Research Analyst, PAGE
July 19 - 25, 2010
Soap industry in Pakistan produces approximately 250,000 to 300,000 tones of soaps annually. Composition of soap is generally 80 per cent fats and oil. Three types of soap industries exist in Pakistan. Multinationals generally produce toilet soap and they have full boiled system and imported automatic plant. They use basic raw materials such as tallow and palm Stearin for their industries. The second is medium sized industries in the organised sector having full boiled system and automatic plants. They are making laundry and toilet soaps by using tallow and palm steering as basic raw materials for toilet soaps and palm fatty acid distillate and palm acid oil for laundry soaps. There is sizable number of small industries in un-organised sector using semi-boiled system. The industry provides jobs for over 100,000 workers all over the country and has around 500 units working in the organised and un-organised sectors.
HOME & PERSONAL CARE INDUSTRY
The HPC industry is very diverse with different products directed at wide ranging target segments and income groups. The industry is highly concentrated with global players like Unilever, P&G, Colgate Palmolive, and others. The quantum of smuggled and under voiced goods has significantly increased over the years with premier brands brought in from Indonesia and other regional countries. The low cost of these offerings and high trade margins make them attractive to both consumers and retailers. This has significantly hurt the volumes and margins of local firms in the market. This is especially hurting soaps and detergent business, which constitute major portion of home and personal care industry sales.
The soap companies are however committed to maintaining brand margins as well as overall growth trend, though it will be a challenging task in the current business environment keeping in view continuing depreciation in local currency. Additionally, the cost of basic raw materials in the global market has again started showing an upward trend, which is likely to bring pressures on margins in the coming quarters. Price increases will be virtually impossible to take on the face of intense competition focused mainly on wresting market shares. Their objectives will remain on growing volume, while improving shareholders value through resource optimisation and maintaining high standards.
The Pakistan Soap Manufacturers Association (PSMA) has sought concessions in terms of taxation. Pakistan Soap Manufacturers Association suggested and demanded relief in duty of essential raw materials used in soap industry.
According to PSMA, the industry relies mainly on imported raw materials which are basic and should not attract higher rates of duties but which unfortunately have been subject to high rates of import duty.
These need to be cut down to not more than 10 per cent while only one raw material i.e. tallow must be brought down to five per cent. The industry also demands that import duties are brought down to no more than 10 per cent on all raw materials. The duty on residue of fatty substances is 20 per cent, which should be lowered to 10 per cent.
The industry generally faces problem in clearance of their consignments mainly in model custom collectorate. The raw materials, whose custom duty is fixed in tariff, cleared under auto clearance, but computerised system does not accept raw materials that are given concessionary duty at percentage under SRO. These consignments always shift to collectorate appraisement, which causes unnecessary delay in clearance. Furthermore, it is common practice of model custom collector and collector appraisement to take 5 to 8 days for examination of raw materials, for which huge demurrages have to pay as well as unnecessary delay in clearance is caused.
SMUGGLED SOAPS ERODING LOCAL INDUSTRY SHARE
Easy availability of imported and smuggled toilet soaps, soap noodles and laundry soaps at lower prices are fast eroding the market share of local manufacturers who are now struggling to compete in the market.
For instance, local manufacturers of soap noodles are selling their products at Rs80 per kg, while the importers are easily selling foreign soap noodles approximately at Rs50 per kg after paying all sort of duties and taxes. Toilet soap noodles are being imported in substantial quantities by declaring it a chemical.
There are two basic raw materials required in soap manufacturing i.e. tallow and palm byproducts. Either can be used for making quality soap. But, duty on tallow is 15 per cent and 35 per cent on palm byproducts that are imported from Malaysia and Indonesia at $100 cheaper than tallow from Australia and USA. If the duty on both the raw materials is brought down then industries will prefer to import cheap priced raw material palm byproducts. The country can save huge amount of foreign exchange after this. A calculation based on last year's imports indicates that the country can save $22 million, which will also offset the loss of revenue in shape of custom duty.
Local producers of soap and soap products say that high raw material prices, taxes, and import tariffs are a cause for concern. To cope with the situation, the industries have been demanding lower tariffs and rationalisation of tax structure under which their products are able to compete in the market.
The overall detergent penetration is very low in Pakistan. About 50 per cent of the population uses laundry soap for fabric wash. Similarly, the shampoo penetration is also very low. Hence, tremendous untapped potential exists in the soap market.