Cigarette makers may gain with gutkha ban
Cigarette makers could benefit as the number of states that have banned gutkha rises to 14.
Gutkha may give consumers a buzz, but its manufacturers have got a headache. Recently, the Delhi and Gujarat governments announced a complete ban on gutkha products and paan masala containing tobacco or nicotine. Twelve other states have already announced similar bans. The latest ban has been enforced under a new rule of the Food Safety and Standards (Prohibition and Restrictions on Sales) Regulations, 2011. According to the rule, tobacco and nicotine cannot be used as ingredients in food products. States can ban these products for a year, and the prohibition can be extended every year before it lapses, which would amount to a permanent ban.
According to some estimates, out of nearly 275 million tobacco users in India, 206 million use smokeless products such as gutkha - a sweetened mixture of tobacco, betel nut and palm nut - and khaini. Consumed by even children, these products have been found to contain 3,095 chemical ingredients, of which 28 are proven to cause cancer. Gutkha manufacturers say these products cannot be classified as "food products" as they are regulated under the Cigarettes and Other Tobacco Products Act.
The states with highest percentage of tobacco chewers - Assam and Orissa - have not implemented bans. A report by brokerage Edelweiss Research estimates the market size at Rs 15,000 crore to Rs 20,000 crore. The report says the cigarette industry may benefit, as some gutkha consumers may switch to cigarettes, given the narrow price differential between illegally available gutkha and lowend cigarettes. The report notes: "Players like ITC and VST have recently rolled out low price points in cigarettes (Rs 2) which may also serve as an entry point for the new customer base." Mumbai-based securities firm Anand Rathi says these 14 states account for roughly 45 per cent of cigarette sales.
"The gutkha industry has been a whipping boy for a very long time," says C.K. Sharma, head of the mouth freshener business at Dharampal Satyapal Ltd. "This act of banning shows that government agencies are biased towards the cigarette industry." The orders issued by various states contain no mention of restrictions on sale of loose tobacco or smoking tobacco products. In July, several major gutkha manufacturers, including the Manikchand Group and Ghodawat Pan Masala Products, moved the Bombay High Court against the Maharashtra government's ban. On September 15, the court upheld the ban.
The gutkha and paan masala industry has been at the receiving end for more than a year. In February 2011, the Supreme Court banned the use of plastic sachets for these products, and many companies had to shut down operations to find alternatives. The DS Group, for instance, closed its factories for four months before switching to paper packaging.
Experts say the gutkha market is highly fragmented, with nearly 80 per cent dominated by regional players. "Directly or otherwise, millions of farmers, workers, retailers, small vendors depend on this sector," says Sharma of Dharampal Satyapal. "The ban is threatening their livelihoods in a big way."
According to some estimates, out of nearly 275 million tobacco users in India, 206 million use smokeless products such as gutkha - a sweetened mixture of tobacco, betel nut and palm nut - and khaini. Consumed by even children, these products have been found to contain 3,095 chemical ingredients, of which 28 are proven to cause cancer. Gutkha manufacturers say these products cannot be classified as "food products" as they are regulated under the Cigarettes and Other Tobacco Products Act.
The 14 states that have banned gutkha and paan masala account for roughly 45 per cent of cigarette"
"The gutkha industry has been a whipping boy for a very long time," says C.K. Sharma, head of the mouth freshener business at Dharampal Satyapal Ltd. "This act of banning shows that government agencies are biased towards the cigarette industry." The orders issued by various states contain no mention of restrictions on sale of loose tobacco or smoking tobacco products. In July, several major gutkha manufacturers, including the Manikchand Group and Ghodawat Pan Masala Products, moved the Bombay High Court against the Maharashtra government's ban. On September 15, the court upheld the ban.
The gutkha and paan masala industry has been at the receiving end for more than a year. In February 2011, the Supreme Court banned the use of plastic sachets for these products, and many companies had to shut down operations to find alternatives. The DS Group, for instance, closed its factories for four months before switching to paper packaging.
Experts say the gutkha market is highly fragmented, with nearly 80 per cent dominated by regional players. "Directly or otherwise, millions of farmers, workers, retailers, small vendors depend on this sector," says Sharma of Dharampal Satyapal. "The ban is threatening their livelihoods in a big way."
