Moneycontrol
Jul 26, 2013 01:24 PM IST | Source: SME Mentor

Scented tobacco makers struggle to survive

Improvising and diversifying one's product portfolio is the only way SMEs in the scented tobacco sector can survive


Gargi Banerjee


Exactly a year after it outlawed the sale of gutka or chewable tobacco in the state, the Maharashtra government has extended the ban for another year. But the real body blow for many SMEs in this sector comes from the government's decision to extend the ban to all types of processed and packaged tobacco products in the state, such as scented and flavoured tobacco.


Even though manufacturers and traders of these products were expecting the axe to fall, many are still scrambling to improvise just to stay afloat. While some are diversifying their businesses, for others, it's the end of the road.


The Struggle To Stay Alive


According to media reports, the decision to extend the scope of the ban was taken after a Food And Drug Administration (FDA) survey revealed that 25 per cent of consumers of scented tobacco and allied products are school children aged between 12 and 15. The survey found that they develop this habit not only because these products have a sweet taste, but also as they are cheap and easily available. It also found that youngsters addicted to these tobacco products usually graduate to using other harmful products.


While the ban is being applauded by health associations, it's doomsday for manufacturers, traders and exporters of these products, most of whom are small and medium companies, which are reworking their business plans simply to survive.


Munauwer Ahmed, proprietor of Red Sea Exports, a Mumbai-based exporter of chewing tobacco and paan masala, feels the government has been selectively unfair as the ban does not extend to cigarette and beedi manufacturers. "Why does the FDA clamp down on us while it's business as usual for cigarette manufacturers? This suggests the government is the under the influence of tobacco companies which have very deep pockets," he argues.


Ahmed says his three-year-old business, which was earning Rs 1.5 crore in revenue up until last year, will suffer a crushing blow. To buffet his business against bans like this, he diversified into exporting other products overseas only last year. Ahmed's company now exports spices and ayurvedic oils to the Middle East and some European and African countries as well. In the current financial year, he says that as chewing tobacco production slows considerably, he will consider exporting even more products, such as incense sticks and rubber footwear, and increase his geographical footprint as well.


Black Market Menace


Ahmed is not the only one fuming against the recent ban. A Nashik-based guthka manufacturer, who does not wish to be identified, says he too will be forced to diversify. The FDA recently confiscated chewing tobacco worth Rs 2-3 lakh from his factory, after which production came to a grinding halt.
 
"A ban like this will only give the black market for such products a fillip. The market for gutka in India is worth Rs 30,000 crore and there are many hardcore users who, despite the ban, purchase gutka at a higher price in the black market," he points out.


Will Other States Follow Suit?


And it's not just Maharashtra-based manufacturers and exporters who have taken a hit due to the recent ban. The ban on processed and packaged tobacco products is likely to extend to other states in India as well. Anubhav Aggarwal, proprietor of  Ambala-based Sudershan Tobacco says his revenues have plummeted 30 per cent since the gutka ban was imposed in Haryana in 2012.
 
Sudershan Tobacco, a manufacturer and exporter of chewable tobacco, scented tobacco and mouth fresheners, used to clock a turnover of Rs 20-25 crore and has been limping along for the last two years. The Aggarwals (theirs is a family-run business) say they are planning to diversify into food supplements as they believe it is only a matter of time before the ban on scented tobacco and allied products is extended across India.


Will The Ban Work?


While there's no denying that the Maharashtra government's move is in public interest, the question is whether it can enforce the ban. In a country where there is no dearth of 'resourceful' people who are past masters at beating the law, how effective can a ban like this be?


Manufacturers, traders and exporters of chewable tobacco and allied products are already facing the heat and those who do not have the wherewithal to diversify may simply have to shut shop.


The Ban - At A Glance


-- Products banned include kaath and lime (edible calcium carbonate), maava  or kharra (a mix of processed tobacco, betel nut/areca nut and lime), khaini (flavoured tobacco), among other processed tobacco products
-- The ban does not apply to unprocessed betel nut and tobacco
-- The ban will be up for review in July 2014
-- Maharashtra is the first state in India to ban flavoured and scented tobacco products
-- The ban on gutka imposed last year in Maharashtra is already in force in 26 states and seven Union territories

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