While the agarbatti industry is perceived to be a small cottage industry, export figures speak a different story. Despite tough competition from China and Vietnam, India has managed to dominate the market with its premium quality incense sticks. The Dollar Business takes a look at what makes the product a money-spinner across foreign markets.
Anishaa Kumar | February 2017 Issue | The Dollar Business
Whether it is for religious purposes, medicinal value or simply for its pleasant fragrance, agarbatti is a product found across almost every Indian home. Today, the Indian market is flooded with agarbattis [also known as joss stick in China or incense stick in other countries] of various colours, fragrances and qualities. But, the market for agarbatti is not by any means limited to India. People across the globe, whether they be in US or UK, Malaysia or Ethiopia enjoy agarbatti as much as Indians do – opening up a global market for exporters.
Agarbatti, mostly a handmade product [in India], is exported to almost the entire known world from India. While many countries are known for selling unscented or raw incense sticks, India is known for its perfumed versions.
In India, a wide variety of agarbattis are available in different shapes, colours and fragrances at very competitive prices, from sandalwood to lavender, and rose to mogra. Buyers are practically spoilt for choice. Adding to the brag-bucket is the fact that India-made agarbattis are considered to be one of the best in the world – no wonder, we enjoy such a vast customer-base across the globe. So, how attractive is the market?
It’s in the air
The contribution of agarbatti to India’s exports business may not have attracted much attention as it accounts for a mere 0.04% of India’s total exports. But a deeper look at the numbers tells a story of a niche export product with tremendous potential. This product has seen a steady demand in overseas markets, irrespective of economic or political climate.
As per Ministry of Commerce, GoI data, between FY2012 and FY2016, India exported agarbattis worth $498.02 million – which considering that it is a part of the labour-intensive cottage industry is a commendable figure. In addition, annual exports witnessed an 11.57% growth during the same period, from $89.64 million in FY2012 to $100.02 million in FY2016. Today, India exports agarbatti to more than 160 countries including US, Nigeria, Malaysia and UK. In FY2016, US was the largest importer of incense sticks from India with an import value of $11.3 million, followed by UAE at $6.23 million and Nigeria at $5.85 million.
Last fiscal, however, exports saw a drop of 9%, from $109.99 million in FY2015 to $100.02 million, but not all exporters are bothered with the fall in numbers. Kailash Jha of Ahmedabad-based Aastha Trading, says, “The market at the moment is doing great and we are receiving healthy orders from overseas buyers.” According to him, India has always faced competition from countries like China and Vietnam, countries that are amongst the largest exporters of incense sticks in the world. Further, India also faces competition from countries like France, UAE, Singapore and Malaysia when it comes to exports in this product category.
"Indian incense is exported to nearly 160 countries"
And while Jha may not be perturbed of the situation, exporters have a reason to worry. For, in CY2015, China overtook India, for the first time in the last one decade, to become the top exporter of incense sticks in the world and that too by a margin of nearly $21 million. So, what’s behind this phenomenon? Well, it’s the same difficulty of balancing quality with competitive prices and the age-old consumer mindset that imported products are better than those produced in India.
Jayesh Prajapati, from Ahmedabad-based Shiv Impex, who is importing Vietnam-made incense sticks for the first time says, “As a businessman, what I see is that there is more demand for the Vietnamese product. I, myself, have a local production of agarbatti of about 100 MT per month, but the demand is for agarbattis from Vietnam. We also don’t like the fact that we are importing from abroad, but we have to take decisions based on consumer demand.”
The reason behind the rising demand of imported agarbatti, he explains, could be that many Indian manufacturers are reducing the quality in order to bring the prices down. “Earlier, Indian agarbatti was cheaper by Rs.10-12 per bundle than the Vietnamese agarbatti so nobody was using agarbatti from Vietnam. Presently the rate differences is only Rs.2-5. The number of agarbattis in a pack is also more in the Vietnamese product. The Indian-made incense stick is slightly heavier so we have fewer sticks in a pack. Even if we give the same numbers of sticks as the Vietnamese product, the local buyers here will not buy Indian agarbatti as they perceive that an imported product will be of better quality while being cheaper than an India-made product,” he explains.
Incense or agarbatti is available in different shapes such as sticks, cones and coils. In terms
of fragrances, one can find varieties from sandalwood to apple and even chocolate.
Old school wins
One reason for losing marketshare to importers could be that the industry hasn’t changed much to date. Agarbatti is traditionally made by hand – by rolling bamboo sticks in an incense paste or a dough made of various ingredients, and is a labour intensive industry. Of late, some companies have started to employ machines to beat the tough competition from Chinese exporters, who mostly market machine-made agarbattis. But that it seems is mostly for domestic consumption. According to T. S. Sagar of Asoka Trading Company, a Bengaluru-based exporter, most importers prefer the handmade variety. “If there is any production of machine-made agarbattis, it would be for the domestic market. The demand for the handmade variety in the international market is high as the quality of handmade products are better than that of machine-made ones,” says Sagar. There are many who hold an opinion similar to that of Sagar. Being old school seems to be an advantage when it comes to exports. The worry though is that we have lost the top slot in exports to China.
Is the way forward then to find newer markets and innovation? Indian agarbatti exporters are already taking these steps. Exporters have always been able to find new markets, which have helped them stay afloat in the business. Many countries have started importing incense sticks from India over the last few years – while the numbers from countries like Iraq and Netherlands may be small, they are on the rise. Kuldeep Tickoo of Asian Deed Exports, a New Delhi-based exporter, says, “The demand is steady from our main markets such as UK, US and Latin America. Alongside, some new markets in Africa are opening up, which is good for the industry.”
One reason for the growing popularity of incense stick has been the world’s love affair with Indian culture. Arjun Ranga, MD of Cycle Pure Agarbathies, says, “Of late, we have been witnessing an increase in exports business. This is mostly because of growing influence of ayurveda, yoga, khadi, Indian culture, and more.”
Indian agarbatti manufacturers are also exploring a melange of innovative scents, from strawberry to green apple and even chocolate. Sagar says, “The international market demands traditional fragrances, but many do regularly suggest new scents to us.” Packaging is another way to add value to the product – whether it’s done within the country or in the export destination. Shyam Incense Stick (based out of Rajkot) is one of the many companies that export agarbattis in bulk to countries such as Spain, Dubai and Mexico, after which the importers add value through their packaging and sell under their own brand name.
The domestic industry in the mean time has witnessed a growth due to a rather unique reason. Most cash-driven and labour-intensive businesses have been bogged down by demonetisation and other forms of economic slowdown. But, the agarbatti industry is an exception. “In troubled times, people tend to pray more and that’s when they need agarbattis to please the gods. So, we are safe,” says Tickoo with a smile on his face.
However, there are exporters like Janak Patel, Owner of Rajkot-based Aarambh Exim, who have felt the pinch of demonetisation. “The rates of everything have increased and the transaction time has become longer. But the biggest effect of demonetisation on the industry has been the difficulty associated with paying wages to labourers, which has always been in the form of cash,” says Patel. The consequences of demonetisation will dwindle soon or eventually, but the biggest concern among exporters and manufacturers as of now is the most-anticipated GST. Currently, agarbatti is exempt from both excise duty and VAT, but under the new GST it could come under the ambit of tax – as per an Export Promotion Council for Handicrafts (EPCH) circular.
A big boost
In 2009, the industry got a boost after agarbatti was classified as a handicraft product. With this change, the industry became eligible for duty drawbacks apart from being entitled to a 5% incentive under Merchandise Exports from India Scheme (MEIS). Moreover, schemes such as Market Access Initiative (MAI) and Market Development Assistance (MDA) have come in handy to exporters in marketing their products across the globe.
While these measures have helped exporters, manufacturers feel that the government must increase the duty on products imported from countries like China.
They feel that imposing a higher duty on these imports will benefit the smaller domestic manufacturers – specially to withstand the competition from China.
Making in India?
Can PM Modi’s ‘Make in India’ give a leg-up to agarbatti manufacturers over their Chinese counterparts? According to Indian agarbatti manufacturers, despite several challenges making in India is something the sector has been following even before PM Modi unfurled the scheme. According to the Ministry of Micro, Small and Medium Enterprises, most countries around the world currently use agarbattis produced in manufacturing units located in Andhra Pradesh and Karnataka (Mysore and Bangalore).
The products from Bangalore, exporter T. S. Sagar says, are very popular among many foreign importers due to the quality. States like Maharashtra and Gujarat also have a growing export market.
But there are challenges. “The agarbatti manufacturing business is slightly costly because of the high labour cost. Also, some of the raw materials are very rare and expensive but we procure everything from local suppliers,” shares Nilesh Jain of Aura Incense. Although, a majority of the manufacturers source raw materials locally, the trend of procuring them from other countries is growing. Ministry of Commerce (GoI) figures reveal that in FY2016, India’s imports of agarbattis from Vietnam was $60.12 million. What is of bigger concern is that the figure saw a growth of 5.39% compared to FY2015! Ranga of Cycle Pure Agarbathies explains that Vietnam primarily produces raw incense or unfinished products and that could be the reason for a massive increase in imports from Vietnam.
Incense or agarbatti is available in different shapes such as sticks, cones and coils. In terms
of fragrances, one can find varieties from sandalwood to apple and even chocolate.
And then there is a new type of competition coming up. According to manufacturers and industry insiders, the ‘Make in India’ wave has motivated international manufacturers to set up facilities in India. These players are increasingly making their products in India and competing against local manufacturers on both domestic and international fronts.
“I am a small businessman, and I believe that if the government doesn’t take any action then small and mid-sized local players won’t be able to survive for long. It’s a labour-intensive industry with daily wage labourers and they will suffer if the government doesn’t take any action soon. The domestic issues have been spoken about in many newspapers and magazine but nothing has happened because it appears that the government is not interested in protecting this industry,” says Jayesh Prajapati.
And while the demand for hand-made Indian agarbattis remain high, exporting them has its own share of hurdles. “The biggest problem we face is communication and packaging,” says Janak Patel. Irrespective of the size of orders, Indian exporters many times end up providing customised value-added products to their customers, in terms of redesigning the packaging for colour, size, material, text, etc. Janak Patel continues, “Different customers have different requirements.For instance, an importer may want a certain kind of print on the package, and that adds to our costs.”
Marketing is another huge challenge, particularly for new players. “More trade fairs could help the industry move forward and gain a stronger foothold in the international market,” says Prajapati.
In addition, European Union’s Rapid Alert System (RAPEX) for non-food products has clogged the smooth flow of agarbatti from India to the region. For starters, RAPEX enables quick exchange of information between 31 European countries and the European Commission about dangerous non-food products posing a risk to health and safety of consumers, and agarbattis from India have at times been at the wrong-end of the RAPEX rap sheet. Even Rakesh Kumar, Executive Director, EPCH believes that, “The biggest challenge that many exporters of agarbattis have been facing in the recent times is RAPEX, a system placed by EU to keep a check on the imports of products that potentially pose a threat.”
For importers of incense, around the world, importing from India has been a rather simple process except for the issue of time. Terry Dilliway, Owner of Dilliway and Dilliway, a Somerset (UK) based importer of incense sticks, says, “One thing I can tell you is that it is difficult getting our consignments on time from India. There is a very different sense of time between UK and India. We had ordered a large consignment for Christmas which we ended up receiving only in the first week of January. We lost out on Christmas!” He adds that while importing agarbattis he prefers to use the air cargo route to cut down on the shipping time; for other products that he imports from India, he prefers the sea route. According to Dilliway, though there is a strong demand for Indian incense across the board, his main customers are Europeans. “Our customers love both the fragrance and the packaging of Indian incense sticks,” he adds.
Most of Dilliway’s goods comes from Delhi and he usually deals with a single exporter who in turn buys agarbattis from producers across the country.
India, it seems, has created a brand when it comes to incense sticks. But exporters feel that a lot more can be done when it comes to exports. Ghanshyam Patel of Rajkot-based Shyam Incense Stick, says, “This industry requires innovation. If one can introduce new products and offer competitive prices, business will thrive.” And yes, there have been many innovations in terms of shape, size and fragrance that have entered the market in the recent past. The industry also has been able to attract entrepreneurs because of the low initial investment requirements. As far as profit margins are concerned, while a lot depends on the destination and quality, export margins vary between 5% and 20%. And that’s not a bad number considering it has always been a volume game – which only gets better with a little value addition.
And what about sustenance? As long as mankind continues to pray to the divine, the product will continue to be a money-spinner around the world!
Arjun Ranga, Partner, Nr Group And Md, Cycle Pure Agarbathies
TDB: How much and to what countries do you export? And how competitive is the industry?
Arjun Ranga (AR): We export to 65 countries including those in Middle East, South East Asia and South America. However, currently, only 10% of our annual revenue comes from exports. In India, there are over 8,000 companies that deal with agarbattis. It’s a very competitive market because every company wants to try their hands at exports, which also brings down the margins. This is a business defined by volumes not margins – margins from exports are lower than margins from domestic markets.
TDB: How do consumers in international markets view agarbattis that are made in India?
AR: Of late, we have been witnessing an increase in exports business. This is mostly because of growing influence of ayurveda, yoga, khadi, Indian culture, mysticism and more. Burning an agarbatti almost immediately helps one connect with eastern culture and spirituality. This is one of the few products from India that has no competition in the international market because products from India are perceived to be premium and exclusive. The current exports of agarbatti from India is around Rs.700 crore, though we do face competition from the likes of China and Vietnam.
TDB: Are products for domestic and exports markets different?
AR: As far as products from our company are concerned, there is no difference in quality between products made for domestic and international markets. But then, different regions have different fragrance preferences. For instance, Middle East prefers bakhoor and more oriental type of fragrances, while France demands lavender and floral fragrances. And customers from South America favour sandal and cedar wood. Also, the demand for fragrance changes with the season. Again different countries prefer different styles of packaging. In Middle East, packaging in bright and bold colours is preferred, whereas customers in France and South America favour more subtle and young colours.
TDB: What are the challenges you face as an exporter? Has the government been of any help to the industry?
AR: Agarbatti has been classified as a handicraft item and that is beneficial, but there are several regulations we have to follow during exports. Some countries consider agarbatti as a fragrance or a cosmetic product. In such a case, we have to follow all the guidelines with respect to a cosmetic product. Also, EU has strict import norms. It is a complicated industry. The government though has been very proactive and supportive of us. There are various incentives and schemes such as MEIS and duty drawbacks already in place.
TDB: What does the future hold for the agarbatti business?
AR: This is a consistent business. Besides, Indian agarbatti industry has created a benchmark which makes it difficult for other countries to compete with us. For the record, even countries like China and Vietnam cannot compete with India when it comes to quality. Further, India has been exporting agarbatti for the last few centuries now, and I think the industry will keep growing at a steady pace in the future as well.
Rakesh Kumar, Executive Director, Export Promotion Council For Handicrafts (EPCH)
TDB: Can you give us an overview of India’s agarbatti exports? What kind of margins are there in this trade?
Rakesh Kumar (RK): In FY2016, India exported agarbattis worth Rs.655.60 crore to various markets across the globe. Some of the largest export destinations for India are USA, EU, UK, Latin America and Japan. Though the market is growing for Indian agarbattis, it’s not a high-margin industry as our production capacity for agarbattis is low and we import raw materials. This affects the profit margin. Also, we face tough competition from countries like China and Vietnam because the machinery they employ is more advanced than ours.
TDB: How many agarbatti exporters are members of EPCH and what is the biggest challenge for them?
RK: As of today, there are 176 agarbatti exporters registered with EPCH. In my opinion, one of the biggest challenges is the scarcity of raw materials. We import bamboo sticks from countries like China, Laos, Vietnam and Cambodia – basically anywhere where bamboo plantations are found in abundance.
TDB: In 2009, agarbatti was declared a handicraft product and was brought under the purview of EPCH. What have been the advantages of this move?
RK: Export Promotion Council for Handicrafts (EPCH) organises Indian Handicrafts Gifts Fair also known as IHGF Delhi Fair, a biannual event, in Delhi. It is a platform where the members (exporters) can showcase their products and receive direct exports orders.
EPCH also participates in specialised international trade fairs for handicrafts and gifts along with its members. In addition, exporters now get various benefits, such as up to 5% incentive under MEIS. All these benefits, which were not earlier available, are now also available to agrbatti exporters.
TDB: How is Indian government supporting agarbatti exporters?
RK: Other than incentives under MEIS, there are many other schemes like Market Access Initiative (MAI) scheme, Market Development Assistance (MDA) scheme, etc., for agarbatti exporters. Recently European Union’s rapid alert system (RAPEX) for non-food products has also hit our agarbatti exporters. However, EPCH has already taken up the matter with the concerned authorities.