Page 1 of 152
A Group report On Taste and
preferences of
The tobacco industry
SUBMITTED BY:-
1). CHOKSI HEMAL 3006
2). DIY...
Page 2 of 152
CERTIFICATE
Page 3 of 152
"You can tell whether a man is clever by his answers. You can tell whether a man is wise
by his questions."
...
Page 4 of 152
As per laid down curriculum the Third Year of B.B.A. we are
assigned to make a report on teast and preferenc...
Page 5 of 152
INDEX
CH-NO:- NAME OF CHEPTER PAGE
NO.
CERTIFICATE
PREFACE
AKNOWLEDGEMENT
********* TABLE OF CONTENT *******...
Page 6 of 152
4.4 PEST ANALYSIS 64
4.5 VALUE CHAIN OF TABACCO
INDUSTRY
72
4.6 FIVE FORCE ANALYSIS 76
5 ANALYSIS OF MARKETI...
Page 7 of 152
PART-1
RESEARCH
METHODOLOGY
Page 8 of 152
WHAT IS RESEARCH METHODOLOGY?
Methodology is defined as
1. "the analysis of the principles of methods, rules...
Page 9 of 152
(1.2) Research Design:-
Research design is also known as framework or blue print of the research.
There are ...
Page 10 of 152
1.3) DATA SOURCES: -
The source from which we get the information or data for research is known as Data
sou...
Page 11 of 152
1.4) Research Approach:-
After deciding the data source we will get the information from our respondent
i.e...
Page 12 of 152
1.5) CONTACT METHODS:-
In this we decide the method through which we can contact the respondent to
get the ...
Page 13 of 152
(1.6). RESEARCH INSTRUMENTS:-
Basically there are mainly 3 types of Research Instruments. They are:
1) Ques...
Page 14 of 152
1.7).SAMPLING PLAN:-
a. Sample Unit
b. Sample Size
c. Sample Procedure
Sample: -
“Sample is a segment of th...
Page 15 of 152
Sampling Procedure: - “Sampling procedure means how should the
respondent be chosen.”
There are two types o...
Page 16 of 152
1.8) ANALYSIS OF RESEARCH:-
Analysis of our research is divided into 5 parts:
They are:
(1) Screening
(2) C...
Page 17 of 152
(4)Tabulation:
In the tabulation stage we as researcher have used 2 types of tabulation:
(a) General Tabula...
Page 18 of 152
(5)Pie charts:
We have also presented the information collected from our side in the form of pie
chart also...
Page 19 of 152
1.9) LIMITATION:-
There are certain limitations to be faced while doing this researches.
(1) Time:
It is th...
Page 20 of 152
Part-2
LITRETURE REVIEW
Page 21 of 152
1) This article analyses consumption patterns, socio-economic distribution and
household choice of a variet...
Page 22 of 152
Part-3
Introduction Of
Tobacco
Page 23 of 152
3. INTRODUCTION TO TOBACCO:-
3.1). HISTORY OF TOBACCO:-
Tobacco is deeply rooted in our history. Because th...
Page 24 of 152
ECONOMIC HISTORY OF TOBACCO PRODUCTION:-
Tobacco occupies a prime place in the Indian economy on account of...
Page 25 of 152
The following aspects of tobacco can help in understanding why it has developed as a
cash crop:
1. Tobacco ...
Page 26 of 152
Pre-Independence period
Tobacco was initially grown in the Deccan region (South Central India), during 1605...
Page 27 of 152
3.2).HARMS OF TOBACOO:-
I. MAGNITUDE OF THE PROBLEM
Each year in India an estimated total of 700,000-900,00...
Page 28 of 152
III. ORAL CANCER
Since 1985, eight case-control studies on oralcancers conducted in India from places as
di...
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3.3). FORMS OF TOBACCO:-
Tobacco is consumed in two ways, either by smoking or chewing. While smoking the
f...
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6). PERIQUE:-
It is noted for its pleasing aroma, is used sparingly in fancy smoking tobacco blends and is
...
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 Beedi
 Raw tobacco
Page 32 of 152
TYPES OF TOBACCO:-
BEEDI TOBACCO:
This occupies 30%.35% of the total area under tobacco cultivation and
Is ...
Page 33 of 152
3.4). TOBACCO FARMING IN INDIA:-
Andhra Pradesh, Gujarat, Karnataka, Maharashtra, Bihar and Tamil Nadu are ...
Page 34 of 152
3.5) PROCESS OF TOBACCO:-
THE HARVEST:-
The harvest begins in January and extends for some weeks. The tobac...
Page 35 of 152
AIR-DRYING:-
The bundled leaves are brought into the drying sheds (Casas del Tabaco) to dry. These are
alig...
Page 36 of 152
DE-RIBBING AND SORTING:-
The tobacco leaves are moistened with water in order to avoid discoloration. Subse...
Page 37 of 152
THE PRODUCTION OF CIGARS:-
At the heart of each factory is the “Galera”. It is here that the Torcedores cre...
Page 38 of 152
3.6). IMPORT AND EXPORT SENERIO:-
India‟s Tobacco exports are likely to touch Rs. 16,050 million towards th...
Page 39 of 152
Among group the nations, West Europe, by importing 30 % (43,213 tonnes) of Indian
tobacco, was the largest ...
Page 40 of 152
The advantages for Indian tobacco are a low unit production cost; average export prices of
Indian FCV tobac...
Page 41 of 152
CHAPTER:-4
ANALYSIS OF
TOBACCO
INDUSTRIES
Page 42 of 152
4.1). Tobacco industry in India
India is the second largest producer of tobacco in the world after China. I...
Page 43 of 152
In India, the tobacco industry is divided into three distinct and powerful sectors: bidis
(smoking products...
Page 44 of 152
industry is divided into two different sectors: organized and unorganized. The organized
sector is factory ...
Page 45 of 152
o 501 Ganesh produced by Magalore Ganesh Beedi Works
o Top regional brands such as Dinesh in South India, T...
Page 46 of 152
In a recent Global Adult Tobacco Survey, it was reported that khaini is the most
commonly used tobacco prod...
Page 47 of 152
In India, retail volume sales of smokeless tobacco products increased by 82% between
1999 and 2009. After a...
Page 48 of 152
Most smokeless tobacco companies in India just produce one brand. Different flavour
varieties and packaging...
Page 49 of 152
Som Sugandh Industries- Also known as the Dilbagh group, the company is the third
largest smokeless tobacco...
Page 50 of 152
Historic India Cigarette Market Size- Retail Volume (billion sticks)
Despite recent declines in sales, it i...
Page 51 of 152
• Reportedly, the Indian government has a stake in ITC.37-39 While ITC claims
that the state does not have ...
Page 52 of 152
VST Industries- Established in 1930. Before the company changed its name to
VST Industries in 1984, it was ...
Page 53 of 152
Transnational Tobacco Companies (TTC) Presence in India
The expansion of TTC in India has been limited by r...
Page 54 of 152
Philip Morris International (PMI) - PMI is a U.S. company with
headquarters in Lausanne, Switzerland. PMI i...
Page 55 of 152
Targeting health conscious consumers with misleading claims
As Indian customers become more aware of the he...
Page 56 of 152
Brands that appeal to young tech-savvy smokers.
India has a very large technology industry and a growing in...
Page 57 of 152
6. Corporate Social Responsibility (CSR)
Tobacco companies maintain CSR programs in an effort to counter ne...
Page 58 of 152
4.2). MAJOR PLAYERS AND MARKET SHARE:-
THE MAJOR PLAYERS :-
 Godfrey Phillips (India) Ltd.
 V.S.T. Indust...
Page 59 of 152
4.3) SWOT ANALYSIS:-
A SWOT Analysis is requiring checking the industry‟s Strength, Weakness,
Opportunities...
Page 60 of 152
 STRENGTH:-
Biggest and the largest player in the Indian tobacco market with a market share
of 80%.
Its Go...
Page 61 of 152
 OPPORTUNITIES:-
ITC is moving into new and emerging markets like developing countries of
Eastern Europe, ...
Page 62 of 152
 SWOT MATRIX:-
S
Its resource and capabilities
High demand
W
Huge investment
already big players
O
Eco fri...
Page 63 of 152
4.4). PEST ANALYSIS:-
Page 64 of 152
(1) Political factor:-
Govt. Policy affects the business in very deep.
The low cost local brand can affect ...
Page 65 of 152
(2).Economical:-
In economical effect industry has to check out that there is a huge part of
tobacco indust...
Page 66 of 152
(3) Socio-cultural factor:
Socio cultural factor includes two parts
(a) Socio
(b)Culture
If any industry ar...
Page 67 of 152
Literacy level: -
Literacy level in india is very less so people don‟t know about the harms
of tobacco prod...
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(c) Language: -
Language is also play an important role in any country. Because whatever
you communicate in...
Page 69 of 152
(4) Technological factor: -
Technological factors include following factor.
(a) Status of technology: -
Sta...
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(c) Cost of technology: -
Cost of technology means what is the cost of adopting technology.
For example:-
I...
Page 71 of 152
4.5). VALUE CHAIN OF TOBACCO INDUSTRY:-
VALUE CHAIN analysis was suggested by Michel porter. The VALUE
CHAI...
Page 72 of 152
 Primary activity :-
Primary activities are those activities which are essential to be perform
for any man...
Page 73 of 152
(4)Marketing &sales;-
This activity related with the marketing and sales activities of industry
here indust...
Page 74 of 152
(2)Human resource
Skilled &loyal human resource is an valuable asset for any industry
such kind of people a...
Page 75 of 152
4.6). FIVE FORCE ANALYSIS:-
Five force Analysis:-
Potential
Entrance
Rivalry
amongst
exiting firm
Suppliers...
Page 76 of 152
1. Threat of new entrance
2. Bargaining power of buyers
3. Bargaining power of suppliers
4. Rivalry amongst...
Page 77 of 152
IV. Product differentiation: - whether industry having different kind of
products is there or not. Companie...
Page 78 of 152
[3] BARGAINING POWER OF SUPPLIERS: -
Reduction or increase in number to any industry.
I. Important of produ...
Page 79 of 152
IV. Product standardization: - higher product standardization will result into
higher competition level. If...
Page 80 of 152
Chepter-5
Analysis of marketing mix
Page 81 of 152
MARKETING MIX
Product Price Place Promotion
Variety List Price Channels Advertising
Quality Discounts Cover...
Page 82 of 152
1). PRODUCT:-
(1.1) LEVELS OF PRODUCT:-
product package:-
Product refers to anything that marketer offers t...
Page 83 of 152
2) BASIC PRODUCT :
The marketer must turn the core benefit into basic produc t without basic
product market...
Page 84 of 152
Page 85 of 152
(1.2) Classification of products:-
Product is anything which is offered to market for attention, acquisitio...
Page 86 of 152
 Types of convenience goods:-
 Staple goods
 Impulse goods
 Emergency goods
 Staple goods
Consumer use...
Page 87 of 152
(1.3) Product line and mix:-
Product line:-
Product line can be defined as the group of closely related pro...
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  1. 1. Page 1 of 152 A Group report On Taste and preferences of The tobacco industry SUBMITTED BY:- 1). CHOKSI HEMAL 3006 2). DIYORA DIPAK S. 3007 3). DOBARIYA TUSHAR A. 3008 4). GAJJAR DHAVAL 3011 5). GAJJAR JAINISH 3012 6). JANI TEJAS 3016 7). JOSHI ARJUN U. 3017 8). MANGUKIYA NIKUNJ M. 3022 9). SHIYANI KAMLESH 3075 10). SATASIYA DILIP A. 3187 SUBMITED TO:-
  2. 2. Page 2 of 152 CERTIFICATE
  3. 3. Page 3 of 152 "You can tell whether a man is clever by his answers. You can tell whether a man is wise by his questions." Naguib Mahfouz One of the recurrent themes in our report has been the importance of tobacco as a beverage in the mind of customer. Apart from tobacco how different firms of tobacco are attracting the consumers is also a focus area of our report. During the past few decades we have lived in a culture that is the evidence of changing consumption pattern of tobacco and growing verities of tobacco in Indian market. We have chosen to prepare a report on Indian tobacco industry because of its importance for a customer and for the Indian economy; we can never underscore how tobacco is a important medium of foreign revenue for our nation. At first when we were putting down our efforts we have no idea what we would have to say though our report but however we put aside all doubts and began to examine the past of tobacco industry that how with the passage of the time tobacco industry has grown and became a strength for our economy as well the present scenario, and where the future lies of Indian tobacco industry. Every industry has struggled to achieve its goals. Generation have given their best to make life better for their off spring. There is nothing mysterious or hidden about it no alternative to effort. And yet we failed to follow the winning trace. More than the problems outside globalization recession, inflation, instability and so on- we are concerned about the inertia that has gripped the tobacco industry psyche, the mindset of defeat. We believe that when we believes in our goals that what we dream of can became reality results will began to follow. In the chapters of our report we have introduced with our work and extent of our knowledge regarding different concept of marketing and business environment and how we have linked the report with the practical issue of tobacco industry. PREFACE
  4. 4. Page 4 of 152 As per laid down curriculum the Third Year of B.B.A. we are assigned to make a report on teast and preferences of the people on tobacco industry. We are thank you to each & every person for providing us and supplying an adequate and defused information and their best support and guidance for completion of our report. We really appreciate the work and systematic efforts of our professor Mr. Bhaumik Nayak and shilpa trivedi who are helped guided and support us positively and enthusiastically in getting our work done. SUBMITTED BY:- 1). CHOKSI HEMAL 3006 2). DIYORA DIPAK S. 3007 3). DOBARIYA TUSHAR A. 3008 4). GAJJAR DHAVAL 3011 5). GAJJAR JAINISH 3012 6). JANI TEJAS 3016 7). JOSHI ARJUN U. 3017 8). MANGUKIYA NIKUNJ M. 3022 9). SHIYANI KAMLESH 3075 10). SATASIYA DILIP A. 3187 ACKNOWLEDGEMENT
  5. 5. Page 5 of 152 INDEX CH-NO:- NAME OF CHEPTER PAGE NO. CERTIFICATE PREFACE AKNOWLEDGEMENT ********* TABLE OF CONTENT ******** 1 RESEARCH METHODOLOGY 8 1.1 RESEARCH OBJECTIVE 9 1.2 RESEARCH DESIGN 10 1.3 RESEARCH APPROACH 11 1.4 RESEARCH SOURCES 12 1.5 CONTACT METHOD 12 1.6 RESEARCH INSTRUMENT 13 1.7 SAMPLING PLAN 14 1.8 ANALYSIS OF RESEARCH 16 1.9 LIMITATIONS 19 2 LITRETURE REVIEW 20 3 INTRODUCTION TO TOBACCO 3.1 HISTORY 23 3.2 HARMS OF TOBACCO 27 3.3 FORM OF TOBACCO 29 3.4 TOBACCO FARMING IN INDIA 33 3.5 PROCESS OF TOBACCO 34 3.6 IMPORT&EXPORT SENERIO 38 4 ANALYSIS OF TOBACCO INDUSTRY 4.1 SIZE AND STRUCTURE OF INDUSRY 43 4.2 MAJOR PLAYER AND MARKET SHARE 59 4.3 SWOT ANALYSIS 60
  6. 6. Page 6 of 152 4.4 PEST ANALYSIS 64 4.5 VALUE CHAIN OF TABACCO INDUSTRY 72 4.6 FIVE FORCE ANALYSIS 76 5 ANALYSIS OF MARKETING MIX 5.1 PRODUCT 82 5.2 PRICE 90 5.3 PROMOTION 97 5.4 PLACE 101 6 ANALYSIS OF STP 6.1 SEGMENTATION 104 6.2 TARGETING 109 6.3 POSITIONING 110 7 ANALYSIS OF CONSUMER PRICE AND SENSITIVITY AND BRAND PREFERANCES WITH SPECIAL FOCUS ON VARIOUS FORM OF TOBACCO. 111 8 Conclusion and findings 151 9 BIBLIOGRAPHY 153 ************************************
  7. 7. Page 7 of 152 PART-1 RESEARCH METHODOLOGY
  8. 8. Page 8 of 152 WHAT IS RESEARCH METHODOLOGY? Methodology is defined as 1. "the analysis of the principles of methods, rules, and postulates employed by a discipline"; 2. "the systematic study of methods that are, can be, or have been applied within a discipline"; or 3. "a particular procedure or set of procedures." 1.1)RESARCH OBJECTIVE:- Research objective can be define as the purpose or motive behind the research though which the researcher tries to conclude some of the major and minor findings. There are two types of objectives in research. Primary and secondary objective. (1) Primary objective:- Our researcher‟s primary objective is to identify the consumers preferances and consumption habit of tobacco. (2) Secondary objective:-  To analyze the situation of tobacco market in india.  To understand competitive framework of Indian tobacco industry.  To analyze the marketing mix strategy adopted by various big tobacco marketers.  To understand the various internal and external factors affecting Indian tobacco industry.
  9. 9. Page 9 of 152 (1.2) Research Design:- Research design is also known as framework or blue print of the research. There are three types of research design:- (1) Exploratory Research Design:- Exploratory Research Design means to find something new that help us to collect preliminary information and research hypothesis consumption. (2) Descriptive Research Design:- Descriptive Research Design means to describe any situation or information in detail. (3) Causal Research Design:- Causal Research Design means to study the cause and effect relationship of the situation. Here in the market research we have use Exploratory Research Design and Descriptive Research Design. We started with Exploratory Research for the following reason and ended with Descriptive Research by explaining each topic in detail.  To know the position of major players in the field of note book and long book.  To know the consumer preferences on long book and note book .  To know the brand preferences for notebook and long book.
  10. 10. Page 10 of 152 1.3) DATA SOURCES: - The source from which we get the information or data for research is known as Data source. (1) Primary Data: - “Primary data consists of the information which is freshly collected for the specific purpose at hand.” Newly / Freshly gathered information is known as primary data. For our project sources for primary data are personal interview with the holder of pan shop and parsons who consume the tobacco. For getting the primary data we have visited the different pan shops like  Lalit pan shop  Pandit pan shop  New way pan shop  Jai ambe pan shop  And many more….. (2) Secondary Data: - “Secondary data consist of information that already exist somewhere and having been collected for another purpose.” The data which are already exist & which was gathered earlier for, magazines any other purpose is known as secondary data, sources of secondary data are websites, etc.  WWW. docstok. Com  WWW.tobaccocontrol. Com  www.tobaccofreekids.org  www.tobaccofreekids.org  www.notobacco.org  www.imperial-tobacco.com
  11. 11. Page 11 of 152 1.4) Research Approach:- After deciding the data source we will get the information from our respondent i.e. Consumers. Primary data can be collected in following five ways: (1) Observational Research:- Fresh data can be collected by observing the consumers when they shop or consume the products. Important point can be noted down while analyzing the behavior of consumer. (2) Survey Approach:- It refers to face to face or direct communication with the respondents. In this pre- decided questions are asked to respondents. It is the suited for descriptive research. (3) Focused Group Approach:- In this researcher select people who are potential to afford their products. The trained moderator will ask the questions to the respondents and he will note the important points regarding his preferences. (4) Experimental Approach:- In this approach two mutually exclusive groups are selected having similar characteristics, keeping the same controllable factor and same variable in both groups but providing them different treatment to observe the differences in their opinion. Here we have used Survey Research Approach to know about consumer‟s beliefs, preferences and satisfaction regarding the consumption with the help of survey instrument known as Questionnaire.
  12. 12. Page 12 of 152 1.5) CONTACT METHODS:- In this we decide the method through which we can contact the respondent to get the information. Some of them are as follows: (1)Personal Interview:- It is a face to face communication with respondents. By this types of interview we can get the reliable information and researcher is able to complete all the questions. Explanation is given for the questions which are not understood by the respondents. (2)Telephonic Interview:- In this researcher ask questions to respondent on telephone. It is the best method for gathering information quickly and is less costly also. But in this type of method researcher can not get reliable, accurate and correct information. (3)Mail Questionnaire:- A structure questionnaire is prepared and sends to the respondents. The respondent is supposed to fill up the questionnaire and send it back to the researcher. This is very time consuming. (4) Online Interview:- In this type of research we ask the questions to respondents online through chat or E- mail. Large number of respondents can be covered and it is less costly.  For our research we have used PERSONAL INTERVIWE for getting reliable information. We met consumer of various age group and income group to know their consumption habit and preferences related to tobacco industry.
  13. 13. Page 13 of 152 (1.6). RESEARCH INSTRUMENTS:- Basically there are mainly 3 types of Research Instruments. They are: 1) Questionnaire; 2) Qualitative measures, 3) Mechanical Devices. In our research we have used questionnaire as a Research Instrument. Types of Questionnaire: (1) Structured Questionnaire:- In these types of Questionnaire all the questions are pre decided formal and it is asked in a logical sequences. (2) Unstructured Questionnaire:- In this types of Questionnaire questions are ready but not asked in logical sequence. Research can ask any question at any question at any time according to his wish as the format is not pre decided. Types of Questions:  Open ended questions : It means where respondents is allowed to answer in his own way by using own words and sentences. Here freedom is provided to respondents to answers.  Close ended questions : It means where respondents are provided the options and is supposed to answer from those alternatives only. Here freedom is not provided to respondent to answer. For our report we have used STRUCTURED QUESTIONNAIRE that includes both of open ended questions and close ended questions. In close ended type of questions we have used Dichotomous Questions and multiple choice questions.
  14. 14. Page 14 of 152 1.7).SAMPLING PLAN:- a. Sample Unit b. Sample Size c. Sample Procedure Sample: - “Sample is a segment of the population selected for research to represent the population as a whole.” In our report the sample is consumers who are consuming the tobacco in Ahmadabad. Sample Unit: - “Sample Unit means who is to be surveyed? We have done the survey on Pan-parlor and the customers of tobacco product& we met the consumer personally and we had find the reason behind the consumption of tobacco. Sample Size: - “Sample Size means how many people should be surveyed?” We have surveyed 200 people who are consuming tobacco in Ahmadabad. And pan-parlor given below.  Lalit pan shop  Pandit pan shop  New way pan shop  Jai ambe pan shop  And many more…..
  15. 15. Page 15 of 152 Sampling Procedure: - “Sampling procedure means how should the respondent be chosen.” There are two types of sampling procedure. Probability Non probability On the Probability bases sample, where each element of population has given equal chance of getting selected. In our report we are not going survey according to the probability methods. On the Non-Probability bases sample, where each element of population has not given equal chance of getting selected. In our report we have done survey according to the non-probability methods. In Non Probability we have done the survey according to the convenience. We surveyed the different kind of pan shop and we collect the information which we can collect with the responds of the consumers. In our research we used non probability sampling procedure by convenience sampling as all the units of population do not get known and equal chance to be selected as a samples.
  16. 16. Page 16 of 152 1.8) ANALYSIS OF RESEARCH:- Analysis of our research is divided into 5 parts: They are: (1) Screening (2) Coding (3) Decoding (4) Tabulation  General Tabulation  Cross Tabulation (5) Pie charts A detail introduction of Stationery‟s aspects is as follows: (1) Screening: Screening involves collections of all necessary information through questionnaire and then identifies the eligible questionnaires data useful for research. In this process we have discriminated the correct questionnaire and conducted our analysis. On the basis of these error free questionnaires we have conducted the further analysis. (2) Coding: In the second stage of our analysis we have marked 1 to 300 numbers on the questionnaires. That means our sample size was 300 respondents. Each and every question of questionnaire and the option of given in each question was also assigned a code (3) Decoding: In this steps of our analysis the same method which we have applied at the time of coding in the actual questionnaire. In the computer first of all we have entered 300 respondents as R1, R2, R3, R4, R5….R300 and the questions 1 to 27 We use a single sheet for all the single answers questions and for each multiple choice question we have used different sheet.
  17. 17. Page 17 of 152 (4)Tabulation: In the tabulation stage we as researcher have used 2 types of tabulation: (a) General Tabulation (b) Cross Tabulation (a) General Tabulation: In general tabulation we have arranged the data in forms of table for every question likewise type of numbers of respondent & income. Income People Percentage Less then 10000 75 37.5 10000-20000 65 32.5 20000-40000 47 23.5 Above 40000 13 6.5 (b) Cross Tabulation: We have also tried to articulate the relation between entities. Example:-age of the respondent and income group AGE & INCOME GROUP Spending Age Less than 100 100-300 300-500 Above 500 Total 1-18 11 08 03 01 23 19-25 15 30 18 18 85 26-35 04 12 17 07 40 36-45 05 04 07 10 26 46-55 08 05 03 01 17 Above 55 01 04 02 02 09 Total 48 63 50 39 200
  18. 18. Page 18 of 152 (5)Pie charts: We have also presented the information collected from our side in the form of pie chart also so that a clear idea about the responses given by them can be obtained. Example:- 75 65 47 13 MONTHLY INCOME OF PEOPLE WHO CONSUME TOBACCO LESS THAN 10000 10001-20000 20001-40000 40001 ABOVE
  19. 19. Page 19 of 152 1.9) LIMITATION:- There are certain limitations to be faced while doing this researches. (1) Time: It is the time consuming as it took nearly 6-7 months for data collection, primary survey and analysis of it of 200 sample size. (2) Cost: It becomes more expensive due to primary survey done to know the preference of consumers towards tobacco. (3) Area: The Geographical area was limited to Ahmedabad only. There for result may be restricted or limited. (4) Professional Approach: For the purpose of analysis we have not used any high technical software. So problems and loopholes may be found.
  20. 20. Page 20 of 152 Part-2 LITRETURE REVIEW
  21. 21. Page 21 of 152 1) This article analyses consumption patterns, socio-economic distribution and household choice of a variety of tobacco products across rural and urban India. Using a multinomial logit model, we examine the choice behaviour of a household in deciding whether and which tobacco products to consume. Household-level data covering 120,309 households have been used for this. We find that most forms of tobacco consumption are higher among socially disadvantaged and low- income groups in the country. Variables such as education, sex ratio, alcohol and pan consumption were found to be significant factors determining tobacco consumption habits of Indian households. The effect of some of the factors on the probability of consumption differs for certain types of tobacco products, increasing some and decreasing others. Addictive goods such as alcohol and pan were found to be complementary to tobacco consumption 2) The main objective of this paper is to analyze the pattern of tobacco consumption and its health implications in India. We use various rounds of National Sample Survey for this purpose. The paper finds that, though there is a reduction in tobacco consumption in the form of bidi and cigarette in India as a whole, this decrease is compensated for by an increase of pan consumption in rural India. It has also been observed that the consumption of tobacco is more among the poor in India and we argue that the consequent higher health care spending arising out of tobacco related diseases leaves them economically worse off. Thus the paper concludes that, apart from the economic gains that tobacco industry is generating, tobacco use also imposes burden, especially on users, in the form of numerous tobacco related diseases and high health care spending. This, coupled with the fact that the investment on health by government is declining over the years, has the potential to trap the poor in a vicious circle of poverty and ill health. Hence government policy needs to be targeted towards an effective control of tobacco use.
  22. 22. Page 22 of 152 Part-3 Introduction Of Tobacco
  23. 23. Page 23 of 152 3. INTRODUCTION TO TOBACCO:- 3.1). HISTORY OF TOBACCO:- Tobacco is deeply rooted in our history. Because the export of tobacco financed shipment of essential goods from England, it became the lifeblood of the early settlers. Tobacco sales continue to play a major role in the U.S. economy. Approximately one-third of the total annual production is exported. Leaf and manufactured product exports have grown since 1988 and now appear to be leveling off. Generally, imported tobacco is a lower grade than domestic leaf. It is used in the manufacture of generic cigarettes, which in 1992 were 30 percent of the market. American leaf is used in the brand name production. Tobacco is the seventh largest cash crop of the 50 states. One acre produces an average yield of $3,862. In comparison, corn, cotton, and peanuts yield $262, $380, and $691 per acre, respectively. The five largest producing states of flue-cured tobacco for 1992 are: The tax on tobacco products is now the second largest revenue generated for the U.S. Treasury, exceeded only by the excise tax collections from gasoline. Tobacco is the most heavily taxed of any consumer product by percent of retail price. The taxes generated are not only from excise, but from income, employment, property, and sales taxes.
  24. 24. Page 24 of 152 ECONOMIC HISTORY OF TOBACCO PRODUCTION:- Tobacco occupies a prime place in the Indian economy on account of its considerable contribution to the agricultural, industrial and export sectors. India is the second largest producer of tobacco in the world. China and the USA rank first and third, respectively, in terms of tobacco cultivation. Brazil, Turkey, Zimbabwe, Malawi, Italy and Greece are the other major tobacco producing countries. Tobacco contributes substantially to the economies of these countries. In 2000.2001, the contribution of tobacco to the Indian economy was to the Extent of Rs 81,820 million, which accounted for about 12% of the total excise collections. Foreign exchange earnings during the same period were Rs 9030 million, accounting for 4% of India‟s total agricultural exports. Endowed with Favorable agro-climatic attributes such as fertile soil, rainfall and ample sunshine, India has the potential of producing different varieties of tobacco with varied flavors. KEY MESSAGES:- . Tobacco cultivation has a history of about 8000 years. . Europeans were introduced to tobacco when Columbus landed in America in 1492. . Portuguese traders introduced tobacco in India during 1600. Tobacco became a valuable Commodity in barter trade and its use spread rapidly. . Tobacco‟s easy assimilation into the cultural rituals of many societies was facilitated by The medicinal (and perhaps intoxicating) properties attributed to it. . Tobacco smoking became a popular leisure activity in Europe during the early seventeenth Century. . Introduced initially in India as a product to be smoked, tobacco gradually began to be used in several other forms. Paan (betel quid) chewing became a widely prevalent form of smokeless tobacco use. . Although some Chinese and European systems of medicine supported the use of tobacco, Ayurveda. the Indian system of medicine. never supported the use of tobacco as medication. . The ill effects of tobacco use on human health were recognized even in the sixteenth century, which led to restrictions on its use even in earlier centuries. . Tobacco thrived everywhere in the world despite social (and some religious) disapproval The immediate and tangible benefits that accrue from tobacco cultivation, manufacture and marketing act as incentives for farmers to grow tobacco and for the government to encourage tobacco cultivation and manufacture. Tobacco has developed from a commodity to which great importance and value were attached (because of its presumed medicinal and evident intoxicant properties), and hence used for barter trade during the sixteenth and seventeenth centuries, to a cash crop in subsequent periods.
  25. 25. Page 25 of 152 The following aspects of tobacco can help in understanding why it has developed as a cash crop: 1. Tobacco has been contributing substantially to the total agricultural income. 2. It yields high net returns per unit of cultivation as compared to other crops. 3. It provides employment opportunities, both in agriculture and activities involved in the manufacture of tobacco products. 4. It is a major foreign exchange earner. 5. It is an important source of revenue, which can be tapped relatively more easily than many other commodities. In view of its special qualities, a levy on it does not cause marked substitution effects and what the noted fiscal expert, Richard Musgrave terms .the spite effects. Therefore, in practically every fiscal budget in India, the finance minister proposes raising a levy on tobacco products and justifies it on the ground that tobacco consumption is injurious to health. 6. There is considerable domestic and international demand for tobacco and its products. The historical developments relating to the economic aspects of tobacco in India can be studied in two periods: the colonial era before India became independent in 1947 and the post- Independence period of national governance and policy-making.
  26. 26. Page 26 of 152 Pre-Independence period Tobacco was initially grown in the Deccan region (South Central India), during 1605, and later spread to other parts. The Virginia variety of tobacco was introduced in India in Andhra Pradesh in 1920 by the British officers of the Indian Leaf Tobacco Development Industry Sir Forbes Watson‟s Cultivation and preparation of tobacco in India (1871), said to be one of the earliest publications on tobacco, tells us more about Indian tobacco. The earliest forms of cigarettes have been attested in Central America around the 9th century in the form of reeds and smoking tubes. The Maya, and later the Aztecs, smoked tobacco and various psychoactive drugs in religious rituals and frequently depicted priests and deities smoking on pottery and temple engravings. The cigarette, and the cigar, was the most common method of smoking in the Caribbean, Mexico and Central and South America until recent times. The South and Central American cigarette used various plant wrappers; when it was brought back to Spain, maize wrappers were introduced, and by the seventeenth century, fine paper. By 1830, the cigarette had crossed into France, where it received the name cigarette; and in 1845, the French state tobacco monopoly began manufacturing them. In the English-speaking world, the use of tobacco in cigarette form became increasingly popular during and after the Crimean War, when British soldiers began emulating their Ottoman Turkish comrades and Russian enemies. This was helped by the development of tobaccos that are suitable for cigarette use, and by the development of the Egyptian cigarette export industry.
  27. 27. Page 27 of 152 3.2).HARMS OF TOBACOO:- I. MAGNITUDE OF THE PROBLEM Each year in India an estimated total of 700,000-900,000 new cancers are diagnosed, 2001; Murthy et al., 1990; Yeller and Jussawalla, 1992). Nearly half of allcancers in men occur at sites associated with tobacco use. These sites include: mouth (oral cavity),lip and tongue,oropharynx, hypo pharynx, pharynx, esophagus, larynx, lung and urinary bladder. In women, less than one fifth of cancers occur at these sites, ,predominantly in oesophagus and oral cavity, but cancers of the cervix and breast constitutes over 40%of all cancers. The lower proportion of tobacco related cancers (TRCs) among women is mostly explained bythe fact that, tobacco use, especially smoking, is more common among men than among women.The number of newly diagnosed TRCs each year in India has been estimated at approximately 250,000(NCRP, 2001). In men, lung cancer is numerically thehighest among all registered cancers in the sixpopulation-based registries (Bangalore, Barshi,Bhopal, Chennai, Delhi and Mumbai), but when cancers at all oral sites are combined - oral cavity,tongue and lip - oral cancer vies for first place withlung cancer. Registry-wise, lung cancer and oral cancerjockey for first place in four registries, with theexceptions of Bangalore, where oesophageal cancer ishighest, and the rural registry at Barshi, whereoropharyngeal cancer is highest. In the otherregistries, oropharyngeal cancer vies for third placealong with oesophageal cancers, followed by laryngealcancer, except in Delhi, where laryngeal cancer takesthird place and cancers of the pharynx and of theoesophagus follow in nearly equal proportions. Inwomen, oral cancer takes first place among TRCs inall the Registries; it is closely followed by oesophagealcancer and then the other TRCs follow in much smallerproportions. Cancers of the urinary bladder are alsoconsidered among the tobacco related cancers by theNCRP (IARC, 1986) and they form a small fraction ofthem in both men and women (NCRP, 2001). II. EVIDENCE FOR CAUSATION BY TOBACCO Epidemiological studies from around the worldhave provided sufficient evidence that the smoking oftobacco as cigarettes and bidis causes cancer of the respiratory tract and the upper digestive tract(International Agency for Research on Cancer (IARC),1986). Similarly, smokeless tobacco including theforms most commonly used in South Asia, has beendemonstrated to cause oral cancer and other head andneck cancers (IARC, 1985). The risks of these cancersare substantially increased in tobacco users who havea high-level consumption of alcohol (IARC 1986). Sinceevidence up to 1985 has been extensively reviewed bythe IARC, in this paper largely post-1985 studies areincluded.
  28. 28. Page 28 of 152 III. ORAL CANCER Since 1985, eight case-control studies on oralcancers conducted in India from places as diverse asBangalore, Bhopal, Chennai, Mumbai and Trivandrum, have given fresh evidence of the role oftobacco smoking and chewing in cancer causation. Fiveof these studies reported significant estimated relative risks to current chewers of pan with tobacco compared to non-chewers: in men, the relative risks varied from 1.8 to 5.8 and, the values for women ranged from 30.4 for currentchewers to 42.4 ever chewers in the two studies that included women. In three studies conducted in Trivandrum, male cases and controls were stratified by habit for having ever been a regular pan-tobacco chewer compared tothose who never had chewed or smoked, relative risks for oral cancer at different sub- sites were reported at8.75, 6.1 and 14.3. All eight studies reported significant doseresponse trends for frequency of pan-tobacco chewing per day, and six out of the eight studies reported significant trends for duration as well. Retention of the quid overnight, analyzed in one study, showed a36-fold risk. Use of tobacco with lime was identified as a risk factor for oral and oropharyngeal cancers in a largehospital-based case-control study in Pakistan, yieldingrelative risks of 10.4 for women and 13.7 for men, compared to those who neither chewed nor smoked. VII. LUNG CANCER Studies on lung cancer from around the world have led to the conclusion that the proportion of lung cancer attributable to smoking is of the order of 90%. In two case- control studies of lung cancer in India, Bidi smokers had a relative risk of 5.8 and 11.6, while cigarette smokers had values of 5.6 and 7.7. Smokers of more than 20 Bidi per day had relative risks of 12.25 and 33.2 and smokers of more than 20 cigarettes daily, 5.8 and 26.8.
  29. 29. Page 29 of 152 3.3). FORMS OF TOBACCO:- Tobacco is consumed in two ways, either by smoking or chewing. While smoking the following tobacco products are consumed: Cigarette, Cigar, Bidi (Hand rolled, leaf wrapped country cigarettes) and to chew the products are: Raw tobacco, Supari (Arecanut), Gutkha, Pan Parag etc.. Due to diverse climatic conditions every type of tobacco is grown in India. Almost 90% of area is accounted for by Nicotine tobacem. And 10% by Nicotina Restica. Only one third of the tobacco output in the country is Flue cured Virginia (FCV) variety, suitable for cigarette manufacturing. There are seven major categories of tobacco, Viz. Flue cured Virginia tobacco (FCV), Burley, Oriental, Bark flue cured, Sun cured, Light flue cured cigar and Dark flue cured. Flue cured Virginia tobacco is mainly used for manufacture of cigarettes. Light air cured tobacco is used in the manufacture of bidis. Unmanufactured tobacco is also consumed in India, for chewing purpose 1). FLUE-CURED:- Also known as bright leaf is carefully force dried in barns using a clean heat source and produces a golden colored leaf. It is the principle ingredient in cigarettes. North Carolina is the leading grower of flue-cured tobacco, which is also grown in Virginia, South Carolina, Georgia, Florida, and Alabama. 2). FIRE-CURED:- It is used in snuff, chewing tobacco, and strong cigars. 3). MARYLAND AIR-CURED :- It is used in cigarettes and as cigar filler. 4). DARK AIR-CURED:- It is used in chewing and smoking tobaccos, snuff, and as cigar filler. 5). CIGAR TYPES: FILLER, BINDER, AND WRAPPER:- There are grown in the Northeast, Wisconsin, and Puerto Rico.
  30. 30. Page 30 of 152 6). PERIQUE:- It is noted for its pleasing aroma, is used sparingly in fancy smoking tobacco blends and is grown in Louisiana in very limited quantities.  Cigarettes:-  Gutkha
  31. 31. Page 31 of 152  Beedi  Raw tobacco
  32. 32. Page 32 of 152 TYPES OF TOBACCO:- BEEDI TOBACCO: This occupies 30%.35% of the total area under tobacco cultivation and Is grown in Gujarat, Karnataka and Maharashtra. Nearly 85% of the world‟s beedi tobacco is grown in India. The average yield varies between 1000 and 1700 kg/hectare in Karnataka and Gujarat, respectively. FCV TOBACCO: It is grown in Andhra Pradesh and Karnataka. A small quantity of this tobacco is also grown in Orissa (Rayagada) and Maharashtra (Gadchiroli). It is the most remunerative crop due to the demand from domestic cigarette manufacturers and importers. In 2000.2001, the average yield of FCV tobacco was 1710 kg/hectare. Fifty per cent of the FCV grown in India is used by the domestic cigarette industry while the remaining is exported. BURLEY TOBACCO: This air-cured form of tobacco is used for cigarette blends and is grown in Andhra Pradesh. HOOKAH TOBACCO: (Nicotiana rustica variety) It is used for smoking and is grown in Uttar Pradesh, Bihar, West Bengal and Orissa. CHEWING TOBACCO: This is used for gutka, snuff and pipe tobacco. It is grown in Tamil Nadu, Uttar Pradesh, Bihar, West Bengal and Orissa. NATU TOBACCO: It is sun-cured and grown in Andhra Pradesh. CIGAR TOBACCO: This type of tobacco is grown in West Bengal and Tamil Nadu.
  33. 33. Page 33 of 152 3.4). TOBACCO FARMING IN INDIA:- Andhra Pradesh, Gujarat, Karnataka, Maharashtra, Bihar and Tamil Nadu are the major tobacco producing states in India. Around 65% of India‟s production comes from Andhra Pradesh (34%), Gujarat (22%) and Karnataka (11%). Tobacco is also grown in Orissa, Uttar Pradesh and West Bengal, Andhra Pradesh, Gujarat, Karnataka and Uttar Pradesh together account for over 90% of the total tobacco production in the country. Currently, Indian tobacco is exported to more than 80 countries spread over all the continents. Farmers who grow tobacco are different from other farmers in several ways. It is those differences that make this audit guide useful. Due to the high value of tobacco, both per acre and per pound and the level of Government regulation of the industry, special problems and opportunities exist. A detailed paper trail is generated for legal sales of tobacco, and complex schemes have developed to facilitate illegal sales. If you have not read Chapter 1, you should consider going back and reading the parts on market structure, Government regulation, and illegal schemes before you proceed. They would give you a basic understanding of the market environment and how the farmer, dealer, warehouse, and Government agencies interact.
  34. 34. Page 34 of 152 3.5) PROCESS OF TOBACCO:- THE HARVEST:- The harvest begins in January and extends for some weeks. The tobacco is picked by hand in six passages, each of which takes about seven days. The harvest begins at ground level and moves upward, removing only two or three leaves per passage. About 120 days pass between the transplantation of the seedlings to the end of the harvest; during this time each plant has be examined 170 times on average – an extremely labor-intensive affair. The Corojo Harvest:- The uppermost leaves of the plant, the “Semi Corona” and “Corona” deliver the exceptionally aromatic and full- bodied parts for cigar production. In “Centro” one finds the most beautiful and finest of leaves with a balanced flavor. The best leaf quality is found in the “Centro Fino”. The aromatically less distinctive, lower leaves on the plant are called the “Libre de Pie” and “Uno y Medio”; they display especially fine burn characteristics. The Criollo Harvest:- The Criollo plant carries six or seven pairs of leaves, which are divided into the classifications Ligero, Seco, Volado und Capote. The younger leaves at the top which are exposed to sun, have a stronger flavor and a higher nicotine content. The Seco leaves from the center of the plant are somewhat milder. The bottom leaves, exhibit the least flavor, as they are the oldest and have had the most shade. They are primarily used as filler.
  35. 35. Page 35 of 152 AIR-DRYING:- The bundled leaves are brought into the drying sheds (Casas del Tabaco) to dry. These are aligned on an East/ West so that the sun warms one end of the shed in the morning and the other in the afternoon. Temperature and air humidity are carefully regulated by opening and closing doors located at both ends. The tobacco leaves are attached in pairs by way of needle and cord to wooden poles (Cujes or Poles), which are hung just above the ground. During the drying process which takes about 50 days, they are gradually hung higher and higher in the shed. The leaves first turn yellow and then through the oxidation process, take on their famed golden brown colour. THE FIRST FERMENTATION:- The tobacco leaves are packed together into bundles (Gavillas) and then moved into the fermentation house. Here they are stacked in piles (Pilones), reaching over three feet high. If the temperature of the tobacco rises above 35°C, the piles are dismantled and allowed to cool until they can again be heaped up. The first fermentation lasts about 30 days, within which the leaves take on an even colour, resins are reduced, and ammonia and other unwanted components are dissipated.
  36. 36. Page 36 of 152 DE-RIBBING AND SORTING:- The tobacco leaves are moistened with water in order to avoid discoloration. Subsequently the main ribs are removed. The leaves are then sorted, depending upon intended purpose, colour, size and quality. The complete de-ribbing and final sorting in up to 50 different categories takes place much later in the factory. THE SECOND FERMENTATION:- The leaves are again bundled together and stacked into meter-high piles (Burros). The tobacco goes through a chemical change which positively influences its taste and flavour, and allows any remaining foreign components to diminish. The second fermentation is stronger than the first and lasts up to 60 days. The wrappers undergo the shortest fermentation. STORAGE:- After resting for some days on ventilation racks, the tobacco is pressed into bundles called “Tercios”, which are wrapped in palm bark or banana leaves. These bundles are delivered to local collection points, which are under the control of the state monopoly habanos. From this moment on, the Republic of Cuba assumes responsibility over the further treatment of the tobacco. The Tercios are kept up to three years in depots – for some formats even longer – until they are needed by the cigar factories. The taste and flavour of the tobacco continues to improve during this storage period. THE PREPARATION OF THE TOBACCO:- The wrapper leaves are moistened so that they are supple and smooth; afterwards they are hung up over night so that the humidity can distribute itself evenly along the leaf. The next day “Despallidores” remove the central ribs by halving the tobacco leaf. Next the leaves are sorted by the “Rezagadoras” into piles by size, colour and structure. The binder and filler do not require humidifying. The various types of leaves have different ripening intervals; the blending master attentively supervises the development of each sort. Subsequently, the leaves go to the blending station, where under strict safety precautions the blending process takes place. It is here that the carefully guarded secret recipes for each Habanos are kept. The mixtures are handed out to the cigar rollers (Torcedores), the amount of which is just enough for the production of 50 cigars.
  37. 37. Page 37 of 152 THE PRODUCTION OF CIGARS:- At the heart of each factory is the “Galera”. It is here that the Torcedores create the various sorts and formats. The only tools employed are a wooden table, a sharp blade (Chaveta), a guillotine, a small pot of vegetable adhesive and – above all –skillful fingers. Each Torcedor is able to daily roll about 120 cigars which perfectly keep to the prescribed lengths and diameters. Samples of their work are regularly examined by quality testers, and should the cigars not be found good, this is very serious affair for the Torcedor as they are paid by the piece. THE ESCAPARATE:- Directly from the work bench, the cigars are delivered to a climate-controlled room, the “Escaparate”, which is equipped with high cedar wood shelves. For at least three weeks and sometimes for several months, the finished cigars are stored here under ideal conditions: The temperature lies between 16°C and 18°C and the relative humidity between 65% to 70%. COLOR DETERMINATION AND ATTACHMENT OF CIGAR BANDS In order for a perfect presentation of the cigars, the Escogedor (color sorter) sorts them into 65 different shades of color. A second Escogedor arranges the cigars into boxes so that the color tones from dark to light are presented from left to right. He also chooses which side of the cigar will be displayed when the box is opened at a later date. The Escogedores belong to the best paid workers in the factory. The Anilladora (bander) removes the cigars from the box in order to attach the bands. Under no circumstances may she change the arrangement selected by the Escogedor nor the side of the cigar to be displayed. The packed boxes are now secured with the guarantee seal of the Cuban government. The crates are made of cedar so that the cigars can breathe and mature further.
  38. 38. Page 38 of 152 3.6). IMPORT AND EXPORT SENERIO:- India‟s Tobacco exports are likely to touch Rs. 16,050 million towards the end of current fiscal from Rs. about Rs. 15060.20 million in last fiscal as its growers are set to export more than 60% of their produce in view of domestic tobacco‟s rising demand in countries like Russia, Vietnam, U.K., Germany and Belgium. The aforesaid estimates are made by the Associated Chambers of Commerce and Industry of India (ASSOCHAM) on Prospects of Tobacco to Exports for Current Fiscal, emphasising that domestic tobacco sector in the past few years has come out of ressession, the impact of which would be favourable and amount to higher tobacco exports. ASSOCHAM President, Mr. Venugopal N. Dhoot said,” export potential of India tobacco could be much more provided Indian farmers are paid reasonably well for growing tobacco crops proportionally as happens in leading tobacco growing countries such as Brazil & Zimbabwe. Tobacco farmers, in country like Brazil are paid $ 1.8 per kg as against $2 per kg in Zimbabwe. In India, the tobacco growing farmer‟s condition is poorer as they are paid only 80-90 cent per kg. On top of it, Indian tobacco industry is highly taxed particularly its cigarettes segment, in which the tax component is around 350% as against 70% in Brazil & Zimbabwe, pointed out Mr. Dhoot. Productivity is high in Zimbabwe at 3200Kg per hectare, whereas it is 1900 kg in Brazil and around 2000Kg in India. However, tobacco leaves of Brazil and Zimbabwe contain high nicotine and a sizeable unwanted external content. Indian tobacco, on the other hand, contains negligible nicotine and other toxic matter and is famous for fascinating flavours. The Chamber assessment also reveals that in 2005-06 tobacco exports in quantity were 1,65,882 tonnes and value terms the export realization was to the tune of Rs. 14047.20 Million. According to the figure available with ASSOCHAM during 2006-07, tobacco exports in value terms comprised Rs. 15060.20 million. In volume their quantity was estimated around 1,70,005 tonnes. This is despite that the tobacco industry had been facing some recession on account of export pricing in the past, trends for which now appear to be favourable. It is because of this that chamber has projected higher exports value for tobacco products as well as their quantity. Russia was the largest importer of Indian tobacco in 2005-06. It imported 27,513 tonnes of tobacco (leaf and products) from India. It was followed by Belgium (15,411 tonnes), Vietnam (7749 tonnes), the UK (7721 tonnes) and Germany (6354 tonnes). During 2006- 07, their imports respectively were Russia (27,950 tonnes), Belgium(15,800 tonnes), Vietnam (7949 tonnes), the UK (7921 tonnes) and Germany (6524 tonnes)
  39. 39. Page 39 of 152 Among group the nations, West Europe, by importing 30 % (43,213 tonnes) of Indian tobacco, was the largest importer. East Europe, which imported 40,167 tonnes (20%), came in second. South Asia & South –East Asia bought 31,656 tonnes (22%),Africa 12,618 tonnes(9%), West Asia 7917 tonnes (6%), North and South Americas 4192 tonnes (3%) and Australia 2244 tonnes (2%) in 2005-06. In India, about 6 million farmers are engaged in cultivation of tobacco and about 36 million people are dependent on the tobacco industry, either directly or indirectly. Hookah tobacco paste 879 Kg led the exports of tobacco products followed by cigarettes 1011 Kg. Of the total exports of tobacco items form the country, unmanufactured tobacco accounts for 80% to 85% and the manufactured tobacco products account for 20% to 25%. Of the unmanufactured tobacco exports Flue Cured Virginia (FCV) tobacco is the single largest item accounting for 75% to 80% of the tobacco exports. The other varieties exported are Burley, HDBRG, Natu, DWFC, Top leaf and Jutty – all are cigarette tobaccos. Non- cigarette tobaccos exported are Lalchopadia, Judi, Rustica for chewing purposes and bidi tobacco in small quantities. The export of non-cigarette tobaccos is at levels of 8-10%. Contrary to international trend, India‟s tobacco production is dominated by non-cigarette tobaccos. FCV tobacco is the major export variety, as it constitutes about 70% of the total unmanufactured tobacco exports. The FCV tobacco is grown principally in Andhra Pradesh (70 per cent), Karnataka (29 per cent) and Maharashtra and Orissa (below one per cent). Andhra Pradesh and Karnataka are the two main FCV tobacco-growing regions. Currently the situation in the global tobacco market is transforming into a favourable market environment for tobacco exports due to several reasons. Brazilian export prices have almost leveled the most expensive American tobacco prices. Zimbabwean farm prices have also seen higher the Brazilian prices. Increasing cost of production and the significant amount of export cesses imposed on tobacco exports by the Governments of Zimbabwe and Malawi recently made their tobaccos further expensive. The newly opened East European and CIS markets are not in a position either to absorb high cost tobaccos or cigarettes made with high conversion cost. Phasing out of farm subsidies by European Union will further enhance price competitiveness of Indian tobacco. Under these circumstances, India can become a major player in the Indian tobacco market if it can harness the emerging opportunities and enhances its exports to the major import markets.
  40. 40. Page 40 of 152 The advantages for Indian tobacco are a low unit production cost; average export prices of Indian FCV tobacco are more competitive than that of Brazil, USA, Zimbabwe; low conversion costs of tobacco into cigarettes in Indian compared to in UK and in USA; low to medium nicotines to suit the current requirement of world markets; anticipated decline in production in China, USA, Zimbabwe, EU in the next five years due to declining consumption in USA & EU, government controls to restrict production in China, phasing out of Agri subsidies by EU and Land invasions & Land acquisition in Zimbabwe i.e. change of tobacco farms from White farmers to Native farmer; and phasing out of Agricultural subsidies in European Union and Argentina; etc. ASSOCHAM has suggested several measures needs to improve the quality and yield of tobacco through improved package of practices at the farm level, improved curing and grading facilities, transfer of technology to the farmers and image promotion abroad. Rich and varied Indian geographic and agro-climatic conditions foster consistent availability of wide range of tobaccos for export all through the year. Indian tobacco, by virtue of its qualities, sheer volumes and diversity, is progressing gracefully to occupy its rightful place in the world tobacco market.
  41. 41. Page 41 of 152 CHAPTER:-4 ANALYSIS OF TOBACCO INDUSTRIES
  42. 42. Page 42 of 152 4.1). Tobacco industry in India India is the second largest producer of tobacco in the world after China. It produced 572 m kgs of tobacco in FY03. However, India holds a meager 0.7% share of the US$ 30 bn global trade in tobacco, with cigarettes accounting for 85% of the country's total tobacco exports. Despite being the second largest producer, India is only the ninth largest exporter of tobacco and tobacco products in the world. Out of the total tobacco produced in India, only one-third is flue-cured tobacco suitable for cigarette manufacturing. Most of the tobacco produce is suitable for the manufacture of chewing tobacco, bidis and other cheap tobacco products, which have no demand outside the country. In India, three major cigarette players dominate the market, primarily ITC with 72% market share, Godfrey Phillips with 12% and VST with 8% share of the market. Chewing tobacco has been a tradition in India for centuries. Of the total amount of tobacco produced in the country, around 48% is in the form of chewing tobacco, 38% as bidis, and only 14% as cigarettes. Thus, bidis, snuff and chewing tobacco (such as gutka, khaini and zarda) form the bulk (86%) of India's total tobacco production. In the rest of the world, production of cigarettes is 90% of total production of tobacco related products. The per capita consumption of cigarettes in India is merely a tenth of the world average. This unique tobacco consumption pattern is a combination of tradition and more importantly the tax imposed on cigarettes over the last 2 decades. Cigarette smokers pay almost 85% of the total tax revenues generated from tobacco. The tobacco industry is one of the most profitable industries in the world. Tobacco companies use their enormous wealth and influence both locally and globally to market their deadly products. Even as advocacy groups and policy makers work to combat the tobacco industry‟s influence, new and manipulative tactics are used by tobacco companies and their allies to circumvent tobacco control efforts. It is important for tobacco control advocates to know which companies are present in their country, how and where they operate, the types and quantity of products sold, and marketing tactics used to sell tobacco products. It is important to note that the tobacco companies typically report market data annually at least several months after the end of the fiscal year. By its nature, annual market data reported by analysts and tobacco companies are one or two years old. It is also important to note that information about the tobacco industry in India is not always readily available. This is particularly true for the loosely regulated bidi and smokeless sectors.
  43. 43. Page 43 of 152 In India, the tobacco industry is divided into three distinct and powerful sectors: bidis (smoking products hand-rolled in tendu leaves), smokeless tobacco (mainly chewing tobacco) and cigarettes. Bidis are the most popular tobacco products consumed in India- 48% of the market. Smokeless tobacco makes up 38% and cigarettes only 14% of the market.4 Some aspect of the tobacco industry,whether it be tobacco farming, manufacturing, or distribution, is present in every Indian state, making tobacco control a truly national effort. This report, like the tobacco industry in India, has sections on each of the tobacco sectors as well as examples of tobacco promotion, sponsorship and corporate social responsibility efforts designed to increase consumption and industry profits. 2. The Bidi Industry Bidis are slim hand-rolled, unfiltered cigarettes that are rolled in brown tendu or temburni leaves and held together by a string. The product is often flavoured, and in general bidis are stronger tasting than regular cigarettes. Bidis are cheaper than cigarettes which makes them very popular in rural areas and among the poor.5-6 While bidis are the number one tobacco product used in India, very little is actually known about the organization of the bidi industry. Bidi production is fragmented and because most brands are hand-rolled in individual homes on a small scale, the bidi industry is considered to be a cottage industry.5 • In 1995 the Ministry of Statistics and Programme Implementation estimated there were over 6,600 bidi manufacturers in India, compared to 40 cigarette factories and 55 smokeless tobacco factories.4 While recent numbers are not available, it is still clear that bidi manufacturers greatly outnumber other types of product manufacturers.
  44. 44. Page 44 of 152 industry is divided into two different sectors: organized and unorganized. The organized sector is factory based and production is increasingly mechanized; and the unorganized sector is made up of home-based production and small cooperatives.5 Most production and hand-rolling is done at home by women and children.5 • Tobacco industry analyst, Euromonitor International, estimates that 20% of bidis are produced in the organized sector and 80% in the unorganized sector.7 • Even organized factories tend to outsource production to individual homes.5 Because the bidi industry is fragmented there are no specific figures on how many bidis are sold or produced. It is estimated that 750 billion to 1.2 trillion sticks are produced annually.4 • According to Euromonitor International, the bidi industry in India is worth Rs200 billion ($4.1 billion USD).8 • Bidis are much cheaper than cigarettes and smokeless tobacco products due mainly to unequal levels of taxation on the different products. Bidis cost between Rs2.50-5.00 for 25 sticks (less than one Rs per stick)9 whereas the leading brand of gukta costs Rs3-4 per unit.10 The leading brand of cigarettes costs Rs 80-88 for 20 sticks (Rs4-4.4 per stick).11 • In 2009, Euromonitor reported that bidi volume sales were down 5% from the previous year because of a ban on smoking in public places.9 Despite being fragmented, the bidi industry still has a powerful voice in Indian politics which keeps taxes on bidi products low and regulations lax. The major lobbying organization for bidis is the All India Bidi Federation which represents the entire bidi industry.12 Other organizations that lobby nationally and regionally for the bidi industry include:  All India Beedi, Cigar & Tobacco Workers Federation (New Delhi)  Karnataka State Beedi Workers‟ Federation  S.K.Beedi Workers Federation  Karnataka Beedi Industry Association  Mumbai Beedi Workers Union (Maharashtra)  All Bengali Beedi Workers‟ and Employees Federation (Calcutta) According to Euromonitor International, no single bidi company or brand has more than a 5% market claim.8 • Large bidi producers have their own territory (state or district) where they dominate the market with little competition from other bidi companies.6 • There are a few regional players that sell their bidi brands in more than one state or district, including Ganesh Beedi Works, Kajah Beedi Co and Bharat Bidi Works.9 • There is no national bidi brand and at one time it was estimated that there were over 300 different brands across India. Some notable brands include: o 502 Pataka produced by Pataka Biri Manufacturing
  45. 45. Page 45 of 152 o 501 Ganesh produced by Magalore Ganesh Beedi Works o Top regional brands such as Dinesh in South India, Taj in North India, and Howrah in East and Northeast India. • While bidi production is concentrated in the west and south of India,9 it has also been estimated that each state has around 200 bidi manufactures. The Smokeless Industry Popular among rural and urban consumer, smokeless tobacco is also much more popular among woman than smoking.16 The smokeless industry in India is highly fragmented - some products are commercially manufactured but many are made in the home and sold locally.17 Smokeless tobacco products in India include khaini, gutka, mawa, gudhaku, and zarda. Type of Smokeless Tobacco Description Khaini/ Kharra Mixture of sun-dried tobacco and lime.1 Gutka (Gutkha) A dry mixture of crushed areca nut, tobacco, catechu (spices), lime, aromas and flavourings as well as other additives. Pan Masala General term for areca nut product. Does not usually contain tobacco and is often confused with Gutka. Mawa Uses shavings of areca nut, tobacco and lime. Gudhaku A paste made of tobacco and molasses. Zarda Raw tobacco that is scented using spices such as saffron.
  46. 46. Page 46 of 152 In a recent Global Adult Tobacco Survey, it was reported that khaini is the most commonly used tobacco product in India, followed by gutka. However, according to Euromonitor International, Gutka is the most popular form of chewing tobacco sold in India and is estimated to account for approximately 80% of chewing tobacco total volume sales. This discrepancy is mainly a difference between actual prevalence of use and what Euromonitor International is able to measure in terms of volume. More people in India report using khaini, but gutka companies such as Dharwal Industries are larger and more organized and therefore more likely to report product sales.22 In general, smokeless tobacco products are very cheap and are sold in single use packets for Rs1-3 (less than one cent US). Unbranded smokeless products, including unbranded khaini,, are common, keeping the products cheap and unregulated. Smokeless Tobacco Company Shares ‐ Retail Volume (%) Company Name 2001 2002 2003 2004 2005 2006 2007 2008 2009 Dhariwal Industries Ltd (Manikchand Group) 11.5 11.8 11.8 12 12 12.3 12.3 12.5 12.5 Dharampal Satyapal Ltd (DS Group) 7.8 8.2 8.8 9.3 9.5 8.8 7.8 7 7.2 Som Sugandh Industries Ltd 3.7 3.8 4.3 4.2 4 4.7 5 5.5 6 Shree Meenakshi Food Products Pvt Ltd 2.3 2.5 2.5 2.8 2.8 3 3 3.2 3.5 Kothari Products Ltd 4.5 4.5 4.2 4.3 4.3 4 3.5 2.8 2 Others 70.2 69.2 68.4 67.4 67.4 67.2 68.4 69 68.8
  47. 47. Page 47 of 152 In India, retail volume sales of smokeless tobacco products increased by 82% between 1999 and 2009. After a 2008 smoking ban and tax increase on unfiltered cigarettes, chewing tobacco sales increased by 6.5% as low-income smokers switched to cheaper smokeless products. The smokeless tobacco industry in India is controlled by a few large national companies and many different regional players. The top five companies account for 31% of sales, the rest is controlled by regional players that often only operate in one district in a state. In general, Indian smokeless tobacco users prefer to buy locally. companies and Popular Brands The smokeless tobacco industry in India is controlled by a few large national companies and many different regional players.22 The top five comp account for 31% of sales, the rest is controlled by regional players that often only operate in one district in a state. In general, Indian smokeless tobacco users prefer to buy locally. Market Share of Top India Smokeless Brands ‐ Retail Volume (%) Brand Company name 2009 RMD Gutkha Dhariwal Industries 12.5 Dilbagh Som Sugandh Industries 6 Tulsi Dharampal Satyapal 3.7 Baba Dharampal Satyapal 3.5 Goa Shree Meenakshi Food Products 3.5 Pan Parag Kothari Products 2
  48. 48. Page 48 of 152 Most smokeless tobacco companies in India just produce one brand. Different flavour varieties and packaging sizes are sold under the one brand name. The brand name is also often used to sell a non-tobacco pan masala product. Uniting a tobacco product and non- tobacco product under one name is a clever marketing technique, as India has an advertising ban in place that prevents the direct advertising of tobacco products. Tobacco products that are packaged identically to pan masala benefit from the association made between the two products. Market leading brand RMD Hot Pan Masala and Khaini with the same packaging Dhariwal Industries- As one of the oldest smokeless tobacco companies in India, it is also currently the market leader.22 The company is part of the Manikchand Group which also has interests in packaging, bottled water, power and real estate among other things.24 Dhariwal Industries manufactures its products in Vadodara, Pune and Bangalore. • Dhariwal Industries produces gutka under the brand name RMD which is the number one seller in India. The company also uses the RMD name for pan masala. Dharampal Satyapal The second largest smokeless tobacco company in India.22 Dharampal Satyapal is part of the DS Group which also has interests in food and beverages, packaging, hospitality and hospitality industries, among others. The DS Group manufactures tobacco products in Agartala, Tripura. • Produces two smokeless tobacco brands- Tulsi (gutka) and Baba (zarda). Also produces pan masala under the Baba name.26 December 2010 Campaign for Tobacco-Free Kids
  49. 49. Page 49 of 152 Som Sugandh Industries- Also known as the Dilbagh group, the company is the third largest smokeless tobacco company in India. • The Dilbagh Group is based in New Delhi. • The company produces three smokeless tobacco products- the second most popular Dilbagh brand (gutka), Talab (gutka) and Hot (khaini). All three brands are also used to sell pan masala. o Talab Gutkha in particular is packaged “in attractive sachets” making it a “hot favourite among youth across all income groups.” Kothari Products- Also known as Pan Parag India, and was established in 1973. • Most visible product is the Pan Parag brand which is used to sell gutka bu whose main product is pan masala. 4. The Cigarette Industry Cigarette consumption makes up a small portion of the tobacco market in India, only 14% of tobacco products sold are cigarettes.4 Retail volume sales have decreased by 9% in the last ten years from 99.6 billion sticks in 1999 to 90.3 billion sticks in 2009.11 Recent declines in cigarette volumes are mainly due to a 2008 increase in the tax on unfiltered cigarettes. The tax increase has also led to many unfiltered brands being removed from the market.30-31 ITC Ltd stopped unfiltered cigarette production entirely and some companies have launched filter versions of their most popular unfiltered brands to maintain their customers.
  50. 50. Page 50 of 152 Historic India Cigarette Market Size- Retail Volume (billion sticks) Despite recent declines in sales, it is expected that cigarette use will increase overtime as disposable incomes increase in India.33 Euromonitor International predicted in 2008 that if the smokers who currently smoke bidis switched to factory made cigarettes, then India‟s cigarette consumption would increase to around 640 billion sticks. This increase would make India the second largest volume cigarette consumer in the world behind China. Cigarette Company Shares ‐ Retail Volume (%) 2001 2002 2003 2004 2005 2006 2007 2008 2009 ITC Group 63.9 65.3 66 66.1 67.5 67.8 67.9 71.8 72.9 Godfrey Phillips India Ltd 9.8 10.7 10.9 11.9 11.1 11.5 11.9 12.9 13.8 VST Industries Ltd 12.2 10 9.4 8.9 8.7 8.4 8.5 8.5 8.7 Golden Tobacco Ltd* ‐ ‐ ‐ ‐ ‐ ‐ ‐ 3.6 1.5 GTC Industries Ltd 9.9 9.7 9.4 9.4 9.2 9 8.6 ‐ ‐ Japan Tobacco Inc ‐ ‐ ‐ ‐ ‐ ‐ 1.3 1.4 1.3 Gallaher Group Plc** 2 2 2 1.5 1.4 1.3 ‐ ‐ ‐ Others 2.3 2.4 2.2 2.2 2.2 1.9 1.8 1.9 1.7 Total 100 100 100 100 100 100 100 100 100 ITC Group- ITC was established in 1910 under the name Imperial Tobacco Company of India. The company changed its name to ITC in 2001 to reflect its diverse interest in products outside of tobacco.36 • ITC is the leading cigarette manufacturer in India with 73% of the market in 2009. Since 2001, ITC has steadily increased its market share in India and has increased cigarette production by 15% from 57.1 billion sticks in 2001 to 65.8 billion sticks in 2009. 1999 2000 2001 2002 2003 200 4 2005 2006 200 7 200 8 200 9 99.6 98.7 89.3 91.9 94.5 96.5 100 101.1 99.8 91.2 90.3
  51. 51. Page 51 of 152 • Reportedly, the Indian government has a stake in ITC.37-39 While ITC claims that the state does not have any direct shares, the company does report that a large number of ITC shares are held by financial institutions which are majority state owned such as the Life Assurance Corporation of India and Unit Trust of India. • The TTC British American Tobacco (BAT) has also has a 32% share.41 • ITC generated RS 262.6 billion ($US 28.9 million) in revenue in 2009 through its interest in cigarettes, hotels, cosmetics and toiletries, packaged food, apparel, paperboards and packaging, and agriculture. o ITC‟s cigarette industry contributed to 66% of the company‟s total revenue for the fiscal year ending March 2010. • ITC has five cigarette factories in Bangalore, Kolkata, Munger, Ranjangaon, and Saharanpur. • In addition to its operations in India, ITC also has cigarette subsidiary Surya Nepal, which is a joint venture with British American Tobacco. Godfrey Phillips India- Established in India in 1936 as an import company for Godfrey Phillips, UK. The company has since established itself as a major local manufacture of cigarettes in India. • Godfrey Phillips is the second largest cigarette company in India with 14% of the market. Since 2001, the company has seen continuous growth in market share and has increased its cigarette production by 43% from 8.7 billion sticks in 2001 to 12.5 billion sticks in 2009. • Godfrey Phillips India has two major stake holders - the KK Modi Group, an industrial conglomerate based in Mumbai, and the international tobacco company Philip Morris International (PMI) which together hold a total of 71% of the company.43 In May 2009, KK Modi acquired an additional 10.8% stake in Godfrey Phillips from PMI, bringing its total share to 47% and PMI‟s to 25%. • Godfrey Phillips India has a leaf division that provided tobacco leaf for production in- country and for export. The company also sells tea. o The cigarette segment accounted for 92% of Godfrey Phillips India revenue for the financial year ending March 2010. Ghaziabad (near Delhi) and Andheri (near Mumbai). Currently, a new factory is being built in Rabale. o The company has a strong presence in North and West India, and in an attempt to increase the company‟s reach in India, Godfrey Phillips is aggressively expanding distribution into the states of Tamil Nadu and Orissa.
  52. 52. Page 52 of 152 VST Industries- Established in 1930. Before the company changed its name to VST Industries in 1984, it was known as the Vazir Sultan Tobacco Co.46 • VST Industries is the third largest cigarette company in India with 9% of the market. Between 2001 and 2009 the company lost market positioning and saw a 28% decrease in volume sales. o Since 2008, declines in growth have reversed. VST Industries reported a 4.5% increase in volume production for the fiscal year ending in March 2010, as well as record profits. • VST Industries is an affiliate of BAT, which holds a 32% stake in the company. • The company sells economy priced cigarettes, and has a strong presence in South India. o Besides cigarettes, VST Industries also sells unmanufactured and cut tobacco leaf. VST Industries has a manufacturing facility located in Andhar Pradesh. Golden Tobacco- Established in India in 1930 as the first wholly-owned Indian tobacco company in the country.49 Formally known as GTC Industries, renamed Golden Tobacco after demerging from its retail business in 2008.50 • Golden Tobacco is the fourth largest cigarette company in India with 1% of the market. In 2001, the company controlled 10% of the cigarette market but saw a dramatic decline in market share and production in 2008 after the tax increase on unfiltered cigarettes.11 • In 1979, the company was acquired by Dalmia Group which also has interests in telecommunications, chemicals, and textiles. The Dalmia group holds a 36% share of the company.49 • The company has two major production facilities in Mumbai and Baroda. Market Share of Top Ten India Cigarette Brands ‐ Retail Volume (%) Brand Company name 2009 Gold Flake ITC Group 31.2 Wills ITC Group 18.2 Scissors ITC Group 8.4 Four Square Godfrey Phillips India Ltd 7.9 Capstan ITC Group 7.4 Bristol ITC Group 6.9 Charminar VST Industries Ltd 4 Red & White Godfrey Phillips India Ltd 3 Charms VST Industries Ltd 3 Cavenders Godfrey Phillips India Ltd 2.5
  53. 53. Page 53 of 152 Transnational Tobacco Companies (TTC) Presence in India The expansion of TTC in India has been limited by restrictions on FDI by cigarette companies in the country.35 However, as described previously, three of the top international tobacco companies currently have stakes in local manufactures. Despite restrictions, TTC‟s continue to focus on India because of the potential growth of the cigarette market.51 British American Tobacco (BAT) - BAT is a British company headquartered in London, England. BAT is ranked third in the global tobacco market.52 • BAT is a stakeholder in ITC and VST Industries and owns approximately 32% of each tobacco company.41, 47 • BAT attempted to increase its stake in ITC from 32% to 51% but the company has been prevented from doing so by the Indian government and restrictions on FDI.
  54. 54. Page 54 of 152 Philip Morris International (PMI) - PMI is a U.S. company with headquarters in Lausanne, Switzerland. PMI is ranked second in the global tobacco market behind China National Tobacco Company. 52 • PMI currently owns a 25% stake in Godfrey Phillips India after selling part of its shares to KK Modi in 2009.44 • In 2009, after years of trying to get approval to independently manufacture Marlboro cigarettes in India, PMI allowed production of its most popular brand to start under the supervision of Godfrey Phillips Leading Cigarette Brands Promoted in India Cigarette companies aggressively advertise their brands in order to attract new smokers and to encourage current smokers to switch brands.58-60 From March 2009 to March 2010, cigarette leader ITC spent 5.1 billion Rs ($114.7 million USD) on advertising and promotion.40 According to Euromonitor International, cigarette companies are focusing on targeting young urban consumers and middle-upper income consumers.61 Companies are also shifting brands away from unfiltered variants to filtered variants. 61 In 2009, local brand Gold Flake had the largest cigarette market share in India (31%), followed by Wills (18%) and Scissors (8%) - all of which are owned by ITC Group. Slim cigarettes targeting women Although the female smoking population is currently very small (about 3%),21 cigarette companies in India see the potential for growth by attracting women. Since 2007, slim cigarette brands have been launched to appeal to women smokers.32 • The first slim cigarette to hit the Indian market was the Stellar Slims brand by Godfrey Phillips in 2007.62 The brand is marketed as having lower levels of nicotine with the satisfaction of a regular cigarette.62 • In 2008, ITC Group launched Wills Classic Verve slim cigarettes targeted at women and first time smokers. ITC describes the brand packaged in a shiny red as “India‟s trend setting cigarette…[that] defines ubercool urban style.” • Golden Tobacco also has a slim cigarette called.
  55. 55. Page 55 of 152 Targeting health conscious consumers with misleading claims As Indian customers become more aware of the health risks associated with tobacco use, cigarette companies have created new products and tactics to counteract consumer knowledge. One such tactic is to use misleading terms (ex “low-tar”) on cigarette packaging or in advertisements that encourage health- concerned smokers to switch to cigarettes brands that they perceive as safer. This also offers consumers that are concerned about health risks from tobacco an alternative to quiting.64 As of 2006, India prohibits tobacco product packaging and labeling from containing information that is “false, misleading or deceptive,” or that is likely to create misperceptions about the characteristics or heath effects of tobacco products. This includes prohibiting the use of terms such as “light”, “mild” and “low-tar”.65 Despite these restrictions, cigarette brands are still misleadingly marketed as being healthier. • Loe Tobac cigarettes launched by Golden Tobacco in 2006 claim to contain 50% less tobacco than regular cigarettes.66-67 Golden Tobacco also claimed that „LoeTobac has been found to have “safer delivery levels” of tar, carbon monoxide and tobacco-specific nitrosamines than other brands.‟68 Stellar Slims Cigarette ad “Low nicotine, King sized satisfaction”
  56. 56. Page 56 of 152 Brands that appeal to young tech-savvy smokers. India has a very large technology industry and a growing information technology culture. Cigarette companies are capitalizing on the technology trend by introducing premium brands that appeal to younger consumers. • Godfrey Phillips launched I-gen in 2006. I-gen cigarettes have a black filter and the black, red and silver packaging is “aimed at making the product look trendy and contemporary.”70 The brand is descried on the company‟s website as a cigarette that “holds the promise cigarette quality and immense style.”62 • In 2005, Golden Tobacco launched Chancellor XP. XP refers to the Windows operating system and the brand is designed to appeal to India‟s information technology workers.9
  57. 57. Page 57 of 152 6. Corporate Social Responsibility (CSR) Tobacco companies maintain CSR programs in an effort to counter negative attention regarding their deadly business. This practice is particularly prevalent in India. By donating funds to noble causes, the perception of cigarette companies by the public and policy makers improves. The true goals of industry-sponsored programs have been revealed through internal tobacco industry memos released to the public by U.S. legal settlements. CSR programs: Serve the industry‟s political interests by preventing effective tobacco control legislation. Marginalize public health advocates. Preserve the industry‟s access to youth. Create allies and preserve influence among policymaking and regulatory bodies. Defuse opposition from parents and educators. Bolster industry credibility. In India, cigarette companies integrate themselves into local communities that they operate in through CSR activities. They also work nationally to create goodwill with the public and policy makers in an attempt to protect their profits. • Since 1990 Godfrey Phillips India has sponsored the Bravery Awards (first under the brand name Red and White and now under the company name). The Bravery Awards annually honors citizens that perform physical and social acts of bravery. Indian film actress Preity Zinta acted as an ambassador of the awards from 2006-08. The awards have also launched blood drives and the Amodini-Women's Empowerment initiative. • In 2000, the ITC launched e-Choupal, an IT training program for Indian framers. The program claims to reach over 4 million farming families, connecting them to a digital infrastructure that enables them to link to a more formal market. ITC also supports primary education, women empowerment and environmental initiatives. Smokeless tobacco companies are also known to use CSR tactics in the communities that they operate in. • The DS Group, which includes Dharampal Satyapal, contributes to a wide range of social issues in Assam and Tripura. Activities include the renovation of Pallimangal H.S. School and contributions to economic development projects of ethnic and tribal groups in North Eastern States. The tobacco industry in India is complex and powerful. Knowing where and how the industry operates is essential to creating and advocating for strong tobacco control policies. Unless strong tobacco control regulations are put in place and enforced in India, the tobacco industry will continue to expand and profit from addicting consumers to its deadly products.
  58. 58. Page 58 of 152 4.2). MAJOR PLAYERS AND MARKET SHARE:- THE MAJOR PLAYERS :-  Godfrey Phillips (India) Ltd.  V.S.T. Industries Ltd  ITC Limited  G.T.C. Industries Ltd MARKET SHARE OF MAJOR PLAYER IN INDIAN MARKET:- ITC , 72 GodfreyPhillips, 12 VST, 8 GTC, 8 INDIAN cigarette player mkt share ITC GodfreyPhillips VST GTC
  59. 59. Page 59 of 152 4.3) SWOT ANALYSIS:- A SWOT Analysis is requiring checking the industry‟s Strength, Weakness, Opportunities and Threats. It will give the overall idea about competitor and current situation of the industry. Strength and Weakness are the industry internal characteristic that can be improved by the industry while Opportunity and Threats are the external factors which will predict the current condition of the industry to make decision. SW OT STRENGTH WEAKNESES OPPORTUNITY THREATS
  60. 60. Page 60 of 152  STRENGTH:- Biggest and the largest player in the Indian tobacco market with a market share of 80%. Its Gold Flake tobacco brand is the largest FMCG brand in India - and this single brand alone holds 70% of the tobacco market.  A industry‟s strength is its resources and capabilities that can be used as a basis for developing and competitive advantage.  The increase in living standards of people, now they spend more on tobacco. As we are offering good quality at reasonable price so it will definitely attract customers so our venture is less risky.  Our industry has different types of tobacco. Each of them offers the high quality.  Our target market is Gujarat which is one of the most developing states of India.  Gujarat is immerging as an industrial hub to many growing industries.  More and more investment means more industries, more housing and more construction.  All this is positive sign for the tobacco industry to prosper.  When we talk about tobacco it has been found that following are its strengths.  There are many players it is like a perfect competition.  The labor does not require much specific qualification and skill.  WEAKNESSES:- It still has to consolidate its foot in the cigar market largely dominated by Godfrey Philips.  In the tobacco industry, the labour work on the part of workers is very tedious and laborious. Workers often complaint about the work load.  Huge capital investment is requiring on the machineries.
  61. 61. Page 61 of 152  OPPORTUNITIES:- ITC is moving into new and emerging markets like developing countries of Eastern Europe, Africa etc.  Gujarat which is one of the most developing states of India is emerging as an industrial hub with many growing industries like, fast malls, big buildings, residential expansion and more housing so future requirement of the tobacco and bricks very high.  Our research and survey so that people are interested in buying of the tobacco which is qualitative and at the same time something which is offered at a reasonable time. This thinking matches which our Industry policy to produce the best at the least.  By using eco-friendly technology the unit may get an edge over the other players in the market  THREATS:- - The obvious threat is from competition, both domestic and international. - Health hazard - Increasing tax in Cigarettes  Competition, this is one of the biggest threats faced by all the business.  Existence of big tobacco industry such as I.t.c tobacco, etc poses tough competition for us.
  62. 62. Page 62 of 152  SWOT MATRIX:- S Its resource and capabilities High demand W Huge investment already big players O Eco friendly technology Scope for expansion T Competition Supply position Unpredictable
  63. 63. Page 63 of 152 4.4). PEST ANALYSIS:-
  64. 64. Page 64 of 152 (1) Political factor:- Govt. Policy affects the business in very deep. The low cost local brand can affect the leader of tobacco industries. Government focus on no promotion of the tobacco product directly on t.v or other media. More over the government decision to substantially upgrade 28 Regional airports in smaller tour and privatization and expansion of Delhi and Mumbai airport industry in India. The upgrading of national highways connecting various parts of India has affect the tobacco retail management. In the govt of India‟s the promotion of tobacco product is less so there is a very hard to be in the local market. There is a rule in india that a person is less than 18 can‟t be buy a tobacco product from the anywhere. The govt of India have restrict the consumption of tobacco on the roads and public place. For past few years the market of the tobacco industries is increasing in rapidly so the relevant steps taken by government of India. In union budget there is a duty and tax on tobacco product increasing rapidly by government.
  65. 65. Page 65 of 152 (2).Economical:- In economical effect industry has to check out that there is a huge part of tobacco industries in Indian economy in increment of GDP. The tobacco industry‟s can also help to give a chance to get a more valued country in all over the world by exporting tobacco products. Now slowdown fear is now hovering on the sector because of the government restriction on tobacco industries. In India form medium to long term the fundamental are very perishing. The continued economic or with increased in test in the India market and improved international access. By the rules and regulation of Indian government the consumption is decreasing in India so, it‟s not helpful term for industrial overview. With a view to restriction on tobacco product‟s in india but the larger amount of the public can use the product of tobacco and tobacco is there habit so, market is in mood of increasing. There is a rules and regulation are very strict but there is a large player like itc who are the dominant player in the market.
  66. 66. Page 66 of 152 (3) Socio-cultural factor: Socio cultural factor includes two parts (a) Socio (b)Culture If any industry are show towards the society than you can understand that society are developing the culture. If you understand the socio factor than you can understand the cultural factor. (a) Socio factor: - It include the demographical factor like Population:- India is the second largest population country of the world more than 125 corer. population is there. So because of high population it is the positive effect towards the tobacco industry because as population are more the habit for tobacco get more traffic & also occupancy rate is increase at the time of marriage season. Male-female ratio: - In India male ratio is more than the female ratio so there is a great demand of the tobacco product from the both of the side from the market of the tobacco. In the research of the news paper there is a consumption of tobacco product is more by male so great market for male in india.
  67. 67. Page 67 of 152 Literacy level: - Literacy level in india is very less so people don‟t know about the harms of tobacco product when they use it for first time after the use they knowsthe harms but that became their habits. Income level: - In India the income level of the Indian people is very less than others country so they live the tenseful life so for reduce the tension they use the tobacco products. Average age of society: - In India there are teenagers are more than the old people so they are the fond of the enjoyment so the student who has the habit of the consumption they give the habit to the other people. (b) Cultural factor: - Culture means it is the set of Norms, Value of ritual, Philosophy of country is the highest important to any industry. If you are not know the culture of any country than you cannot do the business in that country For example: - So when the itc introduce the new product they first research about the Indian culture and their habits. Like they introduced the wills insigna which is the royal cigarette
  68. 68. Page 68 of 152 (c) Language: - Language is also play an important role in any country. Because whatever you communicate in your language it may be some different meaning in other country. For example:- In India there is a great value of the product of the itc like Bristol ,wills ,gold flake and others the most of the people known the brand as a company this is the great strength of the itc in India.
  69. 69. Page 69 of 152 (4) Technological factor: - Technological factors include following factor. (a) Status of technology: - Status of technology includes Advance technology Moderated technology Suitable infrastructure for technology Hear hotel industry have to check out that what technology they are using right now whether it is advance, moderated, or outdated technology. In tobacco they are using the dual filter for save the lips of the people who smoking. For example: - In india the itc useing the duel refind tobacco techniques that will help the person for reduce the chance of the cancer or many others. Or the mant tobacco company tells that “accha khaiye nischint rahiye “ But the tobacco is always harmful to any one. (b) Pace of technology: - Pace of technology means how fast technology is changing in the country. In the country like America, china, Japan, India the technology is taking change at very fast rate as compare to china, Japan, & American technology the Indian is not fast growing as in that country so it is the backward point to tobacco industry in India.
  70. 70. Page 70 of 152 (c) Cost of technology: - Cost of technology means what is the cost of adopting technology. For example:- In india our country is the developing country the price of the technology is very high for the developing country so the developing country can‟t be adopt the new technology easily.
  71. 71. Page 71 of 152 4.5). VALUE CHAIN OF TOBACCO INDUSTRY:- VALUE CHAIN analysis was suggested by Michel porter. The VALUE CHAIN analysis is under taken by tobacco industry to understand that how an industry can deliver a VALUE to its final consumers. The activity in VALUE CHAIN is divided into two parts.
  72. 72. Page 72 of 152  Primary activity :- Primary activities are those activities which are essential to be perform for any manufacturing .these activity include that ,entire process ranging for buying raw material to providing satisfactory services,to the customer. There are five main activities as following . (1)In bound logistic; This activity reflect managing the raw tobacco &parts equipment coming inside the industry it suggest that all material coming from the supplier Of raw tobacco(farmer) inside the industry should be treated carefully started properly. HARVESTING. This first step is a labour-intensive activity involving high amounts of child labour. Using only their hands, tobacco household members remove leaves from plant stalks. DRYING. Once harvested, leaves are transferred to drying sheds, sewn together, placed on drying sticks, and air-cured. Tobacco quality and storage time are dependent on weather conditions. BALING. A manual operated “jack” is used to make tobacco bales weighing up to 120 kgs. Workers load leaf of the same grade and compress it into bales wrapped in hessian, or burlap, cloth. (2)Operation;- It‟s related with the process of converting raw tobacco into the final tobacco product .here the porter suggests that entire process should be carefully handle ,so that it does not relation into deterioration of the quality of the final products(cigarette, cigar .gutkha). (3)Out bound logistic:- it‟s related with the activities includes in managing the final product whether it should be stored in the warehouses or going out in the market for selling purpose during this stage here industry shoud give proper attention for managing warehouses &proper transportation systems.
  73. 73. Page 73 of 152 (4)Marketing &sales;- This activity related with the marketing and sales activities of industry here industry should develop proper marketing& distribution .the marketing of tobacco product is very much difficult because of rule and regulation of government .so here industry should develop proper& perfect advertising system. SELLING. During the selling season farmers sell tobacco to U.S. buyers at the Lilongwe auction floors. Farmers are told the date of sale so they can observe the auctioning of their tobacco bales. BUYING. 3 U.S. subsidiary companies buy over 95% of Malawi‟s tobacco and sell to cigarette makers like Philip Morris. Limbe Leaf, a subsidiary of Universal Corporation (Virginia) purchases 50% of the crop. (5)Services;- Once the product is to be sold final consumers there should be take care Of final consumer even after the sales .there should be continuously Get the feedback and provide the needed services to the consumers To keep them satisfy, 2) Secondary activities:- This activities are desirable for any industry such activity add value to the primary activities so that each primary activities can be performed accurately. To deliver satisfaction . The following are the secondary activities. (1)Firm‟s infrastructure;- It‟s include basic activities available in industry.such as road .proper lighting, water facility continuous power facility .this will help the Industry to undertake production activity properly.
  74. 74. Page 74 of 152 (2)Human resource Skilled &loyal human resource is an valuable asset for any industry such kind of people add value to the final product while production Is taken place or they can satisfy the consumer during the sales activities. (3)Technology development;- It reflect usages of technology by the organization industry must use Altramodern.state of the art technology for rapid &qualitative production. (4)Procurement:- It reflect the activity include purchasing the raw material(raw tobacco) From farmers &other supplier ,here porters has suggested that There should be purchase good quality of raw material from the repated suppliers.
  75. 75. Page 75 of 152 4.6). FIVE FORCE ANALYSIS:- Five force Analysis:- Potential Entrance Rivalry amongst exiting firm Suppliers Buyers Substitute
  76. 76. Page 76 of 152 1. Threat of new entrance 2. Bargaining power of buyers 3. Bargaining power of suppliers 4. Rivalry amongst existing firms 5. Threat of substitute If marketers want to know factors affecting any industry or tobacco industry, these 5 elements will helpful. Whether competition level is high, moderate, low can know with these elements. Five force analyses were given by father of strategies, Michel polter. Here, we can use 5 elements for the purpose of study of tobacco industry. [1] THREAT OF NEW ENTRANCE:- It refers to how easily one industry can enter into tobacco industry. There are various rules that any industry should have to follow for entering into this segment. Any industry cannot enter into tobacco industry because it is required to have very huge capital investment. Following barriers will decide position of new entrance in organization. I. Government policy: - however, this is the most affecting factor for entrance of new industry. Whichever companies want to enter into tobacco industry must require following various conditions. Not injurious for health, not create air pollution, safe for smoking etc are rules of primary basis which all tobacco companies require to follow. In many cases government policy and regulation are important entry barriers like prior to the economic liberalization in India. II. Monopoly: - monopoly means industry having no competition. This is very rare situation. In tobacco industry monopoly is not there. If we analysis the whole Indian tobacco industry than we can say that market structure industry is non monopolistic. III. Capital requirement: - when any companies want to enter into any industry, how much capital will require that industry need to find out. Higher the requirement of capital, lesser industry will interest to enter. Same thing is also applicable to tobacco industry.
  77. 77. Page 77 of 152 IV. Product differentiation: - whether industry having different kind of products is there or not. Companies who want to enter into tobacco industry require having different kind of products offer to customers. V. Economies of scale: - it means larger the production, higher the benefits. Because of attraction of higher production by existed companies, new companies want to enter into tobacco industry. There are various types of economies of scale i.e. increasing return to scale, decreasing return to scale, and constant return to scale. [2] BARGAINING POWER OF BUYERS: - Here, companies will decide who having bargaining power customers/buyers and industry. If customer affects price determination, then bargaining power of customer is high and vice versa. Following points will determine whether customer having bargaining power or not. I. Volume of purchase: - total quantity buyers will purchase is volume of purchase. If purchase in high quantity, they having higher affection to bargaining power. In tobacco industry, bargaining power of customer is very low in volume of purchase because buyers buy products of tobacco in very small quantity. II. Importance of product to buyers: - whether buyers require product on frequent bases or not. If any product is important for buyers, then bargaining power of customers is high. Same condition is also applicable to tobacco industry. All buyers used to purchase according to their preferences. III. Switching cost to marketer: - if buyers go to other industry from our industry, how much it affect to business of industry. Tobacco having less switching cost because buyers usually buy in small quantity. IV. Extent of buyers‟ information: - if customer is aware about the product information, bargaining power is higher. Extent of buyers‟ information means the level of information which is known by the buyers. V. Ability of buyer for backward integration: - any customer of tobacco cannot establish their own tobacco industry. Tobacco having low bargaining power for backward integration.
  78. 78. Page 78 of 152 [3] BARGAINING POWER OF SUPPLIERS: - Reduction or increase in number to any industry. I. Important of product to suppliers: - power of ITC which provide raw tobacco to the customers, it having higher bargaining power. If ITC stop supplying raw materials to Tobacco Industry, it affect very hard. For example, maruti cannot run without tyres so MRF as suppliers of tyres is very important. II. Switching cost to suppliers: - Can suppliers are afforded to lose buyers? If ITC leave tobacco industry, is it affordable to it or not? III. Potential for forward integration: - Can suppliers have enough power to become marketer? How it will affect to existed industry? Whether ITC is capable to become manufacturer of tobacco? Bargaining power is higher in forward integration. IV. Ability of substituting product: - can buyer substitute the product of suppliers? Cigarette is not available without tobacco. If product can substitute, bargaining power is higher. But it is not possible in tobacco. Suppliers cannot used substitute of raw materials. [4] RIVALRY AMONG EXISTING FIRM: - I. Number of firms: - number of player is high, competition is high. If number of player is less but their strength is high, it having high competition. In tobacco number of player is very low. Competitive rivalry is likely to be affected by number of firms, their relatives‟ market share, competitive strength etc. II. Growth of industry: - Faster the speed of growth, higher the level of entry is there. There is always continuous growth in tobacco due to consumption habit. the industry growth pattern in India in last few decades is shown very high. III. Cost structure: - higher the fixed cost, higher the level of competition. In variable cost, competition is low. Fixed costs are those expenses which industry must require spending. So it will increase competition for spending high.
  79. 79. Page 79 of 152 IV. Product standardization: - higher product standardization will result into higher competition level. If customer expects more products, then competition is high. V. Exit barriers: - can industry easily exit or not? If industry had done high investment then industry cannot exit easily. In tobacco exit barriers is very high because invested crores of rupees. VI. Economies of scale: - if any industry having larger player, competition is high. [5] SUBSTITUTE: - I. Extent of substitute: - substitute means present of different products having similar features. For example coffee is substitute of tea. Tobacco industry having less availability in market. II. Importance of product: - whether product is important to buyers or not.
  80. 80. Page 80 of 152 Chepter-5 Analysis of marketing mix
  81. 81. Page 81 of 152 MARKETING MIX Product Price Place Promotion Variety List Price Channels Advertising Quality Discounts Coverage Promotions Design Allowance Assortment Personal Selling Brand Name Payment Period Location Publicity Packaging Credit Terms Inventory Services Transportation Warranties Target Market
  82. 82. Page 82 of 152 1). PRODUCT:- (1.1) LEVELS OF PRODUCT:- product package:- Product refers to anything that marketer offers to customer which will result in to satisfaction of need or want of pre determine target segment. 1) CORE BENEFIT:- The fundamental level is core benefit. The service or benefit that customer is really buying is known as core benefit. Customer prefer cigarette for referesh ment, it‟s core benefit given to customer  Itc,gtc,and Kothari brothers tobacco producer‟s give benefit to customer it‟s core benefit.
  83. 83. Page 83 of 152 2) BASIC PRODUCT : The marketer must turn the core benefit into basic produc t without basic product marketer can not provide the core benefit to customer.  Raw tobacco, cigarette, Gutkha, bidi 3)EXPECTED PRODUCT:- It‟ combination of attribute and features that customer normally expected while consuming product..  Menthol rush, menthol canter fresh, menthol classic .wills regular…. 4) AUGMENTED PRODUCT:- It‟s that exceeds customer expectation .customer enjoy the services. Customer enjoy the cigar ; and provide highest level of satisfaction and prove more beyond customer Expectation.  Itc –wills menthol rush. It provides centre fresh gel flavour into the filter of menthol rush. 5) POTENTIAL PRODUCT:- Products, which does not existence in the market but expected in future . Add Something new ,innovative in tobacco industry which is not available but provide in future
  84. 84. Page 84 of 152
  85. 85. Page 85 of 152 (1.2) Classification of products:- Product is anything which is offered to market for attention, acquisition and consumption that will satisfy the needs and wants of customers. Classification of products:- Product Consumer goods Industrial goods  Consumer goods:- The goods which is purchased by final consumer for personal consumption. Types of consumer goods A. Convenience goods B. Shopping goods C. Specialty goods D. Unsought goods (A) Convenience goods It means that consumer use those goods which are buying frequently, immediately or without buying extra effort. Customer not to spend more time but he directly purchase it.
  86. 86. Page 86 of 152  Types of convenience goods:-  Staple goods  Impulse goods  Emergency goods  Staple goods Consumer uses those goods which are purchase on regular bases.  Impulse goods Consumer uses those goods which are purchased without any planning .  Emergency goods Consumer used those goods which purchased when needs comes or urgent. Tobacco customers are consuming tobacco on regular basis so tobacco is staple goods. Occasionally consumers consume tobacco to reduce the stress so it is also consider as impulse goods.
  87. 87. Page 87 of 152 (1.3) Product line and mix:- Product line:- Product line can be defined as the group of closely related product which is similar in function distributed through similar network which have very less price difference and which are targeted to the similar group of customer. Product line length:- The products line of different tobacco brands are as follows:  ITC  GOLDFREY PHILLIPS  GTC  VST

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