Production was already expensive, rising fuel prices a further blow
Local production costs in 90% of garment industry sub-sectors rose even before the latest fuel price spike.
According to the Bangladesh Bureau of Statistics (BBS), production costs in 9 out of 10 sub-sectors of the garment sector – including spinning, cotton, silk, synthetics, jute, loom in hand and knitwear – increased from 1% to 58%. in fiscal year 2020-2021 compared to the previous year.
The index of industrial goods produced in the BBS country shows that the production cost of cotton spinning and textile fiber has increased by 56.22% while textile production has become 13.62% more expensive over the course of of the last year.
Mohammad Ali Khokon, president of the Bangladesh Textile Mills Association (BTMA), told The Business Standard that the rise in production costs in all sectors was mainly due to soaring prices of all raw materials in the international market and to an increase in shipping costs.
In reality, the cost of production has become much higher than what BBS data shows, Khokon noted, adding that the price of cotton has more than doubled in the past year while lint prices have increased. by more than 50%. âThe prices of almost all raw materials have increased by more than 25%. As a result, the cost of production has increased. “
According to the BBS report, production costs have increased in almost all domestic manufacturing sectors – such as the garment industry – with the exception of only 34 of the 209 sectors.
The BBS created the index considering 2005 as the base year and 100 as the cost of production.
According to BBS data, tannery and finished leather production saw the largest increase last year, with its current index standing at 248.95. The production cost of this sector increased by 71.23% last year. The production costs of other products related to leather goods also increased by around 12%.
Tanners and leather goods manufacturers claim that rising global commodity prices, rising transportation costs, industries not importing raw materials on time, and keeping workers inactive have drives up production costs.
Mohiuddin Ahmed Mahin, chairman of the Bangladesh Finished Leather, Leather Goods and Footwear Exporters Association, said the prices of the chemicals had nearly doubled in the past year. Transport costs have also increased.
However, keeping workers and factories idle amid the pandemic was the main reason for soaring production costs, he observed.
âThe factories remained closed for several days due to the lack of exports and sales in the domestic market. But the owners had to bear the operating expenses of the plant. We also had to pay the workers. the cost of production ended up going up, âMohiuddin said.
Vegetable oil saw the second highest increase in production costs last year.
According to the BBS, the cost of local producers increased by 68% in fiscal year 21. Consumers are also suffering from the rising cost of producing this daily essential.
The rise in the prices of edible oils in the domestic market is a result of volatility in the international market, according to traders.
Biswajit Saha, Executive Director of City Group – the country’s largest consumer goods company, said: âPrices for soybeans and all types of oilseeds have increased in the world market. Transportation and labor costs have also increased. This is why the cost of production has increased. “
Besides oil, all intermediate goods saw their production costs increase by 5-25%, while food production became more expensive by 12.33% and the cost of producing dairy products increased by 1.13. % year-on-year in fiscal year 21.
Nonetheless, the cost of producing sugar remained unchanged last year although the price of sugar increased during this period.
Among heavy industries, cement saw its production costs increase by 5% last year. In contrast, the cost of production in steel mills jumped 11.6%, that of base metals by 15.12%, manufacturing and assembly of motor vehicles by 11.12%, transport materials by 4. % to 10% and furniture 4%.
While most manufacturing sectors saw higher production costs last year, some were able to avoid the fate, according to the BBS. The sectors include electrical appliances, cigarettes, plastics, petroleum products, fertilizers, melamine, electric lamps, fractal panels and several other unconventional products.
The companies, however, called the BBS report incomplete and claimed production costs had risen across sectors.
Rizwan Rahman, chairman of the Dhaka Chamber of Commerce and Industry, said: âEven though there were no sales during the coronavirus pandemic, factory owners had to pay workers’ wages and bear the operating expenses of the plant. The prices of raw materials have increased in the world market. . Transport costs within the country have also increased. As a result, production costs have increased in all sectors. “
According to BBS data, the market prices of all products have exceeded their soaring production costs.
Over the past year, the prices of stalk, cement, clothing and all basic necessities, including oil, sugar, rice and pulses, have risen sharply. The prices of some products have doubled during this period.
The price per ton of rod ranged between 50,000 and 52,000 Tk in the middle of this year, which has jumped to 78,000 Tk now. The price of this important building material has increased by about 40% over the past year. The prices of more than 100 other building materials, including cement, bricks, sand and stone, have increased at almost the same rate.
The price of soybean oil was around 100 Tk per liter last year, and it has now risen to 160 Tk.
According to TCB’s market analysis, the prices of bulk and bottled soybean oil increased by about 48% in one year, while those of bulk and packaged flour increased by 17.24%. and 20%, respectively.
Sugar, pulses, bread, cookies, and almost all other daily necessities became 20-25% more expensive over the period.
All fashion products, including clothes and accessories, have also become more expensive.
Ghulam Rahman, chairman of the Bangladesh Consumers Association (CAB), said that the rate of price increase of various products at the consumers level is much higher compared to the price increase of their raw materials and the l increased production costs.
“This would not have happened if the government had taken initiatives to keep the supply stable. The government can also provide subsidies when prices go up in the international market.”
Rising fuel prices raise new concerns
The recent rise in fuel prices will further increase the cost of production, companies fear. According to them, this will increase the cost of new products by at least 20%.
Kamruzzaman Kamal, Director (Marketing) of Pran-RFL – one of the leading manufacturers of home appliances and food products in the country, said: âRising fuel prices would first lead to higher production costs. in the factories. Second, transportation costs will increase by at least 30%. Then the prices of all kinds of raw materials will increase. Finally, the salaries of sales representatives will increase. “
For all these reasons, industries will face problems, he said, adding that production costs will suddenly increase by 20-25%, pushing product prices even higher.
City Group executive director Biswajit Saha said consumer marketers would face similar issues as well.
The prices of raw materials in the international market have been high for several months, he said, adding that the recent rise in fuel prices will increase the costs of producing and marketing everything. “Manufacturers have to increase the prices of products to survive,” he concluded.