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The Financial Express
Swasti Lankabangla Swasti Lankabangla

Fragrance industry

Agarwood and banking on trees


Agarwood and banking on trees

The fragrance industry holds a major share in the personal care and cosmetics industries for being used as key ingredients in the products and in recent years it has evolved to be a highly significant business itself. In 2018 the global fragrance market size was valuedat USD 70.70 billion and during the forecast period of 2019-2025 it is anticipated to register a compound annual growth rate (CAGR) of 3.7%. The market growth is attributed to the rise in disposable income coupled with growing trend of personal grooming. US, Europe remaining the trendsetter- Brazil, China ,Japan, Middle Eastern and Southeast Asian countries are contributing largely.

And regardless of the type of fragrance there always are some key ingedients constantly and highly in demand in this industry among which - Agarwood tops the list.

Agarwood is one of the most expensive non-timber, resinous heartwood, mainly traded in three forms: woodchips, wood dust/powder, oil. It's a highly priced and extremely rare incense. Global prices of agarwood chips can be ranging from US$30-$9000 per kg depending on its resin percentage. Even the essential oil fetches similarly high prices of around US$ 30,000 per kg for high grade distilled agar oil while the wood itself is worth upto US$10,000.

Major countries producing agarwood are China, Vietnam, Australia, Indonesia,Laos, Malaysia, Mayanmar,Singapore, India, Singapore and Thailand. Although it has multifaceted use in fragrances industry but globally there are two major market regions for agarwood consumption: 1) The Middle East, countries of Arabian Peninsula and 2)North-east Asia and markets of Taiwan, South Korea and Japan.

When it comes to Bangladesh, industry insiders believe that the fragrance market in the country is now worth over BDT 100 crore where people from middle-income households and students are also opting for expensive perfumes along with rich people. Although we don't have any well-defined industry or any perfume house hailing from our country, there's a considerable number of active and potential customers who're either ready or willing to purchase a fragrance originating in Bangladesh.The only franchise perfume shop in the country is Al Haramain Perfumes Pvt Ltd, the brainchild of Md Mahtabur Rahman, a Bangladeshi expat from Sylhet.

But here exists a tremendous opportunity to create a highly profitable fragrance raw material industry in Bangladesh centring on the cultivation of-"agarwood". Currently, nearly 300 agar-based enterprises involving 25,000-30,000 workers, are producing agar chips, oil and related products in the country. The net return in these enterprises is BDT 0.8 million and per year they're exporting BDT 5.0-100 million.

Agarwood being native to South-eastern Asia, Bangladesh has the perfect weather and large abandoned hilly land for agar cultivation. BFRI and BFD have established several hectares of experimental agar plantations in Chattogram, Rangamati, Khagrachhari, Bandarban hill tracts including 785 hectares in Sylhet Forest Division. In between July and October 2007 BRAC Tea Estate cultivated 83,400 agar seedlings covering 17 acres of land. Besides there're privately owned agar plantations in Maulvibazar, Habiganj, Birisiri and Modhupur regions.

Total cultivation expenditure upto minimum rotation period (12 years) is BDT 1.2 million per hectare and total returns are BDT 6.1 million , with net profit of BDT 4.9 million. The product value increases with further maturity of the tree. On average, every enterprise uses 600kg to 4 tonnes of agarwood to produce 0.74-5.75 kg agar oil where production cost and returns are respectively BDT 0.5 million and BDT 1.3 million.

Despite having several major barriers like - absence of govt. policy supports,high import duties by importing countries, problems associated with international pricing and marketing,lack of modern technology and inadequate capital, agar-based enterprises are increasing day by day and creatintg new employment opportunities for rural people in those areas in the process. Although Bangladesh Govt. officially declared agar production as an "industrial sector" in 2014 still a great deal of development initiatives are required in this sector for which the recommendations would be:

1) To prevent agarwood trade through informal channel the Govt. may consider making official arrangements for pricing, international marketing and directly handling middlemen issues, negotiating with the importing countries for Duty-Free and Quota-Free (DFQF) market access under the umbrella of WTO or bilateral trade negotiations.

2) Declare agarwood as a priority sector and provide necessary industrial benefits (rates of gas, power and other utilities services) and govt. policy supports (industrial, investment and SME loan facilities,export incentives).

3) The Govt. may consider making necessary institutional arrangements for training up the entrepreneurs on modern techniques, method of cultivation and diversification for producing more items from agarwood.

4) Increase access to Govt. forests. The Department of Forestry used to sell trees from govt-owned agarwood forest in Sylhet and Chattogram after a certain age. If local entreprenuers would get these trees through tender or through a mechanism (so that foreign brokers or their local agents can't purchase them), the country may earn more revenue from that.

5) Provide comprehensive support under a package programme for developing a world class fragrance industry in the country .

Banking on agarwood could be a safe investment given the fact that it's one of the most expensive raw material in the world. So if Bangladesh can utilize the full potential of this sector then it could be one of the major sources of earning foreign currency and boost the export figure of Bangladesh.

The writer is a student of the Faculty of Business Studies (Dept. of Marketing)

Jahangirnagar University. mahmudaalam04@gmail.com

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