note demonetisation

A dull December: How demonetisation is hitting the advertising industry

With product sales dropping across industries, companies are pulling out of marketing campaigns planned for the next month.

With Christmas and New Year to cash in on, December is usually a busy – and profitable – month for the advertising sector. But this December is likely to be a dull one. If the cash crunch caused by demonetisation has led to a slump in business across sectors, advertising is the one industry that ends up feeling its collective pinch.

In the three weeks since currency notes of Rs 500 and Rs 1,000 were demonetised, advertising agencies and other media companies have seen a marked decrease in the advertising expenditure of companies, particularly those producing fast-moving consumer goods. By the end of December, some media agencies are expecting to see advertising cancellations worth Rs 600-Rs 700 crore, while others estimate a 25%-30% drop in advertising spend in the short term.

While this would mean a definite gloom in the third quarter of the financial year (October to December), advertising experts are unsure if these effects of demonetisation will spill over into the next quarter.

Pulling out of product launches

Since advertising both influences and reflects consumer sentiment, the industry serves as a sensitive barometer of the mood of a country and its consumers. “The moment a chill sets in, it [the ad industry] is one of the first sectors to catch a cold,” said Anvar Alikhan, senior vice president and strategy consultant at JWT, a prominent advertising agency.

With the government suddenly invalidating 86% of the India’s circulating currency, and the Reserve Bank of India still struggling to push new, valid currency notes back into circulation, demonetisation has had a direct impact on consumers’ ability to buy commodities. This, in turn, has brought down sales of almost all goods that are discretionary, or not essential to people’s lives. These include real estate, durable goods like vehicles and gadgets and a host of retail and fast-moving consumer goods. For instance, Britannia Industries – known for its biscuits and processed food products – is expecting its sales to be hit by 15% to 20% in the next six weeks.

The drop in sales in the past three weeks has led to a clear drop in the advertising expenses companies are willing to make. “If consumer demand is going to be significantly lower, then advertising spends will also be correspondingly hit,” said Anant Rangaswami, editor of CNBC TV18’s Storyboard, a show on advertising, brands and entrepreneurship.

Since FMCG companies are among the biggest advertisers in India, particularly in the sector of television commercials, they are now cancelling or postponing ad campaigns and product launches that were planned for December.

“Companies are categorically postponing product launches, which will affect the revenues of general entertainment channels,” said Rangaswami. “December and Quarter 1, 2017, are likely to be dry months.”

At several advertising agencies, senior client servicing executives confirm this unexpected slowdown. “One of our clients, an FMCG brand, had a whole ad campaign ready for the launch of a new product, but they have paused it for now because this is not the right market environment for a product launch,” said the client servicing head of a leading advertising agency in Mumbai.

At another prominent agency, a senior executive claimed that campaign launches have been deferred for “cash offtakes”, or products that are usually always paid for by cash. “One quarter is definitely going to be washed out,” said the executive, who did not wish to be named. “A lot of marketers are sitting on the fence, waiting and watching to see how things play out.”

A long wait?

Most companies and advertisers have no option but to wait and watch, because of the widespread uncertainty about the medium and long-term impact of demonetisation.

“From November 8 till today, the government has made so many changes on demonetisation, it is difficult to predict what the next quarter will look like,” said Rangaswami.

So far, says Alikhan, advertising spends had been reflecting the country’s GDP growth in recent months, which was clocking 7%. “But now suddenly the mood has turned frosty, and the big question is how much of a hit the economy will take in the coming six to 12 months,” he said.

Since there is almost no precedent to the kind of demonetisation that the Indian government is now attempting, what happens in the next few financial quarters will depend on how the government is able to manage the current liquidity crisis, says Alikhan.

We welcome your comments at letters@scroll.in.
Sponsored Content BY 

How sustainable farming practices can secure India's food for the future

India is home to 15% of the world’s undernourished population.

Food security is a pressing problem in India and in the world. According to the Food and Agriculture Organization of the UN (FAO), it is estimated that over 190 million people go hungry every day in the country.

Evidence for India’s food challenge can be found in the fact that the yield per hectare of rice, one of India’s principal crops, is 2177 kgs per hectare, lagging behind countries such as China and Brazil that have yield rates of 4263 kgs/hectare and 3265 kgs/hectare respectively. The cereal yield per hectare in the country is also 2,981 kgs per hectare, lagging far behind countries such as China, Japan and the US.

The slow growth of agricultural production in India can be attributed to an inefficient rural transport system, lack of awareness about the treatment of crops, limited access to modern farming technology and the shrinking agricultural land due to urbanization. Add to that, an irregular monsoon and the fact that 63% of agricultural land is dependent on rainfall further increase the difficulties we face.

Despite these odds, there is huge potential for India to increase its agricultural productivity to meet the food requirements of its growing population.

The good news is that experience in India and other countries shows that the adoption of sustainable farming practices can increase both productivity and reduce ecological harm.

Sustainable agriculture techniques enable higher resource efficiency – they help produce greater agricultural output while using lesser land, water and energy, ensuring profitability for the farmer. These essentially include methods that, among other things, protect and enhance the crops and the soil, improve water absorption and use efficient seed treatments. While Indian farmers have traditionally followed these principles, new technology now makes them more effective.

For example, for soil enhancement, certified biodegradable mulch films are now available. A mulch film is a layer of protective material applied to soil to conserve moisture and fertility. Most mulch films used in agriculture today are made of polyethylene (PE), which has the unwanted overhead of disposal. It is a labour intensive and time-consuming process to remove the PE mulch film after usage. If not done, it affects soil quality and hence, crop yield. An independently certified biodegradable mulch film, on the other hand, is directly absorbed by the microorganisms in the soil. It conserves the soil properties, eliminates soil contamination, and saves the labor cost that comes with PE mulch films.

The other perpetual challenge for India’s farms is the availability of water. Many food crops like rice and sugarcane have a high-water requirement. In a country like India, where majority of the agricultural land is rain-fed, low rainfall years can wreak havoc for crops and cause a slew of other problems - a surge in crop prices and a reduction in access to essential food items. Again, Indian farmers have long experience in water conservation that can now be enhanced through technology.

Seeds can now be treated with enhancements that help them improve their root systems. This leads to more efficient water absorption.

In addition to soil and water management, the third big factor, better seed treatment, can also significantly improve crop health and boost productivity. These solutions include application of fungicides and insecticides that protect the seed from unwanted fungi and parasites that can damage crops or hinder growth, and increase productivity.

While sustainable agriculture through soil, water and seed management can increase crop yields, an efficient warehousing and distribution system is also necessary to ensure that the output reaches the consumers. According to a study by CIPHET, Indian government’s harvest-research body, up to 67 million tons of food get wasted every year — a quantity equivalent to that consumed by the entire state of Bihar in a year. Perishables, such as fruits and vegetables, end up rotting in store houses or during transportation due to pests, erratic weather and the lack of modern storage facilities. In fact, simply bringing down food wastage and increasing the efficiency in distribution alone can significantly help improve food security. Innovations such as special tarpaulins, that keep perishables cool during transit, and more efficient insulation solutions can reduce rotting and reduce energy usage in cold storage.

Thus, all three aspects — production, storage, and distribution — need to be optimized if India is to feed its ever-growing population.

One company working to drive increased sustainability down the entire agriculture value chain is BASF. For example, the company offers cutting edge seed treatments that protect crops from disease and provide plant health benefits such as enhanced vitality and better tolerance for stress and cold. In addition, BASF has developed a biodegradable mulch film from its ecovio® bioplastic that is certified compostable – meaning farmers can reap the benefits of better soil without risk of contamination or increased labor costs. These and more of the company’s innovations are helping farmers in India achieve higher and more sustainable yields.

Of course, products are only one part of the solution. The company also recognizes the importance of training farmers in sustainable farming practices and in the safe use of its products. To this end, BASF engaged in a widespread farmer outreach program called Samruddhi from 2007 to 2014. Their ‘Suraksha Hamesha’ (safety always) program reached over 23,000 farmers and 4,000 spray men across India in 2016 alone. In addition to training, the company also offers a ‘Sanrakshan® Kit’ to farmers that includes personal protection tools and equipment. All these efforts serve to spread awareness about the sustainable and responsible use of crop protection products – ensuring that farmers stay safe while producing good quality food.

Interested in learning more about BASF’s work in sustainable agriculture? See here.

This article was produced by the Scroll marketing team on behalf of BASF and not by the Scroll editorial team.