Perfume Industry: Banking on Agarwood
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MONDAY, JANUARY 30, 2023
Perfume Industry: Banking on Agarwood

Thoughts

Mahmuda Alam Chowdhury
04 March, 2020, 01:00 pm
Last modified: 04 March, 2020, 02:40 pm

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Perfume Industry: Banking on Agarwood

With ideal weather and large expanses of hilly land, Bangladesh can build a perfume industry based on agarwood

Mahmuda Alam Chowdhury
04 March, 2020, 01:00 pm
Last modified: 04 March, 2020, 02:40 pm
Perfume Industry: Banking on Agarwood

The fragrance industry holds a major share in the personal care and cosmetics market. In 2018, the size of the global fragrance market was valued at $70 billion, and in the forecast for the period 2019-2025, it is expected to have a compound annual growth of 3.7 per cent.

Market growth has been attributed to the rise in disposable income coupled with the growing trend of personal grooming. With the US and Europe remaining the trendsetters – Brazil, China, Japan along with the Middle Eastern and Southeast Asian countries are largely contributing to the growth of the fragrance industry.

Regardless of the kind of fragrance a company makes, there are always some key ingredients in constant high demand in this industry – among which agarwood tops the list.

Agarwood is one of the most expensive non-timber, resinous heartwoods – mainly traded in three forms: woodchips, wood dust/powder, and oil. It is a high priced and extremely rare incense.

The global price of agarwood chips can range from $30-$9,000 per kilogram depending on its resin percentage. Agarwood essential oil fetches a similarly high price of around $30,000 per kg for the high grade distilled agar oil, while the wood itself is worth up to $10,000.

Major countries producing agarwood are China, Vietnam, Australia, Indonesia, Laos, Malaysia, Myanmar, Singapore, India, Singapore, and Thailand.

When it comes to Bangladesh, industry insiders believe that the fragrance market in the country is now worth over Tk100 crore, where not only rich people, but middle-income people and students as well are opting for expensive perfumes.

Although we don't have any well-defined industry or any perfume house in our country, there are a considerable number of active and potential customers who are either ready or willing to buy a perfume originating in Bangladesh. The only franchise perfume shop in the country is Al Haramain Perfumes Pvt Ltd. 

There is a tremendous opportunity to create a highly profitable industry of fragrance raw material in Bangladesh, based on the cultivation of agarwood.

At present, about 300 agar-based enterprises, with 25,000-30,000 workers, are  producing agar chips, oil and related products in the country.

Present status of agar plantation

Since agarwood is native to south-eastern Asia, Bangladesh has the ideal weather and large expanses of hilly land for agar cultivation.

The Bangladesh Fisheries Research Institute and the Bangladesh Forest Department have set aside several hectares of experimental agar plantations in Chattogram, Rangamati, Khagrachari, and the Bandarban Hill Tracts, including 785 hectares in the Sylhet Forest Division.

Between July and October 2007, BRAC Tea Estate cultivated 83,400 agar seedlings covering 17 acres of land. There are also privately owned agar plantations in the Maulvibazar, Habiganj, Birisiri, and Madhupur regions.

Financial analysis

The total cultivation expenditure of agarwood per hectare, up to a minimum rotation period (12 years), is Tk12 lakh. The total returns are Tk61 lakh with a net profit of Tk49 lakh. The product value increases with further maturity of the tree.

On average, every enterprise uses 600kg to four metric tonnes of agarwood to produce 0.74 to 5.75 kg agar oil, where production cost and returns are respectively Tk5 lakh and Tk13 lakh.

Major barriers towards developing the agarwood industry in Bangladesh 

Inadequate capital appears to be one of the main constraints in large-scale agar production – followed by an absence of policy (industrial, import, export, investment or SME loan policy) support from the government.

The lack of modern technology, training and product diversification knowledge has kept Bangladesh's agarwood industry confined to producing three items only, whereas, competitors like Malaysia, Indonesia, India are producing eight or more.

The public has limited access to government owned forests. The Bangladesh Forest Department used to sell agarwood from government owned forests in Sylhet and Chattogram, but only after the trees reached a certain age. If local entrepreneurs could get these trees through tender (so that foreign brokers or their local agents cannot purchase them), the country may earn more revenue from them.

Added to these, there are problems associated with appropriate pricing, international marketing including involvement of middlemen, and high import duty by importing countries.

Future opportunities and recommendations

Despite several major constraints, agar-based enterprises are increasing – creating new employment opportunities for rural people. Although the Bangladesh government officially declared agar production as an "industrial sector" in 2014, many development initiatives are still required in this sector.

It is important to prevent agarwood trade through informal channels. The government may consider making official arrangments, directly handle middlemen issues, negotiate with importing countries for Duty-Free and Quota-Free (DFQF) market access under the umbrella of the World Trade Organisation or bilateral trade negotiations.

Declare agarwood as a priority sector and provide necessary industrial benefits (price of gas, power and other utility services) and policy support (long-term loan facilities, export incentives, etc.).

Entrepreneurs need to introduce and adapt to modern techniques and methods of cultivation to reap more profit. The government may consider making necessary institutional arrangements for training entrepreneurs.

The government could also 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 is one of the most expensive raw material in the world. If Bangladesh can utilise the full potential of this sector, it could become one of the major sources of earning foreign currency, and boost Bangladesh's export figures.

The writer is a student of marketing at Jahangirnagar University

Economy / Markets / Top News / Global Economy

perfume / Global Business

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