MANAGEMENT DISCUSSION AND ANALYSIS REPORT

1. OVERVIEW OF AGRICULTURAL SECTOR

Agriculture remains a dominant sector of the Indian economy both in terms of contribution to gross domestic product (GDP) as well as a source of employment to millions across the country. Over 50 per cent of the rural households depend on agriculture as their principal means of livelihood. Agriculture, along with fisheries and forestry, accounts for one-third of the nation's GDP and is its single largest contributor. Agriculture derives its importance from the fact that it has vital supply and demand links with the manufacturing sector. The total Share of Agriculture & Allied Sectors (Including agriculture, livestock, forestry and fishery sub sectors) in terms of percentage of GDP is 14%. As per the estimates released by Central Statistics Office, Agricultural exports constitute a fifth of the total exports of the country.

For the 12th Plan (2012-17), a growth target of 4% was set for Indian Agriculture. Deficit monsoon of 2014 and unseasonal rains of February-March this year took its toll on the overall food grain production in the country, pushing down the total output during 2014-15 by nearly 5%.

The latest government estimate puts the figure of total food grain production during the 2014-15 crop year at 251.12 million tonnes which is lower by 13.92 Millions tonnes than last year's record food grain production of 265.04 Millions tonnes.

In order to keep up the momentum gained during the 11th Plan and achieve the targeted growth rate of 4% during the 12th Five Year Plan, a focused approach was adopted to avoid the overlap between various schemes. All ongoing 51 schemes of the  Department have been restructured into five missions viz. National Food Security Mission (NFSM), Mission for Integrated Development of Horticulture (MIDH), National Mission on Oil Seed and Oil Palm (NMOOP), National Mission for Sustainable Agriculture (NMSA), and National Mission on Agricultural Extension & Technology (NMAET); five Central Sector Schemes viz. National Crop Insurance Programme (NCIP), Intergrated Scheme on Agri-Census & Statistics (ISAC&S), Integrated Scheme of Agriculture Marketing (ISAM), Integrated Scheme of Agriculture Cooperation (ISAC) and Secretariat Economic Service; and one State Plan Scheme viz. Rashtriya Krishi Vikas Yojana.

Recognizing the importance of the Agriculture Sector, the Government during the budget 2014-15 took a number of steps for sustainable development of Agriculture. These steps include enhanced institutional credit to farmers; promotion of scientific warehousing infrastructure including cold storages and cold chains in the country for increasing shelf life of agricultural produce; improved access to irrigation through Pradhan Mantri Krishi Sichayee Yojana; provision of Price Stabilisation Fund to mitigate price volatility in agricultural produce; mission mode scheme for Soil Health Card; setting up of Agri-tech Infrastructure Fund for making farming competitive and profitable; provide institutional finance to joint farming groups of "Bhoomi Heen Kisan" through NABARD; development of indigenous cattle breeds and promoting inland fisheries and other non-farm activities to supplement the income of farmers.

2. INDUSTRY DEVELOPMENT

The global seed and crop protection market continued to show dynamic development in 2014. There was a further tangible increase in the demand for high-value seeds.

In 2014-15,the Indian Crop Protection market grew at an estimated low double digit rate, which was less than 2013-14 but still better than expected despite deficient monsoon. Area under Rice recovered in spite of late rains and provided opportunity for increased usage of herbicides. Cotton acreages increased to record 12.7 million ha. Excellent prices of Fruits & Vegetables led to increased usage of high value products. There was considerable reduction in acreages of Pulses & Soybean.

2014-15 was again a mixed year for the seeds business. Poor monsoon affected Hybrid Rice & Millet crops. However Cotton had an excellent year with record acreages. The outlook for these crops remains positive subject to normal monsoon.

India has -190 Million hectares of gross cultivated area and the scope for bringing new area under cultivation is severely limited. Available arable land has been reducing and is expected to reduce further. India has low crop productivity as compared to other countries. At the same time, India's pesticide consumption is also low as compared to the world average. Hence, increased usage of pesticides could help the farmers improve crop productivity.

Government initiatives to provide credit facilities to farmers in the rural areas will provide boost to the agriculture industry. Access to finance would encourage them amongst others to use more pesticides and high value seeds in order to improve the crop yield.

Apart from this, factors such as growing farmer awareness, hybridization, increasing farmer income, increasing demand for food, increased focus on R&D and expansion of contract farming are expected to drive consumption of agrochemicals & seeds.

3. REVIEW OF FINANCIAL AND OPERATIONAL PERFORMANCE

Bayer CropScience Limited's Revenue from operation (Net) increased by 15%, from Rs. 32,452 Millions in 2013-14 to Rs. 37,233 Millions in 2014-15. Profit before exceptional items and tax increased by 30%, from Rs. 4,408 Millions in 2013-14 to Rs. 5,735 Millions in 2014-15.

Bayer CropScience Limited is an innovation driven company. The Company's success is based on the development of new products, technologies, processes and business models. Providing new and better solutions to farmers has always been a key priority. "Bayer Labhsutra" is one such approach where the effort has been to offer solutions to farmers where they can earn more than their conventional practices. In 2014-15, your Company conducted 2000 field trials to demonstrate these benefits to farmers in geographies across India. Farmers have seen convincing results from Bayer Labhsutra, in the form of an increase in quantity and quality of produce and increased net profits. 

In the year 2014-15, Bayer CropScience Limited successfully grew its innovative Crop Protection business with flagship products like Confidor®, Regent®,Nativo® and Fame™. Your Company successfully launched Raxil Easy in 2014 which will further strengthen our position in Seed Growth.

In the Agri-Seeds,we had excellent sales of Surpass® First Class. Hybrid rice did relatively well and established our claim of superior performance even under moisture stress conditions. The Company also launched Arize® Swift Gold and Arize® 6201 Gold to strengthen our portfolio in Rice. In Mustard, 5222 was sbrad across geographies and Hybrid 5111 was introduced in the North East for early segment.

In 2014-15, your Company further consolidated on innovative projects which helped gain an edge over competition. Labour scarcity and its increased cost has become a major driver for adoption of technology in agricultural operations. Rice farmers in India also face this issue. Labour availability, reliability and increasing costs due to a short transplanting window has become a major show stopper. Farmers in intensive cultivation areas are looking for alternate solutions. With the Bayer GrowPro initiative, your Company offered customized "Bayer Healthy Seedlings" which were mechanically transplanted in the fields of Rice farmers. Mechanical Rice Transplanting combined with post transplantation advisory through the Bayer Labhsutra Program provided good value to farmers and created competitive advantages for your Company.

With an objective of creating "shared value", our "Food Chain Partnerships"aim at providing farmers with innovative crop protection products, seeds and services, as well as advisory on optimal use of products and applications. Farmers benefit through better market access, more secure income, better technological solutions, higher yields, and cost-effective, sustainable use of agrochemicals. The Company has been continuously extending the scope of these associations with various food retailers, processers and exporters, which have now become an integral part of our business. In 2014-15, your Company further strengthened projects in key crop. Today your Company has 33 well prospering food chain partnerships, across 147 locations,covering more than 77,000 hectares and benefiting more than one lac farmers.

Your Company also completed the ambitious project of segmenting close to 3 million farmers of the country. In the process, we generated valuable insights which will go a long way in not only providing customized solutions to farmers but also creating a huge competitive advantage for your company. We are also piloting suitable technology platforms to automate our demand generation activities using the insights generated from farmer segmentation. It will ensure that we reach the targeted customers in most efficient manner in a market which is highly fragmented. Your Company is also leveraging different commercial excellence initiatives which we undertook over last few years, to serve our consumers and channel partners better.

Environmental Science's aspiration is to provide our customers first-choice solutions to protect and care for the environment in which we all live, work and play. It aims to provide greater environmental hygiene and health benefits, as well as to improve living standards and comfort in the various markets.

Year 2014-15 has been a very good year for Environmental Science business. Professional Pest Control business grew at a very healthy rate. We increased our footprint by engaging directly with large Pest Management Professionals (PMPs). These activities yielded good results in growing the Pest Control Operations (PCO) business. Currently your Company has 57 Bayer Network PCOs across India. We also got very good response to new launches Agenda® & Racumin®. A new product Sure was launched in March 2014. Premise, a termite control product also had excellent performance.

4. OPPORTUNITIES AND OUTLOOK

The Indian agriculture sector is expected to grow with better momentum in the next few years owing to increase in investment in agricultural infrastructure such as irrigation facilities, warehousing and cold storage. Factors such as reduced transaction costs, time, better port gate management and fiscal incentives will also contribute to this upward trend. Furthermore, the increased use of high value seeds, hybrids and genetically modified crops is also expected to better the yield of the Indian farmers. The 12th Five Year Plan's estimates of expanding the storage capacity to 35 million tonnes and the target of achieving an overall growth of 4 per cent will also go a long way in modifying the overall face of the Indian agriculture sector in the next few years.

Per hectare consumption of pesticides in India is amongst the lowest in the world and currently stands at 0.6 kg/ha. On the other hand consumption in developed nations ranges from 5-7 kg/ha whereas at 13 kg/ha in China. In order to increase yield and ensure food security for its enormous population agrochemicals penetration in India is bound to go up.

Sustainable agriculture, higher crop yields and improved crop quality will become more important. There will also be an enhanced role of technology in agricultural operations. Increasing labour shortage and its ever escalating cost will drive not only usage of herbicides but also mechanization in agriculture. Farmers will look for mechanized solutions in the area of various agricultural operations.

Swelling farm incomes, encouraged by good commodity prices, will further encourage farmers in spending on qualitative inputs for achieving higher yields, better quality and a more favorable return on investment.

Expansion of modern retail will change the consumption pattern. There will be increased demand for newer, better products which will increase crop diversification. This will drive farmers to leverage the latest technologies and crop varieties to meet changing demand patterns. This will also drive employment opportunities in rural areas. 

Your Company is aligning its corporate planning to these long-term trends in the agricultural markets. Our aim is to help shape the future of the agricultural industry, increase its productivity and thus generate profitable and sustainable growth for our business. We aim to enhance our Crop Protection portfolios by adding new and improved products, concentrating on core brands and offering integrated solutions in major crops. Support for this endeavor is provided by our important technology platform for both chemical and biological crop protection. We are investing heavily in the expansion of our production capacities to meet rising demand of our products.

5. RISKS, CONCERNS AND THREATS

Indian agriculture primarily is rain fed agriculture. More than 55% of area under cultivation is dependent on rains. Our Crop Protection and Seeds businesses are directly influenced by the amount of rainfall, its distribution and water reservoir levels. This has a direct impact on the choice of crops cultivated by the farmer and total cultivated area during the year. Under such circumstances, the industry's performance will largely depend on timely and adequacy of rainfall.

Stringent environment regulations across the world are increasing the cost of developing new products and simultaneously may delay the introduction of new products in the market.

It is important to educate the farmers about safe usage of pesticides, such as the selection of appropriate kind of pesticide, dosage rates, frequency and timing of application, as well as operator safety. However it is not easy to reach to the farmers owing to infrastructure issues, regional languages and dialects. The main point of contact between the farmers and the manufacturers are the retailers who will have to take a higher share in capacity building and training of framers. Overall the role of agriculture extension becomes very critical in addressing this need gap. Your company recognizes the importance of this critical requirement of famers. Our network of over 3,000 trained farm advisors and a well-qualified sales team coupled with our extensive distribution network will continue to deliver the right solution at the right time to farmers.

There is a significant share of non-genuine pesticides which can be counterfeit, spurious, adulterated or sub-standard. According to industry estimates the non-genuine pesticides could account for up to 40% of the pesticides sold in India in FY13. These products are inferior formulations which are unable to kill the pests or kill them efficiently. Some such products do perform but leave by-products which may significantly harm the soil and environment. The damage through such products is multifold. Some of thekey reasons for use of non-genuine products are lack of awareness amongst the farmers, difficulty in differentiating between genuine and non-genuine products, supply chain inefficiencies, law enforcement challenges and influencing power of distributors/retailers.

6. CORPORATE SUSTAINABILITY AND CORPORATE SOCIAL RESPONSIBILITY 2014-15

For Bayer CropScience Limited (Company), sustainability basically means future viability and it forms an integral part of our business strategy. We believe that innovation is essential in achieving sustainable economic success. We at Bayer carefully develop products and services specifically designed to benefit people. In this endeavour, we are committed to achieving the economic, ecological and social responsibility objectives of Sustainable Development.

Ensuring ample food supplies is one of the biggest challenges of our time. The Company is developing solutions to this problem and has firmly established the topic of "high-quality food for all" as a central objective of its sustainability programme. Our mission states "Bayer: Science For A Better Life". For the Company, it is therefore important to contribute to society's future viability and create value in diverse ways starting with business strategy which is aimed at creating value for all stakeholders including farmers. It is the inherent nature of our business.

Our commitment to sustainability is also aimed at improving resource and energy efficiency. At Bayer CropScience Limited, we are constantly working to reduce environmental impact and find innovative product solutions that benefit the environment.

7. PUBLIC PRIVATE PARTNERSHIPS

Operating on a continuum between private enterprises and traditional government institutions, PPPs (Public Private Partnerships) have become a major vehicle for delivery of innovative projects in agriculture. Bayer CropScience has also a fair share of these projects where we work along with government and generate value for farmers of India.

CITI-CDRA (Confederation of Indian Textile Industries' Cotton Development and Research Association)

The Rajasthan Cotton Collaborative Project is an example of empowering marginalized farming communities in a sustainable way. The project was initiated in 2008 in the tribal Banswara district of South Rajasthan and extended to adjoining districts of Bhilwara and Rajsamand in 2009. The project was the result of a Public Private Partnership (PPP) between Bayer CropScience Limited and CITI-CDRA (Confederation of Indian Textile Industries' Cotton Development and Research Association) and the Department of Agriculture, Rajasthan. The project was shifted to 4 central districts of Rajasthan from 2012 viz. Ajmer, Nagaur, Jodhpur & Pali. The joint efforts made by all the participating agencies along with the dedicated project team led to significant increase in productivity and farm income of the participating farmers which led to Rajasthan emerging as the state with highest Cotton productivity in the country with average 780 kg lint/ha in 2014. 

Maharashtra PPP-IAD (Public Private Partnership For Integrated Agriculture Development)

The project was initiated in 2011 under New Vision on Agriculture promoted by World Economic Forum (NVA-WEF). Bayer CropScience is actively participating as a technology / supporting partners with 5 projects (2014-15) in Tomato, Vegetables, Grapes, Pomegranate and Rice. So far we have supported 4000 farmers with good agricultural practices thereby improving their ROI.

Collaboration with CIMMYT for productivity enhancement in Cereal Systems in South Asia

The collaboration initiated in 2009 with CIMMYT (International Maize and Wheat Improvement Centre) is to improve rice-wheat cropping system in Indo- gangatic plains through field adaptive research to increase the cereals productivity on a sustainable basis. The collaboration focuses on use of rice hybrid technology and efficient use of other key inputs besides encouraging conservation agriculture practices. This collaboration will certainly help decrease hunger and malnutrition and increase food and income security of resource-poor farm families in South Asia through the accelerated development and inclusive deployment of new varieties, sustainable management technologies, and policies.

Within the scope of our social commitment, we make targeted strategic investments in the areas of science and education, health, social needs and community projects. This commitment is an integral element of our corporate policy.

8. INTERNAL CONTROL SYSTEMS

The Company has appropriate internal controls systems for business processes with regard to its operations, financial reporting and compliance with applicable laws and regulations. The Audit Committee of the Board of Directors approves the internal audit plan and internal audits are conducted at regular intervals across various locations and processes in line with the approved internal audit plan. Audit observations and follow-up actions are discussed with the management of the Company as well as the Audit Committee.

9. CAUTIONARY STATEMENT

The statements in the "Management Discussion and Analysis Report" describe the Company's objectives, projections, estimates expectations and brdictions which may be 'forward-looking statements" within the meaning of applicable laws and regulations. The annual results can differ materially from those exbrssed or implied, depending upon the economic and climatic conditions, government policies and other incidental factors.