1. i
The Impact of Generics on the Indonesian Crop Protection Business
by
Anshul Sarda
A research study submitted to meet the degree requirements of
Master’s of Business Administration.
Examination Committee: Dr. Roy Kouwenberg
Nationality: Indian
Previous Degree: Bachelor in Commerce with Honors.
St.Xaviers College, Calcutta, India
Scholarship Donor: AIT Fellowship
Asian Institute of Technology
School of Management
Thailand
August, 2005

2. ii
ACKNOWLEDGEMENTS
This research work would have not been possible without guidance from my advisor,
Dr. Roy Kouwenberg. I would like to express my profound gratitude to him for his
immensely helpful comments, criticisms and suggestions throughout the entire period
of my study in AIT.
I gratefully acknowledge the important contribution of the top management of Bayer
Cropscience, Indonesia and above all of Mr. Bruno Tremblay (Country Head of Bayer
Cropscience, Indonesia) who provided me with the substantial amount of material and
information and continuous guidance throughout the period of my internship.
I am highly indebted to Mr. Pascal Cassecuelle(Head of Marketing Development
Team Asia - Pacific) for giving me this opportunity to work in Indonesia.
I am appreciative of the time that many agronomists, economists, crop managers
contributed to share their own practical experiences, outlooks and views.
I would like express my sincere gratefulness to the members of examination
committee for their comments and valuable time.
Finally, I would like to convey my deepest respects and sincere thanks to my parents
Mr. Shyam Sunder Sarda and Mrs. Nirmala Sarda and above all my grandfather Mr.
Karnidan Sarda for their continuous support and guidance all around.

3. iii
ABSTRACT
The study focuses into the crop protection business which forms a USD $24 Billion
business on a global basis. The business consists of protecting the crops through
specially identified and constituted Active Ingredients directed towards specific crop
diseases and insects eating through the crops. There are 13 major Multinational
Companies (across 3 tiers depending on their value size) and over 100 generic
companies who are competitively involved in this business around the world. The
business is segmented into 3 categories namely:
 Herbicides
 Fungicides
 Insecticides
The study gives a brief outline of the world crop protection business and its future
trend. It will discuss the Indonesian Macro and Micro economic conditions which are
directly and indirectly a contributor to the crop protection business in the country.
Each segment constitutes a wide range of active ingredients directed towards
particular crop and crop category. Some ingredients are precautionary and are put
before the crop has problems and some after.
In Indonesia this business accounts for USD 268 Million shared by 5 major
Multinational Companies and over 30 generics as on 2004 and is expected to grow @
2-3 percentage YoY after adjusting for currency fluctuations. Thus it promises to be
an attractive market considering the fact that most markets in this business is on the
verge of saturation.

4. iv
TABLE OF CONTENTS
CHAPTER TITLE PAGE
TITLE PAGE i
ACKNOWLEDGEMENTS ii
ABSTRACT iii
TABLE OF CONTENTS iv
LIST OF TABLES v
LIST OF FIGURES vi
ABRIVATIONS vii
1 INTRODUCTION ..................................................................................... 1
1.1 Rational of the Study................................................................... 1
1.2 Statement of a Problem................................................................ 1
1.3 Objective..................................................................................... 2
1.4 Scope of the Study....................................................................... 2
1.5 Research Methodology................................................................ 3
2 LITERATURE REVIEW........................................................................... 4
2.1 Crop Protection Business............................................................. 4
2.2 Global Crop Protection Business with Trends.............................. 5
2.3 Definition of Generics ................................................................. 6
2.4 Choices Available to the Farmers in Crop Protection................. 10
2.5 R&D-based Companies ............................................................. 11
2.6 Patenting Problems.................................................................... 11
2.7 Generics and Alternative Choices by the Government ............... 12
3 INDONESIA ECONOMIC AND AGRICULTURE PROFILE................. 14
3.1 Country Overview ..................................................................... 14
3.2 Agriculture and Availability of Labor........................................ 16
3.3 Major Crops Outlook.................................................................. 18
3.4 Country Crop Protection Market – Value and Competition......... 29
4 CASE STUDY OF BAYER CROPSCIENCE INDONESIA..................... 32
4.1 P.T. Bayer Indonesia .................................................................. 32
4.2 Market Conditions...................................................................... 34
4.3 Current Scenario – Generics ....................................................... 34
4.4 Business model of generic and MNC.......................................... 35
4.5 A comparative Strategic Model between BCS and Generic......... 35
4.6 A Comparative MNC and Generic Distributional Set Up............ 38
4.7 The MNC dilemma and proposed solution:................................. 41
4.8 A comparative analysis of different MNC and generic companies
in the Indonesian crop protection market................................................... 42
5 RECOMMENDATIONS AND CONCLUSIONS..................................... 44
5.1 Future Market Conditions, Implications and Conclusion............. 44
5.2 Future Strategic Framework for MNC ........................................ 45
5.3 Possibility of Generic Acquisition by the MNC .......................... 51
5.4 Changing Generic Business Strategy .......................................... 52
5.5 MNC Strategic Focus ................................................................. 53
5.6 Indonesian Government Role in Future....................................... 54
5.7 Limitations of the Research ........................................................ 54
6 BIBLIOGRAPHY..................................................................................... 56
7 REFERENCES......................................................................................... 57

5. v
LIST OF TABLES
Table 2.1: Market Size of some leading off patent products....................................... 7
Table 2.2: The Generic herbicide market in 1997....................................................... 7
Table 2.3: Global Market position of leading Multi National Corporations and generic
companies ............................................................................................................... 13
Table 3.1: Historical Farm Income Evolution in Indonesia ...................................... 17
Table 3.2: Historical percentage growth rate in the Indonesian Oil Palm production 22
Table 3.3: Region wise Oil palm plantation in Indonesia ......................................... 23
Table 3.4: South East Asia Oil palm plantation area and estimated forest area cleared
based on industry estimates (in Mha.)...................................................................... 26
Table 0.5: Indonesia corn planted area, production and yield................................... 28
Table 4.1: Comparative Strategy of BCS and Generics in Finance and Product ....... 36
Table 4.2: Comparative Strategy of BCS and Generics in Customer and Organization
................................................................................................................................ 37
Table 4.3: A comparative analysis of different MNC and generic companies in the
Indonesian crop protection market........................................................................... 43

6. vi
LIST OF FIGURES
Figure 2.1: World Crop Protection Business.............................................................. 4
Figure 2.2: Crop Protection Global Market Value Segmentation 2002....................... 7
Figure 2.3: Estimated Split of New Generics ............................................................. 8
Figure 2.4: Influence of Market Factors on entry strategy for Generics.................... 10
Figure 2.5: Crop protection product selection process for a farmer .......................... 10
Figure 3.1: Indonesian Economic Snapshot ............................................................. 15
Figure 3.2: Indonesian Historical Foreign Exchange Reserve Position..................... 15
Figure 3.3: Historical and projected Farm Income and Population absolute growth
figures..................................................................................................................... 17
Figure 3.4: Global Rice Imports with Indonesia as the biggest single country importer
in the world ............................................................................................................. 21
Figure 3.5: Country Wise Historical Oil Palm Production........................................ 21
Figure 3.6: Historical Evolution of Indonesian Oil Palm Production........................ 22
Figure 3.7: Annual Rate of Planting of oil palm in Indonesia................................... 24
Figure 3.8: Total Established Area of Oil Palm plantation in Indonesia.................... 25
Figure 0.9: Indonesian Potato Plantation Area ......................................................... 27
Figure 4.1: Bayer CropScience Logo with some of its products in the Indonesian
Market..................................................................................................................... 32
Figure 4.2: Crop Protection market attractiveness and BCS Market Share ............... 33
Figure 4.3: Comparative 3 phase Generic and 4 phase MNC Business Model.......... 35
Figure 4.4: Comparative Generic and MNC crop protection distributional set up in
Indonesia, 1995 ....................................................................................................... 38
Figure 4.5: Comparative Generic and MNC crop protection distributional set up in
Indonesia, 2004 ....................................................................................................... 40
Figure 4.6: Historical and Estimated Market Share from 1995 to 2014 .................... 42
Figure 5.1: A 4 point optimal strategic framework................................................... 45
Figure 5.2: Generic vs. MNC in Indonesian Crop protection distributional framework
2009........................................................................................................................ 48
Figure 5.3: Generic vs. MNC in Indonesian Crop protection distributional framework
2014........................................................................................................................ 49
Figure 5.4: Probable business strategy of generics in Indonesia in future................. 52
Figure 5.5: Recommended Business strategy for MNC in future.............................. 53

7. vii
ABRIVATIONS
BCS Bayer CropScience
AI Active Ingredient
MNC Multi National Corporation
IRRI International Rice Research Institute
GDP Gross Domestic Product
YoY Year on Year
Ha Hectare
IDR Indonesian Rupiah
USD United States Dollar
BPS Badan Pusat Statistik
FAO Food and Agriculture Organization
IOPRI Indonesian Oil Palm Research Institute
GMO Genetically Modified
Mha Million Hectares
IGM Integrated Gross Margin
KPI Key Performance Indicator

8. 1
CHAPTER 1
INTRODUCTION
1.1 Rational of the Study
The study focuses on the growing strength of generics in the crop protection business
and highlights their business strategy vis-à-vis strategy of an R&D based company (in
this study Multi National Corporations). The Multi National Corporations in
Indonesia are increasingly losing market share under the wake of severe generic
pesticide pressure. This is also relating to higher costs with more competitive points
and lower revenues. The new product launches are easily getting copied and the
market is getting saturated with fakes of block buster products. The study highlights
this market condition and considers the fact that the problem is persistently growing.
The competitive pressure is getting intense on both generic and micro economic front
and the study focuses on finding flaws in the MNC operation and how it can amend
and add on it in the coming years to equip itself with more competitive edge. This
study constitutes a case study on Bayer CropScience, Indonesia which is taken as an
example of MNC or R&D based company. The working strategy of Bayer is taken to
be a representative of crop protection MNC in the Indonesian Market.
1.2 Statement of a Problem
The biggest threat to Multinational Companies involved in this business is coming
from generic companies actively involved. Their strategy in this business is similar to
what is seen in other industries i.e. working on simplicity of operation, cutting of
prices and reaching out to the customer by cutting through the distribution channel.
This is exactly what the thirty plus generics companies are doing in Indonesia. Their
support system mostly comprises of countries like China and India (2 of the world’s
biggest generic active ingredient manufacturers.) The generics in the country have
steadily managed to increase their market share from 16.9 percentage to 21.1
percentage over a period of 10 years. Most of this growth has come in the last few
years. The trend is in favor of generic manufacturers who are predicted to capture
almost 50 percentage of the market in the coming 10 years. They are also slated to
corner much of the growth coming in the business with expanding agricultural
landscape in the country.
The generics benefit from corrupted government officials who are willing to release
the product formulations (sometimes also achieved by reverse engineering and
sometimes by the product going off patent) of Multinational Company patented active
ingredients for a price. The cost savings is huge in terms they have no R&D costs (a
major source of fixed cost for the MNC) and being smaller in size gives them a lot of
flexibility enabling them cutting the time to market. Moreover being closer to the
consumer in their supply chain they are better adapt to understand and cater to the
market needs than the hierarchical MNC. The consistent growth in the number of
generics in the market has led to competition intensification and has put pressure on
the MNC ability to increase prices and sustain market share.

9. 2
1.3 Objective
The aim of this research study is to recommend strategic moves a Multi National
Company might take in order to counteract stifling competitive pressure brought
about by generic competitions. It will also focus on comparative models between
generic and Multi National Companies business strategy and assess suitability of each
under a given set of conditions.
The research will be directed towards:
a. To analyze the Indonesian economy with an agrarian focus
b. To find and analyze the impact of the major strategic crops contributing to the
agrarian economy of Indonesia in the years to come
c. To strategically analyze the growing Indonesian crop protection business
presently under severe generic pressure and scrutinize the government policy
on the business.
d. Analyze, compare and measure the performance of Bayer as a Multi National
Company competing against generic onslaught from product, price, financial,
supply chain, managerial and strategic point of view.
To provide recommendations and statistical forecasting focusing on strategic moves a
Multi National Company must take to improve and strengthen its position at the same
time keeping in view the counter-actions of competitors.
1.4 Scope of the Study
The reference for this research will be P.T Bayer CropScience, Indonesia which is the
2nd
largest Multi National Company in terms of market share in the crop protection
business in Indonesia.
As part of my MBA curriculum requirement of obtaining a real time company
experience I did my internship in the above company. I was involved in the project to
make a diagnosis of the company in the present state of affairs and also to make
strategic recommendations for future course of action the company needs to take to
strengthen its position in the wake of severe competition. The analysis of the research
was supported by the top management of Bayer Cropscience, Indonesia, agronomists
and economists of the country whom I interviewed.

10. 3
1.5 Research Methodology
To achieve the objectives, literature review, journal, FAO, inputs from agronomists,
internally collected company data, government documents, information from Non
Government Organizations, Agriculture Research Institute and white paper will be
studied in detail. Also practical models will be formulated and discussed with
department heads of BCS covering:
 Technology Aspects
 Marketing Aspects
 Supply Chain and Distribution Aspects
 Financial Aspects
 Services and Assistances Supported by the Government Policies
 Problems Encountered
 Product and Pricing
 Packaging
 Mergers, Acquisitions and Strategic Alliances
 Further Assistances Needed and Strategic Decisions to be taken

11. 4
CHAPTER 2
LITERATURE REVIEW
2.1 Crop Protection Business
The business consists of protecting the crops through specially identified and
constituted Active Substances directed towards specific crop diseases and insects
eating through the crops. There are thirteen major Multinational Companies (across
three tiers depending on their value size) and over hundred generic companies who
are competitively involved in this business around the world. Global crop protection
business stands at USD 25.7 Billion as of 2002. This business is growing in all three
of its major segments. However, the segmental rate of growth varies with region and
market. The projected growth figure as stated below is world average. The industry
conditions have undergone massive changes and one of the most significant trends is
massive generic pressure on the business.
Source: 2002-2007 CAGR. Source: Phillips McDougallAgriServices, FMC
Figure 2.1: World Crop Protection Business
The business is segmented into 3 categories namely:
 Herbicides
 Fungicides
 Insecticides
Each segment constitutes a wide range of active substances directed towards
particular crop and crop category. Some ingredients are precautionary and are put
before the crop has problems and some after. Each of these subcategories can be
briefly defined as follows:

12. 5
 Herbicides
Herbicides are weed-killers - by controlling weeds, they alleviate the most
important factor leading to lower crop yields. In the developed world, the
alternative to herbicides is mechanical cultivation, a practice associated in
many areas with soil erosion and moisture loss. Judicious use of herbicides, as
in zero tillage, contributes greatly to sustainable agriculture whilst offering
cost-effective solutions to growers' weed problems. In the developing world,
herbicides are replacing the drudgery of hand weeding, thus increasing
agricultural productivity and releasing the young and enterprising for more
productive work.
 Fungicides
Fungicides prevent and cure diseases, which can have profound effects on
crop yields and particularly quality. The main markets are fruit and vegetables,
cereals and rice. Growth is expected in developing markets and in high-
volume fruit and vegetables. Plant diseases are caused by a variety of
pathogens. Accordingly, this market consists of many products used in
combination or series to control the full range of problems in ways that
minimize the chance of resistance emerging
 Insecticides
These products are used to control insect pests, which reduce crop yield and
quality. The market for insecticides is growing rapidly and has immense
potential for new products based on advanced technologies. The largest
insecticide markets are in fruit and vegetables, cotton, rice and corn. Important
market forces include changing regulatory requirements, insect resistance, and
demand for products with enhanced safety and environmental profiles.
2.2 Global Crop Protection Business with Trends
Over the past six years, four phenomenon, in particular have significantly impacted
the chemical crop protection business:
 Genetically Modified Crops (GMO)
 Asian generics pesticide competitors
 Low commodity prices
 Declining industry profitability and massive consolidation leading to
significant market access challenges

13. 6
2.3 Definition of Generics
A generic pesticide is manufactured by a company other than the original
manufacturer, i.e. a generic manufacturer is, “a company, or division of a company,
whose major activity consists of manufacturing the active substances of pesticides, the
patents for which have expired, and for which it did not hold the original patents”
(Hicks, 1994).
A generic is a product that is a bioequivalent copy of an original product, the patent of
which has expired. Generics can be sold under the name of the active ingredient
(unbranded generics) or under a brand-name (branded generics, such as certain store-
brand generics). Generics are much cheaper to produce than the original brand
product they are based on. They can take advantage of the research and development
(R&D) spent to create the original product and, in many countries, are not required to
submit detailed clinical trial information to the extent that is required for the original
branded chemical. (Regulatory Efforts to Promote the Use of Generics – Government
Versus Big Pharma by Milena Izmirlieva).
Historically, crop protection industry is dominated by research based, manufacturing
companies. However, with increasing consolidation amongst such companies, the
escalating cost of R&D, the patent expiry of chemicals and new active substance
discovery during the 1970s and 1980s, has resulted in generic pesticides becoming the
fastest growing sector of the agrochemical market.
In 1996, patent-protected active substances accounted for 47 percentage of the total
global agrochemical market (Anon, 1998). Out of the remaining 53 percentage, a
relatively small percentage was manufactured by generic manufacturer, in spite of
these products being off-patent. An estimated 10 percentage of the total market was
held by generic manufacturers. “It is anticipated that by 2005 the picture will be very
different, with approximately 30 percentage of global sales arising from active
substances under patent, and 30 percentage of all active substances being made by
more than one manufacturer, i.e. generics (Pesticide Outlook – February 2002)”
The global crop protection market is segmented into a three-tier structure based on the
value of the business. Tier 1 comprising of Multi National Companies who are the
market leaders as well as the product innovators. They are followed by Tier 2
companies which mostly act as organized generics by mass producing the products
out of patent. They don’t invest much on R&D and their business strategy is mostly
being an industry follower. The Tier 3 is mostly the unorganized generics which are
now gaining importance. More than 100 in number they are now cashing in the
lucrative market by obtaining chemical details of patented products illegally and
marketing the same at a lower price.

14. 7
Figure 2.2: Crop Protection Global Market Value Segmentation 2002
The primary target of the generic manufacturers has been herbicides, followed by
insecticides and fungicides. Glyphosate with global sales in excess of $2 billion at end
user level in 1997 is the leading generic crop protection product (Hicks, 1998).
According to a research by Produce Studies Research, (Anon, 1999) this trend is set to
continue.
Table 2.1: Market Size of some leading off patent products
Leading Generic Products
Sales $ Millions
Glyphosate 3,120
Paraquat 470
Acetochlor 425
Chlarpyriphos 420
Atrazine 320
Metolachlor 305
Mancozeb 295
The major herbicides currently being developed as generic pesticides (Anon, 1999)
are:
Table 2.2: The Generic herbicide market in 1997
($M) 1997
Imidazolinones 932
Sulfonylureas 925
Propionic Acids 353
Source: Anon, 1999

15. 8
Source: Anon, 1999
Figure 2.3: Estimated Split of New Generics
2.5.1 Generic Suppliers
There are three distinct types of generic supplier – manufacturers, third-party
suppliers and parallel importers (Anon, 2000).
Manufacturers
Manufacturers make active substances and usually formulate products as well, often
supplying their own packed material to the market. This is the category with the
highest investment as production facilities are needed, and regulatory data are usually
generated in order to obtain and defend registrations. All R&D-based companies
produce off-patent products. As the generic market continues to develop rapidly,
some of these companies have acquired major shareholdings in, or bought, established
generic manufactures: for example, DowAgrosciences/Sanachem, AgrEvo/Stefes and
DuPont /Griffin (Anon, 2000).
Third-party suppliers
Third-party suppliers buy active substances and/or products from another
manufacturer to supply. Data may be generated on the formulated product, but the
primary manufacturer will usually be relied upon for data on the active substance
(Anon, 2000).
Parallel importers
Parallel importers simply buy packed products which are identical to those in the
country into which they will be imported. The importer registers imports and supplies
such products under its own name. This requires no data generation other than proof
of identically (Anon, 2000).
Out of the three categories, the third party suppliers are in majority and are involved
in sourcing products from a number of manufacturers, including generic
manufacturers. As an example, of all the companies holding approvals of Marketing
strategies for generic herbicides are based around either selling volumes of product at
an acceptable profit above production cost (“cost-up”) or maximizing the value from
an existing supply chain (“discounting”).

16. 9
2.5.2 How does a generic manufacturer decide upon manufacturing an
Active Substance?
The following factors are considered before a generic manufacturer decides upon
manufacturing an active substance:
 A sizeable current market and positive future outlook.
 Presence of manufacturing capability to produce the active substance of the
same quality as available from the former patent holder.
 The raw materials required should be readily and consistently available.
 It should be relatively cheap to manufacture and market the product.
 A sizeable price differential or a strategic reason must exist to manufacture the
product in comparison to the original branded product.
 The consumer should be more price sensitive than brand sensitive.
 The active substance should not be on the verge of technological and
regulatory obsolescence.
2.5.3 Generic Strategy to Business
The generic companies follow a 2 tiered pricing strategy to penetrate the market and
get a competitive edge. This can be elaborated as follows:
1. In most cases generics adopt what is called a “cost-up” product pricing
strategy wherein the active substance manufactured by them is offered to the
end user at the cost of manufacturing plus a operating margin. This is the usual
method of overcoming the image of security that the branded product
possesses. This strategy is designed to bring about a crash in the price of the
branded product and to give immediate competitive advantage to the generic
manufacturer vis-à-vis the branded product.
2. The second strategy frequently adopted by the generic companies is what is
called a “discount” strategy which is adopted for a slow erosion of the brand.
In this kind of strategy the generics price the product at almost the same price
as the branded product positioning them equal to the brands in all respects.
However, the generic product is sold mostly at discounts from the mark up
giving an impression of getting the product cheaper than the branded ones.
Moreover it adds the effect of believing that the branded product being
identical with the generic in all respects is just plain expensive. It is a value
creation effect cautiously supported through an existing supply chain network
for the generic product.

17. 10
Global
Regional
Patent Expiry Market Size Production
Original Patent
Holder Response
Generic Entries Generic Strategy
Large
Small
Easy,
Low cost
Diff.,Exp.
Tolerant
Aggressive
Many
Few
Cost Up
Discount
One
Figure 2.4: Influence of Market Factors on entry strategy for Generics
2.4 Choices Available to the Farmers in Crop Protection
The agribusiness industry is in a state of upheaval and rapid change. Low farm
commodity prices and depressed farm income have impacted sales. Margins have
eroded, putting pressure on financial results and the distribution channels.
Restructuring in the agribusiness industry has created a more aggressive competitive
environment. New technologies, including genetically modified crops and precision
agriculture, are challenging traditional farming practices. Moreover, farmers and
growers are increasingly influenced by other players in the food chain, from food and
feed processors and food company’s right down to supermarkets and consumers.
(Novartis, 1999).The choices available to the farmers in the form of generic and
branded products are continuously on an increase. However, we must understand that
in developing countries the purchasing is still mostly based on recommendations by
the retailers and the farmers are highly influenced by these people(they provide them
with credit, most of the times these retailers are the only source of information for the
farmers about the crop protection).
A model showcasing the position of a farmer in the choice of product can be drawn up
as follows:
Figure 2.5: Crop protection product selection process for a farmer
Product
Product
Selection
Product
Technical Solutions
• Distribu
tor
• Buying
Group
• Distributo
r
Agronomi
st
• Independ
ent
Agronomi
st

18. 11
2.5 R&D-based Companies
R&D companies are companies that are able, through their own R&D activities, to
produce new molecules and therefore completely new pesticides products (European
Commission Staff IV Working Paper).
R&D companies invest heavily in developing new Active Ingredient directed towards
specific crop related problems. They have research and testing laboratories where they
conduct clinical trials on the crops before launching the new products post patent into
the market. These companies enjoy patent protection for their products in the market
for the period of patent after which the product comes under generic threat. R&D
companies are mostly big Multi National Companies who have dedicated research
facilities helping them in developing new products targeted to different markets.
2.5.1 Concern for R&D-based Companies
 Marketing related tools i.e. quality of performance offered to farmers, quality of
service, distribution and price competition, timeliness of product introduction to
market, total value of market and “binding” i.e. the farmer must buy the seeds and
the AI from the same company
 Product related tools i.e. product performance and commercial viability of the
product to be marketed.
 Public acceptance and environmental characteristics of the product.
 R&D i.e. the discovery of new agricultural traits or molecules in the product
segment
 Other factors i.e. exchange rates and foreign currency fluctuations, changes in
commodity prices, availability or raw materials, raw material supplier contracts,
litigation and market consolidation.
2.6 Patenting Problems
Appreciatively 25 to 35 percentage of the conventional crop protection market is
made up of proprietary products i.e. products that are protected by patents. Patent
protection differs between products and product categories, the average “on the
market patent life” is considered to be 18 years, maximum protection time (MPT)
extending up to 25 years. The second categories of Plant Protection Products, which
represent 35 percentage of the market, are proprietary off-patent products. These are
products where the company owns the initial rights of the molecule (proprietary
company). The final group is the truly generic products. It is estimated that the
proprietary companies hold 70 percentage of the agrichemical market while generic
companies hold 30 percentage. The total commercial lifetime of a crop protection
product may be long, in some cases up to 80 years. Some products which were
launched in the 1930’s are still on the market today. However most of the profit is
made during the first 20 to 30 years of product life after which most products end up
being cash cows with virtually not much growth coming through the same
composition of the active ingredient. (Source: Pesticide Outlook – February 2002)
The patent laws and time frame governing it differ from country to country. These
periods may be further extended by other patents concerning the production
technology and processes. In addition, marketing activities like branding and sales
organizations as well as distribution may still further extend the dominant position of

19. 12
a certain Plant Protection Product on the market i.e. the propriety off-patent sales
period.
However, it is seen that generic companies actively infringe patented products and
launch the generic compound in the market even before the product goes off patent.
This is mostly done through obtaining the product formulations by bribing
government officials in developing countries or by obtaining the formulation from the
country where the product is already off patent. Many generics come out months or
even years before a patent expire. As per research, generics win 73 percent of all
court-decided infringement cases, the majority of which are early patent challenges
(Patents hold no guarantee new generics marketplace - Generics Watch by Michelle
L. Kirsche).
2.7 Generics and Alternative Choices by the Government
It is interesting to note that generics are sometimes preferred by the local governments
to the original branded products. Though this phenomenon is seen mostly in the case
of generic pharmaceutical drugs but crop protection is also not indifferent to this
phenomenon. The reasons being:
 The introduction and promotion of generics remains the most promising cost-
containment strategy for the underdeveloped and developing governments
often burdened with higher costs of the branded products. They want to
provide better facilities to their farmers but are often not in a position to
subsidize in one form or the other the expensive branded crop protection
products. Hence generics form a preferred choice.
 It is seen that Regulatory efforts to promote generic use have included
strategies to influence factors on both the supply side and the demand side of
the market. Supply-side mechanisms utilized so far to promote generic use
include promoting the availability of generics through simplified approval,
preferences for first-to-market generics, allowing generic manufacturers to use
clinical data provided in the original brand’s approval application, spring
boarding and establishing price and reimbursement mechanisms favoring
generics. Demand-side strategies to promote generic use have aimed to
influence farmer choice of generic AI’s distributors and retailers promoting
generic products over the branded R&D based company products.

20. 13
Table 2.3: Global Market position of leading Multi National Corporations and
generic companies
Leading Crop Protection Companies Globally – 2003 Market Share in percentage
(ECPA 2004)
Company Market Share
+15 15 – 5 5 - 2
European
Bayer
Syngenta
BASF
USA
Monsanto
Dow Agrosciences
DuPont
FMC
Japan
Sumitomo
Arysta
Other
MAI
Nufarm
Source: European Commission Staff IV Working Paper

21. 14
CHAPTER 3
INDONESIA ECONOMIC AND AGRICULTURE PROFILE
3.1 Country Overview
The 17000 island Archipelago Indonesia is the biggest Muslim country and the 5th
largest in terms of population in the world. The geography gives Indonesia its unique
diversity in all aspects of life. Indonesia is an agro-economy. Indonesia consists of
four large islands and thousands of small ones. More than half of the total land area is
either swampy or very steep (slope > 15 percentage), and therefore unsuitable for
agricultural development. The outer islands still have relatively sparse populations,
and it has been estimated that approximately 47.1 million ha are available as new
agricultural land (with slopes of 0-3 percentage, 3-8 percentage, and 8-15 percentage).
Around15-20 million ha of which are potentially suitable for the cultivation of tree
crops or estate crops.
3.1.1 Country Conditions
The country is divided into internal debtors and external creditors. Even the local
investors have lost faith in the country’s economic recovery prowess actively
shunning internal investment and are looking for foreign investment channels. The
foreign exchange reserve though on a rise is majorly backed by inflow from
plantation exports and oil exports from oil backed by rising oil prices. Agriculture still
plays a dominant role in the economy providing employment to over 45 percentage of
the population. The economic crisis of 1998 has put a halt to the once fastest
developing South East Asian economy with present growth of 4 percentage being
clocked by just internal consumption in the wake of increasing population.
Agriculture land is also on an increase with transmigration into effect. This is
resulting in the opening up of uninhabited and sparsely inhabited islands for ever
growing population with government grants. This phenomenon is mainly effective in
islands of Kalimantan, Sulawesi and Irian Jaya.
3.1.2 Overview and Prospects – Macroeconomic Factors
Before the 1997 Asian Economic Crises, Indonesia recorded one of the highest
economic growth rates in the South East Asian regions and was hailed as one of the
fastest developing economies. However the economic crises took its toll in 1998 and
the economy started showing signs of weakness. The Rupiah depreciated from Rp
2791/USD to Rp 9065/USD marking the highest percentage fall within an economic
year. This massive depreciation could not arrest the fall in GDP which recorded a
negative growth rate of 13.1 percentage YoY. The country suffered from political and
social unrest at the same time negatively impacting the foreign investment into the
country. Indonesia also suffered from high inflation rate of over 12 percentages on an
average coupled with high unemployment rate of over 11 percentage. With foreign
debt to GDP ratio reaching over 80 percentage in 1998 the economic growth was
driven majorly by internal consumption. The economy needs significant socio-eco-
political changes to keep pace with its fast developing South East Asian neighbors.
With a 220 Million population and an annual net population growth rate of 1.4

22. 15
percentage Indonesia poses as one of the most promising markets considering major
part of the growing population is the working age group of 17 – 55 years.
Figure 3.1: Indonesian Economic Snapshot
The 2004 Presidential elections have brought in focus some key aspects:
1. Indonesia’s commitment to democracy.
2. People long term belief in the public institution showcased by high voter
turnout.
3. Results are anticipated to bring in socio-political stability and put the country
in the track of economic growth with policy changes in favor of foreign
investment.
3.1.3 Foreign Exchange Reserve
External liquidity remains strong reflected by increasing foreign exchange reserves.
Official reserves have increased up to April 2004, resulting in an increase in Net
International Reserves from USD24.2 billion as of December 2003 to USD25.7
billion as of April 2004. It came from proceeds of oil and gas export, issuance of
global government bonds, and other sources like agro exports. The trend is expected
to stay positive.
Figure 3.2: Indonesian Historical Foreign Exchange Reserve Position

23. 16
3.1.4 GDP Growth Drivers
The key GDP growth drivers are following:
1. Internal consumption funneled by increasing population @ 1.35 percentage on
an average and rising consumer income.
2. Rising exports in key sectors as oil palm and rising oil prices in the
international market.
3.2 Agriculture and Availability of Labor
The reason for farmers’ willingness to tie their capital to land is lack of alternatives.
With the land holding average of as less as 0.3 hectare there is hardly any alternative
for the farmer who is unwilling to risk moving to the city selling off his meager land
holding. Consequently over the years a better strategy has been adopted by the
farmers with their family members moving to non farm work adding on a new source
of income. Eventually, the family may sell out, but this is after establishing its roots in
the city. This is the reason why only a small fraction of the labor force leaves
agriculture in any given year, which is a universal finding. In the case of frontier land,
labor is a scarce factor and the pace of the development is determined by the supply of
labor. All the major tree crops (oil palm, rubber, coffee, cacao, coconut, and tea) are
harvested by hand and require a continuous harvesting at frequent time intervals
almost the year around. Because the harvest labor constitutes an important cost item,
the scope for scale economy is reduced. In conclusion the migration trend to big cities
though very much in existence does not lead to increase in the farm size at a rapid
rate as farm sell off is not as high. Moreover with increasing population rural
families are increasingly finding additional help within the family who can move on to
the cities. Hence the correlation of migration to increase in average farm holding is
not very high.
3.2.1 Consequences on Agriculture
Being an agro-economy, agriculture has formed the backbone of Indonesian economic
growth over the years. With as high as 47.7 percentage of the workforce dependent on
agriculture contributing to over 16 percentage of the GDP in 2001, agriculture is
definitely a key economic variable for Indonesia.The 33.5 million hectares of arable
land(www.nationmaster.com/country/id/Agriculture) is striving maintain status quo as
conversion for commercial construction is on the increase. Government is initiatively
trying to stabilize the same by opening new planted areas especially for rice in regions
like Kalimantan, South Sumatra and Sulawesi. One of the key focus areas in
agriculture in the recent years has been oil palm which has been growing at rate much
higher than the country agriculture output as a whole. Indonesia has emerged as
second largest exporter of oil palm in the world accounting for 41 percentage of the
world oil palm exports. Indonesia in its quest to become the biggest oil palm exporter
is expected to favor sizeable increase in planted area in the coming years. As per the
government regulation oil palm is the priority sector and the convertible forest land
can be used for oil palm plantations. Timber companies are proactively clearing less
productive timber land and converting the same to more lucrative oil palm fields.
With the opening of the foreign participants in the sector by the government, foreign
investors especially from Malaysia are acquiring more forest land for oil palm
plantations. Small oil palm farmers are dying out under the threat from big players
and the land is being acquired by the big players increasing the overall productivity.

24. 17
Consecutively farm income in the oil palm sector is on the rise and is expected to
continue strong growth in the coming years.
3.2.2 Farm Income Evolution
Farm income plays a significant role in determining the purchasing power of the
farmer and in turn the willingness and ability of the farmer to spend on crop
protection. Indonesian farm income evolution gives a mixed trend. The farmers
holding >1 hectare of land area have shown a higher growth in income historically
and are expected to continue to do so. The smaller farmers <1 hectare farm holding
are unable to increase at a higher rate mostly because of their unorganized nature and
unavailability of mechanized farming.
The BPS handbook 2004 gives the following farm income figures:
Table 3.1: Historical Farm Income Evolution in Indonesia
Avg. farm net
Income
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
581.4 666.3 661.4 239.4 334.9 354.5 317.3 381.9 452.6 471.4
Source: BPS Handbook 2004. The IDR figures are converted to USD by the historic exchange rates.
Source: BPS and Internal Data from Bayer CropScience, Indonesia
Figure 3.3: Historical and projected Farm Income and Population absolute
growth figures
The projection of farm income from 2005 - 2014 has been done considering the
following factors:
 Historical data from BPS (www.bps.go.id)
 The analysis is done on the farm holding type, migration trend and increase in
the farm holding pattern.
 The consideration is also made on the land holding average for different
segments like rice, oil palm, vegetables etc. oil palm recording the highest
average increase whereas vegetable the least.
 Income per capita in farm is expected to grow at a higher rate than the GDP
growth rate as migration to alternative employment sources is a trend which is
witnessing a higher farmer income as the cultivating acreage for each farmer is
on a rise due to the migratory trend.
 The overall prices of the farm produce is on the rise where the productivity is
anticipated to be better with increased usage of pesticides which are expected
to reduce in price and usage of better yielding seeds.
0
0.5
1
1.5
2
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
0
100
200
300
400
500
600
700
800
900
1000
Populationgrowth Avgefarmnet income (USD)

25. 18
 The income trend is computed also considering the different land holding
types in Indonesia of .5 < .5 – 1 and >1
 Trend projections are made considering all the above factors and a universal
average is computed based on that trend.
3.2.3 Country Agriculture
It is important to understand the major crops of Indonesia in terms of production and
importance to analyze the business size of crop protection associated with it and to
determine the growth potential in future.
3.2.4 Overview and Prospects
Land holding average is at 0.3 hectares which is insufficient even for self sustenance
in the wake of growing population. With the division of families this average is
tending to decline in the initial years to come. However, the farm size is expected to
increase as many farmers are expected to shift to alternative sources of income as
agriculture becomes less rewarding. The immediate sell off is not anticipated as the
general mindset is to keep the land as ancestral roots. Agriculture is still the priority
for development by the government and rice still remains as the key political crop. At
2.2 million tonnes import per year Indonesia remains the largest importer of rice in
the world. Arable land availability in Java is at its optimum level and it’s focused on
rice and vegetables. Growth is anticipated in Kalimantan and Sumatra mainly in oil
palm. GMO is absent in the market so far but with increase demand for food crops
their introduction with major growth in hybrid seeds cannot be ruled out.
3.3 Major Crops Outlook
A. Rice
It is clearly the political crop of Indonesia. The staple food of 220 million Indonesians
rice production has always been a priority for Indonesia with over 11.4 million
hectares of land devoted towards it. However, the country is the biggest importer of
rice in the world and is striving for self sufficiency. The government is actively
working towards the self sufficiency program with formulating import restrictions and
opening up of new arable areas for rice. The policy also encourages increased
intensification and usage of high yielding variety of seeds. However with the growing
population and an average per capita consumption of 157.3 kgs it would be a
Herculean effort to attain the coveted vision of self sufficiency any time soon.
There are several constraints to sustainable rice production in Indonesia:
a.) Due to already high national yield at 4.5 tonnes/ hectare, further increase in
rice yield requires the development and use of presently unavailable novel
technologies.
b.) The climatic vagaries, such as prolonged drought season pose a hindrance in
the rice cultivation.
c.) Large quantities of cheaper illegal imports of rice plague the countries
sustainable rice production program and also put pressure on the minimum
price.

26. 19
d.) Weeds, insects and diseases: BPH, stem borers, BLB, Blast, RTV cause
significant losses in terms of production. The potential insecticide market is
growing in this segment as measures to increase productivity are
implemented.
e.) The conversion of potential agricultural land to other purposes, especially
housing and tourism industry, has also contributed to the decrease of the total
rice production. At least, 50,000 hectares of potential agricultural land have
been converted to other purposes annually in the last 10 years.
f.) Land fragmentation. With the increasing population and growing families the
ancestral land is being divided amongst the family members consequently
decreasing the overall productivity of land.
g.) The productivity of newly opened up land by the government is still
categorized low as it takes time to have optimal productivity especially
considering the newly opened lands are forest converted.
h.) Social transformation from agriculture to non agriculture sector has resulted in
scarcity and consequently expensive labor force, especially in the agricultural
production centers.
i.) Relatively low price of mostly agricultural products (especially food crop
commodities) resulted in lack of appropriate response and contribution by
farmers in sustaining food crops cultivation.
j.) The quality of product produced is relatively low, which therefore reduces
competitiveness in the global market.
k.) Income from the production of rice forms just 33 percentage of the rice
farmers’ income and is thus a discouraging factor in the cultivation of the
same.(Source: Interview with Mr.Mahyuddin Syam, Liason Scientist for
Indonesia, Malaysia and Brunei Darussalam)
l.) Small rice farmers find more opportunity in production of horticulture and
high priced fruits and vegetables
m.) Infrastructure facility needs a lot of improvement and no major government
spending is planned in this sector.(Source: Interview with Mr.Mahyuddin
Syam, Liason Scientist for Indonesia, Malaysia and Brunei Darussalam)
Rice self sufficiency is more of a political propaganda rather than reality in the
near future in the Indonesian Agriculture scene. The major drawbacks to attain
self sufficiency are:
a. Per capita consumption of rice stands at 140 kgs which is one of the
highest around the world.
b. Increasing population @ 1.35 percentage on an average means more
mouths to feed. The gap in production and consumption will be
increasing further in the coming years.
c. The cultural aspect is also a hindrance to growth. The general belief at
the lowest farm level is to eat rice produced in their own farm. This is
leading to massive poverty and low productivity as these are mostly
subsistence farmers who are unable to use better technology to increase
productivity. This is also lowering the per capita land holding from
already a meager 0.3 hectare/capita to even lowerer.
d. There is no real incentive for rice production in the wake of low
market price specially considering that better alternative sources of
income in producing other crops is more lucrative.

27. 20
e. Imported rice is relatively much cheaper and provides more incentive
to deal with and hence acts as a drawback in producing more.
f. The average yield at 4.6 tonnes/hectare and in sulphate soil regions of
Indonesia as high as 5 tonnes/hectare is already at its peak considering
it is the highest amongst the south East Asian countries.
g. Hybrid rice usage is not very prominent as of now though it is
expected to increase.
However the self sufficiency in rice can be attained if the following conditions are
met:
a. The GDP growth rate is higher in turn increasing welfare and
subsequently reducing per capita rice consumption from 140 – 120
kgs. This will narrow down the gap in production deficiency.
b. Hybrid usage is increased at a rapid rate increasing productivity.
However the poor distribution channel and high price of the seed
makes it difficult to do so.
c. More land is opened up for rice plantation. As from IRRI (International
Rice Research Institute, Bogor, Indonesia) sources approx. 1 million
hectares is ready for plantation in Papua region. They claim 20000
hectares of the same has been already planted. However the slow
moving policies of the government act as a hindrance in taking
concrete decisions.
d. Better seed, fertilizer, pesticide distribution channel will increase
availability of better technology and increasing yield and productivity.
However considering the past performance of the government the dream of attaining
self sufficiency seems a distant reality.
Indonesia is expected to continue importing rice to meet its growing domestic
consumption needs triggered by growing population. It will continue to be the biggest
rice importer in the world in the year 2014. The productivity increase is expected but
not as much to suffice growing domestic requirements. From the crop protection
business perspective, rice still forms as the major market till Indonesia’s struggle for
higher and quality rice production continues. The focus in the coming years will be on
Hybrid seeds and further down the line on GMO varieties. The pesticide business
growth will be coming in by multiple usages necessitated by increased level of
intensification. With the expected increase in the farmer income and continuing
increase in the general awareness more areas are expected to come under pesticide
usage increasing the overall business. However, since the focus in the future will be
on higher productivity and better quality it will open a business opportunity in the
better quality seed business in the recent future. Government is committed for the
development of rice and with opening of new rice cultivation areas the overall
business is expected to grow. Multiple usages are also expected to come from overall
price reduction in real terms accounting for inflation.

28. 21
Figure 3.4: Global Rice Imports with Indonesia as the biggest single country
importer in the world
B. Oil Palm
Palm oil is currently the world's second most consumed edible oil, and is set to
overtake soy in less than a decade as the world's most consumed oil. By 1996 there
were around 2.4 million hectares of oil palm plantations in Indonesia, of which state-
run companies possessed 443,000 hectares of older productive plantings, smallholders
have 824,000 hectares, and private companies the rest, primarily new, immature
plantations (Potter and Lee 1998). The Ministry of Agriculture then announced in
1998 that an additional 1.5 million hectares would be added as part of a new policy to
address Indonesia’s economic crisis. In June 1998, after the freeze on foreign
ownership had been lifted, the Directorate General of Plantations stated that 50
foreign investors (of which 40 were Malaysian) were in the process of developing oil
palm plantations covering 926,650 hectares in Sumatra and Kalimantan (Jakarta Post
12/6/98). Other major foreign investors come from the British Virgin Islands,
England, Belgium, the Netherlands, Hong Kong, South Korea and Singapore.
Source: The Hesitant Boom: Indonesia’s Oil Palm Sub Sector in an Era of Economic Crisis and
Political Change, 1999
Figure 3.5: Country Wise Historical Oil Palm Production

29. 22
Source: The Hesitant Boom: Indonesia’s Oil Palm Sub Sector in an Era of Economic Crisis and
Political Change, 1999
Figure 3.6: Historical Evolution of Indonesian Oil Palm Production
Table 3.2: Historical percentage growth rate in the Indonesian Oil Palm
production
Source: The Hesitant Boom: Indonesia’s Oil Palm Sub Sector in an Era of Economic Crisis and
Political Change, 1999
What with increasing international demand for palm oil products and to Indonesia's
low production costs, assisted by the government's subsidization of land and capital;
the Indonesian government maintains its ambition to become a major player in the
internationally growing export market. As a result, the area covered by oil palm
plantations is likely to continue growing. Forested areas allocated for conversion to
oil palm plantations fall into the category of conversion forest. During 1990-2000, the
total area planted with oil palm almost tripled from 1.1 to 3 Mha in 2000.In the 1990s,
the annual planting rate averaged 190,000 ha per year, with a peak in 1997/98 before
dropping to approximately 75,000 for the remainder of the decade. In the past two
years, oil palm companies have more financial room to maneuver than during the
1997-1999 financial crises, and many have therefore resumed their expansion plans.

30. 23
Table 3.3: Region wise Oil palm plantation in Indonesia
Province
Smallholders Government Estate Private Estate Total
Area Prodn. Area Production Area Production Area Production
(ha) (tonnes) (ha) (Tonnes) (Ha) (Tonnes) (Ha) (Tonnes)
Aceh 39,249 34,799 31,593 70,210 105,704 223,300 176,546 328,309
N Sumatra 99,344 255,614 237,726 1,120,680 247,676 905,119 584,746 2,281,413
W Sumatra 41,599 46,110 3,256 15,509 85,283 156,660 130,138 218,279
Riau 165,861 388,663 56,460 252,126 300,113 545,160 522,434 1,185,949
Jambi 112,749 148,044 8,326 29,028 74,385 78,430 195,460 255,502
S Sumatra 113,680 109,055 27,209 100,680 106,220 143,847 247,109 353,582
Bengkulu 17,380 17,648 4,345 5,100 38,672 56,160 60,397 78,908
Lampung 21,537 4,456 12,996 44,116 26,556 17,300 61,089 65,872
W Java 6,296 13,758 11,071 12,160 4,135 7,450 21,502 33,368
W Kalimant. 125,420 142,651 28,179 99,589 74,113 53,237 227,712 295,477
C Kalimant. 10,641 8,291 0 0 52,595 24,355 63,236 32,646
S Kalimant. 350 0 0 0 68,891 37,198 69,241 37,198
E Kalimant. 22,816 44,241 9,360 15,340 17,043 12,296 49,219 71,877
C Sulawesi 6,047 12,900 2,000 0 16,569 6,839 24,616 19,739
S Sulawesi 19,206 30,427 7,964 20,644 36,214 20,015 63,384 71,086
Irian Jaya 11,000 36,172 8,250 15,070 0 0 19,250 51,242
Total 813,175 1,292,829 448,735 1,800,252 1,254,169 2,287,366 2,516,079 5,380,447
Source BPS 2001

31. 24
In 2002, the total mature oil palm plantation area reached 2.7 Mha. The planting rate
is estimated to have reached 240,000 ha in 2002.The growth in area actually planted
does not represent the total area that is opened up for oil palm in Indonesia. According
to Indonesian Oil Palm Research Institute (IOPRI) estimates 18 Mha of land in
Indonesia are suitable for oil palm plantations. By 1996, the Indonesian government
had set aside around half such an area of forestland for oil palm development: 9.13
Mha of which 5.56 Mha is in the Moluccas and Papua. Prior to the financial crisis, the
Government of Indonesia processed hundreds of applications from companies
interested in developing oil palm plantations. 1992-2002, the Indonesian Investment
Coordination Board (BKPM) approved 453 new oil palm investment projects, with a
total area of 7.2 Mha. As of 2002, only 7.5 percentage of these new investments were
actually planted. Despite this extremely low realization rate, the Indonesian
government continues to process and issue new permits.
Source: The Hesitant Boom: Indonesia’s Oil Palm Sub Sector in an Era of Economic Crisis and
Political Change, 1999
Figure 3.7: Annual Rate of Planting of oil palm in Indonesia
Early in 2003 the Indonesian Agriculture Ministry announced it had licensed 74
companies to open new oil palm plantations covering an additional 672,977 ha.
The Ministry claims that with the additional new oil palm plantations, Indonesia's
CPO production is expected to outstrip Malaysia's in two to three years' time.
Considering the low realization rate of approved projects, the Ministry's
expectations may be considered to be overly optimistic. However there is little
doubt that ultimately some 9 Mha of new (as of 1996) oil palm plantations will
be established in Indonesia because the investment proposals for most of this
area have already been approved. Assuming recent planting rates, the total area
of oil palm plantations in Indonesia is set to increase to 11.2 Mha in 2020.

32. 25
Source:Friends of the Earth NGO
Figure 3.8: Total Established Area of Oil Palm plantation in Indonesia
It is highly likely that the Indonesian government, either at national or local level, will
bow to the massive interest of the private sector to engage in the oil palm business as
well as to the ambitions of local governments who, along with decentralization
policies, were empowered with great land use decision making powers in 2001.
According to the latest revisions of permanent forestlands, not officially published,
the area of convertible forestland has increased from 8 Mha in 2000 to 14 million in
2002. Motivated by greater autonomy, many district and provincial governments have
in recent years announced schemes to develop vast new areas for oil palm in their
areas. For example, the governor of Jambi aims to develop 1 Mha of oil palm
plantations in the province compared to 300,000 ha established at present. The oil
palm area of North Sumatra is set to increase from some 750,000 ha at present to 1
Mha. In West Kalimantan, the plantation area is set to expand from 338,000 in 2002
to 3.2 Mha. The governor of East Kalimantan plans to expand the planted area of
70,000 in 2002 to no less than 2.1 Mha. Meanwhile, Papua has plans to develop some
2.8-3 Mha of oil palm plantations as opposed to the 58,000 ha actually realized in
2002. If these plans are indeed realized and these trends are extrapolated to other
provinces, the Indonesian NGO Sawit Watch estimates that the total area opened up
for oil palm may reach up to 18 to 20 Mha nation wide. Indonesia out-competes
Malaysia in terms of labor cost by five times and in cost of land by four times, thereby
making it the cheapest producer of palm oil in the world.18 Thus, well over 100
Malaysian companies entered Indonesia's oil palm industry where they gained access
to an estimated 1.5 Mha.

33. 26
Table 3.4: South East Asia Oil palm plantation area and estimated forest area
cleared based on industry estimates (in Mha.)
Oil
Palm
Plantati
on Area
(2002)
Share of oil Palm
plantations
involving forest
conversion
Forest Area
cleared for
oil palm (to
end 2002)
Total oil
Palm area
target/alloc
ation(2003)
Additional
Area to be
established
Additional
forest to be
cleared
Malaysia 3.67 33% 1.21 3.74 0.07 0.02
Indonesia 3.1 66% 2.05 9.13 6.03 3.98
PNG 0.07 n.a n.a n.a n.a n.a
Total 6.77 48% 3.26 12.87 6.10 4.00
Remark: (n.a = .not available)
Source: The Hesitant Boom: Indonesia’s Oil Palm Sub Sector in an Era of Economic Crisis and
Political Change, 1999
Currently, 96 percentages of all oil palm plantations in Indonesia are located on the
islands of Sumatra and Kalimantan. In order to give the islands East of Java ‘their
equal share’ of oil palm, the Indonesian Government began to direct investors to West
Papua. The Habibie government gave permission to 28 Indonesian private companies
to open large-scale oil palm plantations in the province after having put in place a
number of incentives. These include long-term licenses (99 years) and access to a
maximum of 100,000 ha per company (as opposed to 40,000 ha in other
provinces).Information from the Indonesian NGO Sawit Watch indicates that around
2.8 Mha in the districts of Jayapura, Manokwari, Sorong, Merauke, Yapen Waropen,
Nabire and Timika have been reserved for oil palm plantations so far. In the first four
districts, some 343,000 ha have been allocated to oil palm companies (including Sinar
Mas, PTPN II, Siringo-ringo, Korindo and others). However, of the area allocated to
these companies, only 11 percentage (40,000 ha) has been planted. Whilst currently
actual realization of oil palm projects is slow, this may change in future. The region
has some 7.4 Mha of forestland set aside for conversion; 2.8 - 3 Mha of which may be
developed into oil palm.
From the Crop Protection market perspective oil palm forms the most potential
and growing market in Indonesia. With the government’s struggle to utilize the full
potential of this crop the market for the involved herbicide is expected to continue
growing. There is however some indications that EU, one of the major Indonesian Oil
Palm market will allow imports of only non pesticide used oil palm by 2005.
However in the wake of the growing demands and limited number of suppliers and
with Indonesia as one of the biggest player the probability of that happening is very
remote. The major pesticide in the segment is Syngentas Paraquat. The chemical is
already banned in Malaysia and is expected to follow suit in Indonesia also. However
such a ban cannot come into effect in Indonesia till 2011 considering the newly
gained license expires in 2009 with a market move out period of additional 2 years.
The generics will benefit immensely from this market and the potential business
growth is huge backed up planted area and usage increases.
In terms of total planted area for oil palm we estimate the government statistics to be
overly optimistic. However total planted area of 6 Mha is not far fetched.

34. 27
C. Vegetables
Key crops are shallot, potato and chilly which form major part of the overall
vegetable production in Indonesia. Supermarkets catering to the vegetable
requirements of the population 10 percentage in 1998 have grown to over 28
percentage in 2003. The majority of the vegetable and fruits being retailed by these
markets are imported from the neighboring countries keeping in mind the quality
concerns. A key factor in the determination of the vegetable supply in the market is
the population density around major cities like Jakarta and Surabaya etc. Since being
a perishable commodity the freshness requires the production area to be as close as
possible to the area of consumption. Migration trend to the big cities suggest
population movement from small villages to towns and big cities and in turn putting
burden on the city population. The planted area for vegetables is not expected to grow
significantly in the highland region and has already reached optimization in terms of
agricultural intensity. Intensification and marginal land expansion is probable in the
coming years in the lowland region. Rise in the imports of vegetable is also a
probability as dominance of supermarkets increase and population pressure around
big cities intensifies.
Source: BPS, 2002
Figure 0.9: Indonesian Potato Plantation Area
D. Corn
One of the biggest potential markets from the crop protection perspective in Indonesia
is corn. The average yield from corn plantation is much higher than that of rice. The
profitability is higher and the labor involvement is lower in comparison to rice. All in
all corn forms an ideal crop for Indonesian market and is of growing importance as far
as the crop protection business is concerned.

35. 28
Table 0.5: Indonesia corn planted area, production and yield
Indonesia : Average Corn Yield
Area Harvested
(1000 HA)
Production(1000
MT)
Yield (MT/HA)
1993/1994 2,950 5,400 1.8
1994/1995 3,652 6,100 1.7
1995/1996 3,531 6,000 1.7
1996/1997 3,200 5,950 1.9
1997/1998 3,900 5,700 2.0
1998/1999 3,200 6,500 2.0
1999/2000 3,000 6,200 2.1
2000/2001 3,000 5,900 2.0
2001/2002 3,000 6,000 2.0
2002/2003 3,050 6,100 2.0
2003/2004 3,200 6,800 2.1
Source: FAO (www.fao.org)

36. 29
3.4 Country Crop Protection Market – Value and Competition
3.4.1 Regulation
The Data Protection law was issued in 1997. The implementation of the same is
almost negligible facilitating rampant generic activities. The generic companies easily
obtain the MNC product formulations from the government sources through bribery
and legally register the duplicates under their own brand name. The laxness in the
regulation is not expected to tighten in the coming years and violation of the data
protection norms is expected to continue.
3.4.2 Competition
The growth in generics has led to competition intensification and has also put a severe
resistance to the price increase by the MNC. The number of generic formulators and
traders is consistently on the rise in the wake of increasing pesticide business. The
market share for generics at around 21.1 percentage in 2004 is anticipated to increase
significantly over the years. The generic companies are at an advantageous position
on the following grounds:
 They are able to easily obtain data protected MNC formulations and legally
launch the formulations under their own brand name at a lower price.
 They are adapt in cutting layers in the distribution channel and always try to
stay close to the farmers.
 The overhead costs are a fraction of the MNC
 They have no spending on R&D
 The organization structure is more flexible and country specific. They recruit
the best available manpower in the industry often swiping them from Multi
National Corporations.
 The product manufacturing is generally done on “Toll” basis where the
product is manufactured by contracted factories. This reduces fixed costs as
well as obviates the need for storage. Production usually matches the demand
condition.
Competitive pressure is also coming from other MNC who are also trying to capture
and retain their share in this generic threatened market.
3.4.3 Technology
Cartagena Protocol which prohibits usage of a country as a bio testing ground has
been ratified in 2004 by Indonesia. However for the moment there is no indication of
near future GMO development. The major focus at the moment seems to be on the
Hybrid varieties. However with the increasing population and consequently increasing
food crop demands, the introduction of GMO seeds in phases cannot be denied.
Technological development is one of the major areas which Indonesia needs to work
on to increase productivity on all accounts.
3.4.4 Price/Volume evolution and expectation
MNC are finding it increasingly difficult to raise prices on the existing products in the
market for the following reasons:
a) Intense competitive pressure where generic manufacturers are providing the
same AI at a lower price.

37. 30
b) Product substitutability is very high both with the generic and other MNC
product
c) Many of the major products are entering its maturity or cash cow stage where
growth is almost negligible. Increasing the price of such products will put an
end to their life cycle .
d) The general trend is a decrease in prices with more generic companies coming
in with similar products. Under the circumstances it is very difficult to
increase the price of the existing product.
However above average price increase is possible in case of newly launched products
targeted to the growing segments of Rice Herbicide etc. as there is no major
competitive threat there. However, on average a price increase of 1.5 – 2 percentage
YoY seams probable. This price increase will not be able to compensate the inflation
rate expected to be around 6-7 percentage pa and marginal depreciation in Rupiah.
The overall sales volume is anticipated to grow. Rice and Vegetable herbicide
segments are expected to be the key growth drivers. Company growth will be
propelled by key continuing products and anticipated launches.
Assumptions for Growth projections:
1) Increased intensification
2) Increase in treated area with Indonesia aiming for self sustainability in food.
3) Increase in generic companies also increases the market access as they provide
access to previously untapped markets
4) Lowering prices taking inflation into account and rising farm income is an
encouraging sign for multiple pesticide usage.
5) Some key sectors like Oil Palm, Corn and Rice are expected to witness
sizeable growth in terms of acreage and production. This will give the crop
protection market a much needed boost.
6) A price increase of 1.5-2 percentage on an average is probable which will
increase the revenue. This increase is expected to be higher for some key
products.
3.4.5 Past and Future evolution
Growing markets are insecticide and herbicide. After the ban of 57 Organic-
Phosphate, Pyrethroid is the most important insecticide group. Herbicide is growing
due to the expansion oil palm and the growth is expected to continue at an increased
rate with intensification and expansion in oil palm plantations. Rice is expected to be
the growth driver in the fungicide segment as Indonesia aims for self-sufficiency. The
planted area for rice is expected to grow marginally as Indonesia is trying to attain
self sufficiency status in rice. The underlying assumption in the growth of planted
area under all segments and all crops is Conversion of Convertible forest land for
agricultural and plantation purposes meeting the growing demands for exports and
internal consumption. Out of the total allocated 26.4 million hectares of convertible
forest land approx 8.6 mil hectares stand covered with forest area to date. The steady
conversion of the forest land is continuing trend expected to continue in the coming
years.

38. 31
3.4.6 Competitive Environment
Since 2001 the number of players per AI is not restricted anymore which led to an
increasing competitive environment within the country. The competition
intensification is seen on all fronts i.e. from product portfolio to price. Syngenta has
emerged as the market leader propelled by Paraquat sales which is still very much in
use in the market. The government regulations are hinting towards the ban of paraquat
in the near future following in the footsteps of neighboring countries like Malaysia.
However till that happens (expected to be around 2010) Syngenta is expected to
continue to be a major player in the absence of any concrete alternative to paraquat.
Dupont and Dow are relying on mature products and no significant launch has been
witnessed or expected from them in the near future. A possible merger or takeover bid
for either or both of the company with some local player cannot be ruled out in the
next 10 years. BASF sales are Fipronil driven and absence of any strong driver in
their product basket will see their market share dwindling in the coming years. The
most severe competitive threat will be coming from ever increasing generics. The
sales of MNC will be affected substantially by product substitution by price cautious
farmers.

39. 32
CHAPTER 4
CASE STUDY OF BAYER CROPSCIENCE INDONESIA
In this study R&D companies as defined in chapter 2 and Multi National Companies
are one and the same.
4.1 P.T. Bayer Indonesia
Following the stipulation of Law Number 1 Year 1967 which provided the legal basis
for foreign capital investment in Indonesia, the Bayer Group decided to set up its own
production facilities and established PT Bayer Farma Indonesia on 14 March 1969.
Therewith Bayer was among the first German investor with production facilities in
Indonesia and was granted pioneer status.
On 1 April 1971, PT Bayer Agrochemicals was established. The company produced
agrochemicals and household insecticides in Jakarta Industrial Estate Pulogadung. On
18 May 1982, PT Bayer Agrochemicals merged with PT Bayer Farma Indonesia and
the Company's name was changed to PT Bayer Indonesia. In the same year, the
Company went public and offered its shares at the Jakarta Stock Exchange.
Today PT Bayer Indonesia Tbk is engaged in the business of Consumer Care,
Pharmaceuticals and Crop Protection. The company's production sites are located at
Cibubur and Pulogadung.
4.1.1 P.T.Bayer Cropscience Indonesia
P.T. Bayer Cropscience Indonesia is the crop science arm of P.T Bayer Indonesia. It is
engaged in the crop protection business. With over 31 AI presently in the market and
business size of over USD 39.5 million the company has 2nd
largest market share in
the industry (as of 2003).
Figure 4.1: Bayer CropScience Logo with some of its products in the Indonesian
Market

40. 33
4.1.2 Market position of Bayer CropScience, Indonesia
BCS has a varied market share in differed crop protection sectors in Indonesia. This is
because of its varied nature of product presence in different market segments.
Traditionally BCS is stronger in the insecticide market while it falls short in the
Herbicide segment because of absence of any block buster product in this segment
within its product portfolio.
The Market Share of BCS in the various segments can be graphically represented:
Figure 4.2: Crop Protection market attractiveness and BCS Market Share
The X axis represents the current percentage market share of BCS for the year ending
2003. The Y axis represents the attractiveness of the market in the future. The size of
the bubble represents the size of the pesticide market in that segment. For example the
Broadacre Insecticides with market attractiveness of near 1 and market size of USD
7.4 Million is not a growing market and not very important for the future even though
BCS has a major market share of 27.7 percentage.
BCS is facing emerging generic problems with its active ingredients formulations
many of which are still patented being readily obtained by the generic manufacturers.
As per the law any AI being used has to be registered with the government of the
country. However, it is easier for the generic manufacturers to obtain the formulations
by bribing the government officials who are sometimes corrupt. Some chemical
formulations are also obtained from countries where the product is already off patent
and is then used to make the exact chemical compound at relatively lower price. The
exclusivity law for data protection has been issued by the Indonesian Government as
early as 1997 but its effect is still to be seen. Its implementation is still on a limited
basis and cases of non abidance are aplenty.
VegetableFungicides
RiceInsecticides
Rice Herbicides
VegetableInsecticides
RiceFungicides
Broadacre Insecticides
Plantation Insecticides
Plantation Herbicides
1.00
1.50
2.00
2.50
3.00
0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 45.0%
Rice Insecticides Rice Herbicides Vegetable Fungicides Vegetable Insecticides Rice Fungicides
Broadacre Insecticides Plantation Insecticides Plantation Herbicides

41. 34
In the scope of the research we will try to analyze the competitiveness of the company
in the wake of the generic pressure under the following categories:
 Product Portfolio
 Marketing Aspects
 Supply Chain and Distribution Aspects
 Financial Aspects
 Services and Assistances Supported by the Government
Policies
Further Assistances Needed and Strategic Decisions
4.2 Market Conditions
 R&D breakthroughs in agrochemicals, seeds and biotechnology drive the crop
protection market
 The rate of introduction of new technology i.e. new actives is expected to slow
down in favour of seeds & genomics
 Industry consolidation in the past ten years has led to generic/mixed brand
distributors / manufacturers gaining market share
 Many important active ingredients are now post-patent in major and there are
several others within a few years of losing patent protection
 This can only be countered by a flow of new technologies which offer
improved benefit : cost ratios and by strategic changes to the traditional
working of the business in the market
4.3 Current Scenario – Generics
 Generic manufacturers are sophisticated marketers
 They are getting access to more off-patent and patent protected products
 And they are growing in sales, in infrastructure, in resource availability and in
networking
 Many important actives are now off-patent and several others, some “block-
busters” in agrochemical terms are within a few years of losing patent
protection giving better scope for the generics.
 Data protection law is not effectively enforceable in place and flouting of it is
quite common
 Government official are sometimes corrupt and getting the patented
formulations is relatively easier for the established generics
 Clinical tests and environmental policies are not in place giving immense
scope for the generic mass market.
 Farmers and distributional players are getting more cost conscious and are
increasingly getting attracted to generics
 Traditional distribution-logistics chains are being dismantled, bypassed or re-
structured by new and innovative strategies
 Experienced, qualified personnel from the consolidated industry are now
available to aid the generic manufacturers & distributors, to create new entities
competing directly with the key players, to provide technological know-how
to manufacturers

42. 35
4.4 Business model of generic and MNC
Discovery &
Research
Development
Manufacturing
and Distribution
Marketing
&Sales
P - 1 P - 2 P - 3 P - 4
MNC
Outsource
Manufacturing
and Distribution
Marketing
&Sales
Generics
Discovery &
Research
Development
Manufacturing
and Distribution
Marketing
&Sales
P - 1 P - 2 P - 3 P - 4
MNC
Outsource
Manufacturing
and Distribution
Marketing
&Sales
Generics
Source: Model Developed after analyzing the market situation
Figure 4.3: Comparative 3 phase Generic and 4 phase MNC Business Model
The business model of the generics and MNC differ in the fundamentals itself. While
the MNC spend a major chunk of their revenues on R&D and development of the
product to make it marketable, the generics outsource the same. By outsourcing it
means that they obtain the product formulations without spending much on its
development. In Indonesia where the data protection law is not easily enforceable and
clinical testing not very prominent (In spite of ratification of Cartagena Protocol in
1997) its easier for the generic companies to cut through the 2 phases and quickly
move on to phase 3 of operation. It is seen that most generic companies do not
possess there own manufacturing facilities also and they outsource the same to
contractual manufacturers. This is a huge savings in terms of fixed costs keeping their
product cheaper than the original branded product. However this kind of strategy
works only when the order size is up to a specific level. Once the order size gets
bigger the variable cost of outsourcing gets higher to compensate for fixed cost of
manufacturing. A major percentage of MNC revenues (approx 7-10 percentage) are
spent on the phase 1 and 2. Moreover the production facilities are huge and require a
high level of fixed cost. Marketing of new products require more costs and offers less
flexibility in comparison to the generic companies who work on tried and tested
products.
4.5 A comparative Strategic Model between BCS and Generic
A comparative Strategic Model between BCS and Generic on the grounds of Finance,
product, customer and organization can be drawn up as follows:

43. 36
Table 4.1: Comparative Strategy of BCS and Generics in Finance and Product
STRATEGY Objectives Action leverage Objectives Action leverage
Keeping low capital
requirements
a) Continuing contract
manufaturing
a) Develop an improved
sales forecasting
system, thereby
increasing
predictability
b) No R&D costs
b) Re-align production
policies
c) Minimising Employee
requirements
a) Contract
manufacturing
Improving overall
value of business
Work on volumes not on
margins
b) Streamlining,
improving margins
on old products
Accelerate launch of
new products.
Increasing presence
into the profitable and
growing herbicide
segment.
Improvement of CoG's
/ IGM
Targetting Government
agencies and international
markets where the product
is off patent.
Target key crop
segments like rice,
oilpalm, cotton and
herbicides in which low
Market Share.
Adding to product
porfolio by obtaining
more patented AI
formulations
Targetting AI of all MNC in
this segment and working
on price differential.
Product
(Innovation &
diversification)
Reduction of working
capital / improve asset
management (ROCE)
Business development
strategic products /
segments
Increase
diversification into
profitable & growing
Increase IGM of
strategic products &
projects. Develop new
AI with increased R&D
Asset Management /
working capital
Finance
BCS GENERICS
The table highlights the difference in the strategy and focus area for MNC and
generics companies. Where as the generic focus is mostly short term and product
basis the MNC focus is mostly long term and future market approach oriented.
Generics focus more on networking with the key government officials whereas Multi
National Corporations are focused more on innovation and launch of new products
into the market. Generics are more focused on reducing fixed costs whereas variable
cost is of immediate concern for the MNC companies. From the strategic side it can
be seen that the generic companies work on an immediate vision whereas the MNC
work on a long term focused vision to develop teams and working systems.

44. 37
Table 4.2: Comparative Strategy of BCS and Generics in Customer and
Organization
KFS Objectives Action leverage Performance indicator
Resources targeting indicator (future
performance)
* Targetting the end user i.e
the farmer as the
customer.
Removing the distributional
layers and enabling access of
products to the end user as
quickly as possible.
Swapping of MNC
customers
Giving attractive price and
better margins in stocking their
products.
* Creation of Core Team for
customer interface
* Rationalization of sub-
dealers
* Re-assess headcount after
customer segmentation /
analysis and formation of
Trade Team
Less but more effective
employee in the
organization
Swapping best employees from
MNC by paying better pay
packets and offering better
organizational positions.
Reduce both time to
market and peak sales
Working on tested waters Being aggressive followers to
the successful product
launches and shunning away
from failed products.
* Employee get togethers Motivation and
commitment of employees.
Employee welfare schemes and
better incentive based plans.
*
BCS GENERICS
Focus on &
develop
Strategic
customers
Product launch
Acceleration
Demand generation of
strategic products
targeting customers /
retailers with farmer data
bank through Promotion
Team. Customer incentive
plans and promotional
activities.
Organisation
Customer
Headcount
Optimisation
Further Increase
Motivation &
Commitment of
employees
Better pay and bonus
schemes.
The differential strategy of generic and MNC can be seen in terms of their customer
focus. While the Multi National Corporations are going for a tired set up wherein their
customers are actually National Distributors and big wholesalers, the generic
companies are cutting through the traditional distributional framework and are
targeting the end user i.e. the farmer to be their customer. The MNC companies spend
a good amount of money in training and development of an employee thorough
various training programs. Generic companies on the other hand try to poach such
employees with better package and position. With better margins and stocking
facilities provided, the dealers are also keener to work with generic products rather
than MNC product which carry a high amount of carrying cost.

45. 38
4.6 A Comparative MNC and Generic Distributional Set Up
Comments / DynamicsImport level
National
Distribution
level
Provincial
Wholesale
level
Retail
level
Farm
level
1995
BCS
Traders
Generics
# 15
Private National
distributors
# 3
State-Owned National distributors
(+ formulation / re-packaging)
# 1
Private WS
# 50
Co-Operatives
few
Farms
# 25.000.000
5 %
90 %
20 %
10 %90 %
90 %
75 %
90 %5 %
Local
Manufacturers /
Formulators
100%
#5
10%
5%
10%
R1 #145
R2/3 # 4000
80%
20%
100%
The power of distribution centralizes
in provincial wholesale > 90%
Cooperative group act only as
complementaries whenever
government release special project/
subsidy program
The key dynamic factor is loyalty
degradation at retailers’ level to
wholesale , and distributor level to
manufacturer/ formulator.
Business trend was driven by real
demand from the farms level
Figure 4.4: Comparative Generic and MNC crop protection distributional set up
in Indonesia, 1995

46. 39
The historic distribution set up in the Indonesian Crop protection business gives a
similar picture to what happened and in many cases still existent in most developing
countries. A 4 tier distribution set up in place which channels the product to final
consumers i.e. the farmers. The main reason for such a distributional set up is:
 Non existence of Manufacturer to Farmer distributional infrastructure
 Often more costly to supply directly with prohibitive costs of warehousing and
small purchases by the farmers.
 Farmers often buy on credit terms which are only easy to negotiate with the
retailers in their area whom they know for a long time and sometimes even for
generations.
 It’s very difficult to bypass this tire set up as it’s historically in place and
provides employment to many people who will otherwise be rendered jobless.
Moreover it’s difficult for a MNC to trust at the local level as they deal mostly
in cash.
 The requirement at the farm level is not very high at a time and hence it is
better for a MNC to deal with the national distributor rather than going
through small stockists at tier 2 or tier 3.
From the above diagram the strategic difference in distribution between the generics
and the MNC is clearly visible. While the generics cut the distribution tier by
supplying 90 percentage of the products directly to tier 2 or Private Wholesalers the
MNC go through National distributors for 25 percentage of their sales. This adds on
more levels to their distribution channel and in turn increasing costs in terms of tier
margins.
The generics are able to follow this strategy because of the following reasons:
 Relatively new entrants into the market and are able to capitalize on the
mistakes made by the MNC. They have realized that the power of distribution
lies at the Provincial Wholesale level and are hence able to supply to them
directly. They don’t have any historic bonding with the national distributors
and hence are not obligated to go through them in the distribution channel.
 They follow a more aggressive and risky strategy as their understanding of the
market is better being mostly the local player.
 Their costs are low and margin of profit high giving them buffer to take risks
of facing bad debts.
 They work on mostly established products and hence they are confident that
chances of their product success is high enabling them to cutting a tier and
going directly at the lower level.
 They are willing to work on small quantities and offer credit terms which are
more flexible than MNC and hence are able to bypass the Provincial
Wholesalers in a big way.
The above distribution set up gives indication that the end users i.e. the farmers had to
pay a higher price because of so many levels of distribution channel. The rigidity of
the structure made it difficult to cut levels for the MNC whereas the generics
benefited as they were relatively new and without prior obligations.

47. 40
Comments / Dynamics
Import level
National
Distribution
level
Provincial
Wholesale
level
Retail
level
Farm
level
2004
BCS
Traders
Generics
# 12
Private National distributors
# 2
Private WS
#42
Farms
# 20,000,000
5 %
50 %
90%
90 %
10 %
Local
Manufacturers /
Formulators
50 %
5 %
#10
90%
10%
R1#160
R2/3#3400
100%
80%
20%
There is shift in the power of distribution to the
retailers’ level, since some of the provincial
wholesalers start acting as generic national
distributors and/or licensed holder of generic
products.
The loyalty factor is not a keyissue anymore in
the distribution network. Business driver is
price competitiveness, products availability,
strong demand/brand in the market.
Even the generic traders are focusing at the
retailers level, due to competition problems at
provincial whole sale level.
The demand center is really at farmers level
Figure 4.5: Comparative Generic and MNC crop protection distributional set up
in Indonesia, 2004
In the distributional set up from 1995 to 2004 we see a strategic shift in favor of tier 3
or Retailer 1. While 90 percentage of the generic products are channeled through
them, about 5 percentage of the MNC product find ways Retailer 1 directly. In case of
MNC the Provincial National Distributors are still playing a significant role whereas
the generics have been successfully able to cut through 2 distributional layers and
have become that much closer to the farmers. This is mostly because of the
competition problems at the provincial wholesale level. In this strategic shift we can
see that the generics are well suited under the market conditions to adapt to the
changes required whereas the MNC are quite slow to react to it and sometimes it’s
almost impossible for them to cut through historically established channels.
The slow adaptability of the Multi National Corporations can be related to the
following:
 Lack of availability of accurate market data. Indonesia with its diversity
encompasses numerous problems in accurate data collection and market
predictions.

48. 41
 Higher price pressure points whereas increased costs due to increasing
competition. The Multi National Corporations don’t want to risk on the
distribution front.
 A hierarchical structure with strategies sometimes being made other countries
than Indonesia. This leads to strategies which do not always adapt to the local
market conditions.
 The problem with the management is sometimes that they don’t want to think
outside the box (sometimes because of economic – strategic reasons) giving
them less flexibility in the market of doing something different
 Multi National Corporations are bound to maintain business ethics and abide
by the rule of the land to maintain their status globally. This can lead to
strategic disadvantage in a country like Indonesia where laws are easily
crafted to ones own benefit by the generic companies.
4.7 The MNC dilemma and proposed solution:
The MNC in Indonesian crop protection business are facing the classic model of
technology ‘push’ and market ‘pull’. The market is such that both ‘push’ and ‘pull’
are changing faster than ever before. This is creating greater tensions within the
innovation model of Multi National Corporations and leads also to greater uncertainty
in the future. A potentially successful, but difficult to accomplish, strategy for R&D-
based companies is to move from simply introducing new active substances, towards
the following:
 The innovation of novel active substances which provide key benefits over the
state-of-the-art available technologies. These benefits are increasingly not only
performance related (more highly active molecules with a new mode of
action) but are also influenced by customer needs for improved flexibility,
safety and environmental characteristics.
 It is needed to enhance the performance of existing active substances by
modulating its delivery to the biological target. This can be achieved through
formulation technology, but also through improved application methods or
combination with other control measures in integrated crop management.
 The development of crop solutions which are tailored to meet the needs of
specific customers or customer categories. This becomes feasible with more
comprehensive data-systems together with more holistic and deterministic
models of product performance integrated into the overall cropping system.
Such a strategy is based on the assumption that there is a need for new
solutions to existing problems and new customer needs. Old generic products
available in the market at the moment will be replaced by modern, more
desirable alternatives.
However the underlying assumption is that the farmers seek to maximize their
profits through tailoring solutions to individual needs, the customer base changes
as food processors, retailers and consumers desire more knowledge on the
provenance of agricultural produce.

49. 42
Comparitive Market Share
0.0
5.0
10.0
15.0
20.0
25.0
30.0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Syngenta
Bayer
DuPont
DOW
BASF
Monsanto
Nufarm
FMC
Generic
Source:Internal Data from BCS, Indonesia
Figure 4.6: Historical and Estimated Market Share from 1995 to 2014
The above figure shows the comparative historical and future market share of
different crop protection companies presently involved in the Indonesian crop
protection scene. The figure is calculated through internally generated data of BCS,
Indonesia and projections are done by having extensive consultations with top
management of Bayer, market trend, future product outlook of different companies,
projected growth conditions of the market.
4.8 A comparative analysis of different MNC and generic companies in the
Indonesian crop protection market

50. 43
Table 4.3: A comparative analysis of different MNC and generic companies in the Indonesian crop protection market
Prod. margin,
distribution
network
ProductProductProductProductProductProductProductProductOthers
Local Mkt
understanding
>30 years exp>30 years exp>30 years exp>30 years exp>30 years exp>30 years exp>30 years
exp
>30 years exp
Country Advantage
Very HighLowLowLowLowLowLowLowModerateFlexibility
DecentralisedCentralisedCentralisedCentralisedCentralisedCentralisedCentralisedCentralisedCentralisedLogistics
5%3%5%3%3%3%3%3%3%Prov. Dist. Margin
10%6 - 7%6 - 7%6 - 7%6 - 7%6 - 7%6 - 7%6 - 7%6 - 7%Retailer Margin
56.622.117.722.913.822.617.541.553.3Size
21.18.26.68.55.18.46.515.519.9Market Share
Depend on
Private
manufacturere
s. No plant of
their own.
Having Own.
Plant capacity
capable of
meeting
increased
future demand
Having Own.
Plant capacity
capable of
meeting
increased
future demand
Having Own.
Plant capacity
capable of
meeting
increased
future demand
Difficulty in
increasing
production.
Anticipated to
import fipronil
from china.
Having Own.
Plant capacity
capable of
meeting
increased
future demand
Having Own.
Plant capacity
capable of
meeting
increased
future demand
Having Own.
Plant
capacity
capable of
meeting
increased
future
demand
Having Own.
Plant capacity
capable of
meeting
increased
future demand
Production
Almost
negligible
LowLowLowModerateModerateModerateHighHighBrand Value
Key people
generally
swiped from
MNC
Best at the
Top level and
mostly
contractual at
the lowest
level
Best at the
Top level and
mostly
contractual at
the lowest
level
Best at the
Top level and
mostly
contractual at
the lowest
level
Best at the
Top level and
mostly
contractual at
the lowest
level
Best at the
Top level and
mostly
contractual at
the lowest
level
Best at the
Top level and
mostly
contractual at
the lowest
level
Best at the
Top level
and mostly
contractual
at the lowest
level
Best at the Top
level and
mostly
contractual at
the lowest level
HR
Mostly
R1,Sales to
R2 and to
farmers in
near future.
Focued mostly
on Provicial
Distributors
Mostly R1
Focued mostly
on Provicial
Distributors
Focued mostly
on Provicial
Distributors
Focued mostly
on Provicial
Distributors
Focued mostly
on Provicial
Distributors
Focued
mostly on
Provicial
Distributors
Focused on
Provincial
Distributors
and R1
Distribution
Pyrethroids,Gl
yphosate,Dithi
o Carbamate
Furadan,Arrivo
Glyphosate
and 2.4D
RoundupRegent,Fastac
Dursban,Ditha
ne
Ally,Curzate
Decis,Confid
or,Buldok,Fo
licur
Paraquat,Scor
e,Curacron,Ma
tador EC
Portfolio
Rice and
Plantation
RicePlantationPlantationRice
Vegetable and
Rice
Vegetable and
Plantation
Rice
Plantation
Herbicide &
Rice Fungicide
Crop Focus
GenericsFMCNufarmMonsantoBASFDowDupontBayerSyngenta
Comparative Diagnostic 2004
Source: Internally generated data from BCS and consultations with industry experts