One of the main problems of the Indian safety matches industry is its unorganised nature, which makes it difficult for its voice to reach policymakers
What started off as a pioneering effort of some entrepreneurs to meet the huge demand for safety matches in India in 1920, has through the decades, evolved to proliferate into innumerable safety matches making units in and around Sivakasi, which have contributed to the country becoming numero uno in their exports
Satyapal Menon | The Dollar Business
Sivakasi’s evolution as a safety matches manufacturing nerve-centre has interesting antecedents. There was a time when the inhabitants were looking fervently towards the skies, praying for the showers that would facilitate cultivation and also their survival. But the showers never came – and the prayers continue to remain unanswered till date – leaving the farmers with sparse or no source of income to keep their kitchens warm. Parched and scorched stretches of land stands as testimony to the terrain, weathering years and years of dryness and deprivation. So, with farming out of bounds, there was the need for an alternative. And they found one!
The ignition
The genesis of safety matches making activity in Sivakasi is attributed to Ayya Nadar and Shanmuga Nadar, who learnt the process in Calcutta (now Kolkata) and established their units in Tamil Nadu in 1922. Safety matches production in India is believed to have its roots in Calcutta, where Japanese immigrants, who already had the know-how, set up units in the city. The huge demand for safety matches in India, at that point in time, was either met by the multinational company WIMCO – which had a monopoly over the production – or through imports. Ayya Nadar and Shanmugha Nadar’s enterprise proved to be the life changer for the populace in Sivakasi and the years to follow, witnessed the proliferation of safety matches making units, with majority of the agricultural labourers getting involved in the activity. Sivakasi’s transition to become the biggest manufacturing location in the country had begun. Later, the activity spread across to neighbouring towns like Kovilapatti and Sattur.
Forced boon
From initially meeting a lion’s share of domestic demand, Sivakasi’s prominence grew in stature with global buyers converging to this town. But the manufacturing activity also courted controversies, with furor over the units employing child labour. The government stepped in and enforced restrictions, which also (in a positive way) proved to be a turning point for the industry as with the winds of liberalisation blowing in the 1990s the industry replaced manual operations with technology-based production. There were other reasons attributed to this transition too. “With the government banning child labour in the industry and making it mandatory for children to attend schools, many manufacturers started semi-mechanised and to some extent fully-mechanised production,” J. Devadoss, Secretary, South India Match Manufacturers Association, told The Dollar Business.
One stop shop
The safety matches making process involves frame filling, dipping, box filling, label pasting and packing. In handmade units, the entire process is done manually. In partially mechanised manufacturing processes, dipping is done by machines, while label pasting and packaging is carried out manually. In fully mechanised units, the entire production is carried out by machines. According to industry estimates, there are around 220 safety matches making units in Sivakasi, 230 in Sattur and 215 units in Kovilpatti. Though Sivakasi accounts for lesser number of units than Sattur, it is the location for a majority of the big units. The two most important raw materials required for the production of safety matches production are potassium chlorate and wood. While potassium chlorate is being mostly imported, the wood for the splint was initially procured from Kerala. But later, with suppliers from Kerala increasing the price of wood, safety matches manufacturers are either going in for imports or using other alternatives like poplar for making the splints.
Numero uno
India, and to be more specific Sivakasi, is the biggest exporter of safety matches in the world. According to Ministry of Commerce, GoI, India exported $43.6 million worth of safety matches in FY2014, with Nigeria accounting for more than a fourth of India’s total exports. Other major importers comprise Tanzania, Yemen, Sudan and France. In fact, Sweden, the country which is credited with pioneering the production of safety matches, is no more a match to India’s exports, though it continues to be the second biggest safety matches exporter in the world. The interesting aspect of Sweden’s safety matches exports is that unlike India, it mostly caters to European markets, with UK, Norway and Spain being its top three export destinations. At the same time, in recent times, India’s safety matches exports have been experiencing a decline of about 20-30 containers per month. Two major reasons for this decline is more advanced lighting gadgets and also a decrease in the number of smokers (as per Sriram Ashok, Director, Sundaravel Match Industries).
Unusual competitor
The three biggies in the match manufacturing industry – Standard Match Industries, Bell Match Company and Hind Matches Private Limited – also hold sway in the exports market with roughly 40% market share. In fact, these are the only companies that have a double-digit share in exports, with their share in the global market pie ranging from 8% to 1%. Interestingly, a significant portion of the rest is apportioned among many small players who attract buyers with low prices in this highly unstructured and splintered industry.
Citing the decline in exports, a few in the industry are viewing Pakistan as a potential threat. They are of the view that currency devaluation has worked more in favour of Pakistan than India. Since Pakistan’s currency is substantially weaker than that of India, the former has an edge over the latter, industry insiders claim. This also gives Pakistan the flexibility in this buyers’ market. There is another view among players in the industry, with some of them claiming that the rupee devaluation has only added to India’s woes rather than to its fortunes. “In fact, the foreign buyers are now demanding pricing according to existing Indian currency equations,” Devadoss said.
But not everyone views the safety matches industry as a lighted candle flickering in strong winds of change. Vijay Anand, Director, Comorin Match Industries Private limited, a second generation matches manufacturer and a qualified chemical engineer, presents an optimistic picture, and a rather unusual one at that. “We have good markets in some Asian nations and also Europe, where matches are used to light candles in churches and lamps in temples. Our company works in consortium with four other companies for exports. I am focused on exports since I don’t have to pay sales tax or excise duties,” he told The Dollar Business. One of Anand’s proud possessions is a Germany-made safety matches manufacturing machine. During an interaction with The Dollar Business, he pointed to the machine and said, “I have plans to make some of my own modifications in the assembly line to suit our requirements. I purchased this machine for Rs.1.5 crore, but a new one costs around Rs.5 crore.”
His chemistry with the industry is understandable, but why would he continue a legacy that is on a decline? On this he told The Dollar Business that his company is, at present, producing 500 cartons (each containing 600 safety matches boxes) every day. “Each carton is priced at Rs.500, which adds up to Rs.2,50,000 per day,” he added. Similarly, Varadarajan, Proprietor, Renga Match Industries, a third generation manufacturer, while speaking to The Dollar Business, said, “We started manufacturing in 1940 and have gone through all three phases, from manual production to semi-mechanisation and today, we have a fully mechanised unit production line that takes care of the entire process, ranging from splint cutting to packaging. Our production output from the fully mechanised unit is 40,000 boxes per day. We have acquired new machines to meet the demands of export markets.” That speaks volumes about the export potential of safety matches, doesn’t it? Especially, when it comes from an established and deeply entrenched player in the industry.
Non - extinguishing
A tour of some of the mechanised safety matches units in Sivakasi can turn out to be a revelation, with a network of heavy machines involved in a range of processes – from carving out fine splints out of huge logs of wood to coating and chemical dipping and packaging – churning out millions of match boxes in a day. Going by the uncomplicated nature of the product and even the pittance that it is priced at, the technology and the process beats imagination. Match manufacturers indicating a propensity to import and installing modern technologies augurs further consolidation of this industry, contrary to doomsayers’ dampeners that the flame, in the near future, would be doused by alternative products.
“Many manufacturers are evading duties and making higher profits” - Sriram Ashok, Director, Sundaravel Match Industries Private Limited
TDB: Why has there been no growth in India’s safety matches exports in the last five years?
Sriram Ashok (SA): The current scenario is not encouraging. Normally, we export to African countries, but they are witnessing a lot of disturbances these days. Apart from this, safety matches are now being manufactured locally in these countries. Earlier, we had competition from China. But presently, this is not a factor since China has stopped exports.
TDB: Give us a sense of the size of your match manufacturing business.
SA: We are also into textiles and printing, but match manufacturing is our major focus area and revenue earner with a turnover of around Rs.55 crore, out of the company’s total turnover of around Rs.60 crore. We have 1,800 employees involved in the safety matches manufacturing activity.
TDB: How is it that the market price for safety match boxes has stagnated for so many years?
SA: Prices are basically related to the usage of coins. The lowest value coin is used to price matches. It was 25 paise first and later 50 paise. Now, the lowest denominated coin in usage is that of one rupee. So, safety match boxes are priced at Re.1. We are also planning to manufacture new variants priced at Rs.2, Rs.5 and Rs.10. and get into these slots. So, it is a continuous process. We have to convince the market, which is used to a certain buying pattern based on the pricing. The customer has to be conditioned to pay the higher price. But at the same time we have to meet his requirements.
TDB: But pricing is based on production cost, is it not?
SA: As time progresses, margins do shrink. It can even come to a point when you cannot operate further. Then, we have unethical competition here. Because it is a small scale industry, many tend to evade duties and earn bigger margins. It is a not a very high technology intensive industry. As far as sustainability is concerned, everyone has their own way of working. Earlier, we used to have a lot of manpower and it was a low capital intensive industry. Now, due to the induction of machines, capital investments are high. Many new players are entering the field, and both the old and the new are attempting to sustain the already cluttered industry.
TDB: So, are your operations totally mechanised? And what is your company’s daily output?
SA: Our total output is a million boxes per day. Except for splints, all other operations are mechanised. Since we are making splints from imported timber, we procure timber, and also splints at times, from the market as importing it requires licences and clearances. Earlier, we used to procure the wood for the splint from Kerala, but since it has become costlier we are now making them from imported timber. Even in terms of performance, timber splints are more advantageous as they are coniferous in nature.
TDB: What is the current trend of consumption of safety matches in India? Moreover, how do you see the future of this industry?
SA: Consumption of safety matches is coming down and that is quite obvious. One of the reasons for this is the reduction in the number of smokers, both in the domestic segment and all across the globe. Earlier, 80% of our market was accounted for by smokers and 20% by non-smokers. Perennial power cuts also used to contribute to the use of matches. But a reduction in power cuts and also the lower usage of candles are some factors affecting market prospects.
“The government should hike the drawback rate on safety matches” - J. Devadoss, Secretary, South India Match Manufacturers Association
TDB: Last year, there was a slight decline in India’s safety matches exports. What is the status of exports during the current fiscal?
J. Devadoss (JD): Normally, 80% of our safety matches exports – about 140-150 shipments per month – are done to African countries. We also export sulphur-free matches to Europe, but the volume is very low. There has been a drastic decline in shipments to Tanzania – from 15 containers to 3 containers – over the past few months.
TDB: What do you attribute this decline to?
JD: Many importing countries have become self-sufficient when it comes to safety matches. The usage of match boxes is also on a decline. Currency fluctuation is another factor that has affected exports. I suggest, in order to boost exports, the government should hike the duty drawback rate, apart from reducing the interest rate on loans for exporters.
TDB: India’s organised match manufacturing industry is encountering a peculiar challenge in the form of competition from the unorganised sector. The case is actually the reverse in most other sectors. What’s the reason?
JD: The unorganised sector in the safety matches industry is enjoying the benefits in terms of both production and pricing, since they are not properly monitored. It is quite evident from the figures released by the Central Excise department which cites the total turnover of the industry as Rs.2,100 crore. This being the case, and going by the government records, how is it that only Rs.46.06 crore is being accrued through tax collections, instead of Rs.100 crore? This indicates that there is over 50% excise duty evasion by the unorganised sector, which, in turn, impacts those units that pay duty and follow all government norms. Hence, the organised sector is not on a level playing field to face the competition from the unorganised sector.
TDB: Do you think the government is ignorant about this?
JD: We have sought the government to scrap excise duty on safety matches. This will reduce the disparity between the organised and the unorganised sectors and, also in the process, help the industry that sells a box of 50 match sticks at just one rupee.
TDB: Can you give us an idea of the number of partially and fully mechanised units that are operating in the match manufacturing industry?
JD: Presently, there are 300 partially mechanised units and 30 fully mechanised units operating here, which account for 75% and 23% production respectively. The output of handmade units is just 2% of total production.
TDB: Which other factors are impacting the Indian safety matches industry’s performance?
JD: We procure wood for the splints from Kerala. But since there was an increase in prices, the industry here has started importing timber for making the splints. The government has also imposed restrictions on the use of timber and is insisting on a licence if the industry wants to procure and produce timber for making the splints. It should consider an exemption for the match manufacturing units making splints from timber. Another major issue that is affecting the organised industry is ITC, which had taken over WIMCO and had initially set up its own unit in Chennai. Later, ITC closed down the unit and started procuring match boxes from various units here. They are selling match boxes at a price lesser than the industry price. This practice of predatory pricing is creating problems for the industry and posing a threat to its very existence.
“Importers coming to us are looking at only pricing and not quality” - Ramesh Prabhu, Secretary, All India Chamber of Match Industries
TDB: Is the safety matches industry getting any benefits or incentives from the government?
Ramesh Prabhu (RP): The government has been, in fact, removing and changing the benefits from time to time. Earlier, it did away with Duty Entitlement Pass Book (DEPB) scheme and later reduced duty drawbacks. The same is the case with Focused Product Scheme. Previously, we used to get benefits for exports to all countries. Now, we can avail the benefits for only some specified countries. Every year they are reducing the incentives.
TDB: Does it mean the government does not acknowledge the overall contribution of your industry?
RP: I think so. Since the industry is not a big contributor in terms foreign exchange earnings, the government is, perhaps, not interested in extending incentives. The government could be of the view that if the industry could export considerable volumes and generate more income, then only it can be considered for incentives.
TDB: India’s exports of safety matches is negligible when compared to domestic sales. What issues do you encounter while exporting?
RP: Everyone would like to export, but we are not getting good prices because of unhealthy competition in the industry here. Since there is no uniform price structure, manufacturers are involved in underpricing and selling their products at very cheap rates.
TDB: Does less price means less production costs and lower quality? Are such low-quality products acceptable in exports markets?
RP: Importers coming here only look at the price and not the quality. Even European countries enquire only about the price. They compare our prices with that in Pakistan and Indonesia.
TDB: You mean to say we are losing out to Indonesia and Pakistan when it comes to exports?
RP: These two countries have the advantage of weaker currencies. They also get very good splints locally. These countries also get good boards. Their labour costs are lower as compared to India. On the contrary, in India we have to import splints, since local splints are not acceptable by the importing countries. When we import splints, we have to pay duty for that. This results in a significant increase in the cost of production.
TDB: Why does India continue to remain the top exporter, ahead of Sweden?
RP: We cannot compare India with Sweden. It has a brand image. Sweden’s quality and markets are entirely different and the country supplies both machinery and matches to the entire world. However, Sweden’s volume of exports is coming down. One should remember, the quality of matches depends on the nature of the board and the splints. Sweden does not compromise on quality and pricing. For instance, if we price ten units at $13, Sweden sells it at prices between $18 and $30. And that’s what is hampering its exports.
TDB: Has devaluation of the rupee, in the last 2-3 years, contributed to earnings and profits of the industry? Has the margin increased?
RP: We are not at an advantage because of the devaluation. Importers want us to reduce prices in line with the devaluation. And exporters agree to their terms depending on the market situation. Regarding India’s export markets, frankly speaking, certain African countries do not directly buy Indian matches. Exports are done through dealers in Dubai, who procure the products from India. So, some of the manufacturers get orders only from Dubai, not from Africa. In such transactions, our margins get reduced to a significant extent.
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