Metahelix, your Company will be in a strong position to provide a trustworthy portfolio of seeds to the Indian farmer. Availability of such seeds will have a direct impact on farmer’s productivity. For instance, Bollworm and Spodoptera control are critical for ensuring a good commercial cotton crop and Metahelix is working on some exclusive solutions of Bt Cotton to achieve this objective. We are confident that in time to come we shall be able to come out with appropriate seeds for a wider range of crops to enhance productivity.

b. Reducing barriers to marketing for farmers:

Gains in productivity will not be sufficient unless it is complemented by appropriate market linkages. A large majority of farmers still struggle to get basic information on prices, trends and forecasts in order to take an informed decision on when and where to sell his produce. Structural reforms and an equal participation from private and public sector is essential to bridge information gap and generate infrastructure for farmers to get remunerative rates for their produce. States have been attempting to amend the Agricultural Produce Marketing Acts that will allow much more competition and greater participation of the private sector in the marketing of agricultural produce—thereby enabling farmers to get the right price and making the sector more dynamic. However the current situation is far from satisfactory. The need is to free up marketing and create a reformed agri-marketing set up which gives farmers the value that
they deserve. Your Company, through its relationship programmes and various initiatives, has empowered farmers by giving them timely information and also undertaken schemes where the final produce is bought from the farmers at a fair price
and thus absolving the need for farmers to undertake a complicated journey of approaching mandis and negotiating a good price.

Both the abovementioned points are illustrated through the Company initiative of MoPu (More Pulses) that was launched this year
 

More Pulses: An Example

Pulses are the most economical and relevant source of protein in India where a predominant proportion of population is vegetarian. The need for the initiative was felt with the sky-rocketing prices of pulses and the realization that despite the massive growth in population and the resulting consumption, the production of pulses in India has been stagnant for the last 20 years. Despite being the largest producer of pulses, India imports close to 3mn tonnes per annum. What is worrisome is that demand for pulses will double in the next 9-10 years and the gap would need to be entirely filled by imports unless we double the acreage or double the productivity. Since either of the above may not be feasible in isolation, the MoPu initiative looked at a mix of both.

The initiative started in Tamilnadu, where your Company worked along with a Tamilnadu-World Bank institution called IAMWARM. The objective of IAMWARM is to intensify efforts to improve productivity and income by productive use of water. The pilot started with the objective of enhancing the cultivation of black gram by providing farmers quality black gram seeds, critical technology interventions to increase yield through Rallis PoP (package of practice) and creating a mechanism for buy-back of the produce at fair prices. The following approach of the pilot has now been extended to other pulses and states, in what has become a national initiative for your Company:

o Your Company has created multiple farmer commodity groups with the help of the Department of Agriculture

o The groups engaged with Rallis for the right cultivation practices, inputs and selling of material

o The buy-back plan was routed through the commodity group concept

o Rallis developed seed farms to multiply and produce quality black gram seeds and supply the same to farmers

o Rallis along with TNAU scientists identified stages for intervention in the agricultural practices followed by the farmers in the area that included seed treatment, soil health, techniques of cultivation and pest management

The most gratifying result of the MoPu initiative has been to see yield improvement of up to 40% to 500 kg/ac in Tamilnadu which increased the farmer income by another `5000 per acre. The buyback provision also ensured that the farmers don’t undertake the hassle of finding the right buyer. Electronic payment was directly made into the local account of farmers. Transparent pricing based on market rates ensured high level of trust and engagement.

 

Acknowledgement

I had mentioned last year that your Company had become subsidiary of Tata Chemicals and there was an interest to see how we could leverage synergies between the two companies to generate new business opportunities. I am happy to tell you that MoPu is a great example of how the two companies have come together. Pulses sourced from MoPu are being branded and marketed by Tata Chemicals Ltd under the i-Shakti brand in the retail market. Between the two companies we have empowered farmers across the value chain and taken care of his needs in entirety from sowing to harvesting to
marketing. We now aspire to cover many more farmers and crops as part of the initiative to make a substantial impact on Indian farmers and agriculture.

I would like to end by expressing my sincere appreciation for the continued support of the shareholders, employees, Tata Group, suppliers and commercial partners during the year. I would also like to thank my colleagues on the Board for their support and guidance to the Company’s management, which goes a long way in encouraging the management in meeting the challenges in its quest for meaningful growth.

	Mr. R Gopalakrishnan
	Chairman

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