Production costs are already high, and rising fuel prices are hit again

2021-11-24 11:16:04 By : Mr. Chanson Chen

Even before the latest increase in fuel prices, local production costs in 90% of the apparel industry's sub-sectors had risen.

According to the Bangladesh Bureau of Statistics (BBS), the production costs of 9 of the 10 sub-sectors of the apparel industry-including spinning, cotton, silk, synthetic fibers, jute, hand looms and knitwear-increased by 1% -58% in the 2020-21 fiscal year compared to the previous year.

BBS's domestic production of industrial products index shows that the production cost of spinning and cotton textile fibers has risen by 56.22% in the past year, while the production cost of textiles has risen by 13.62%.

Mohammad Ali Khokon, chairman of the Bangladesh Textile Mills Association (BTMA), told Business Standards that the increase in production costs in all industries is mainly due to the increase in the prices of all raw materials in the international market and the increase in transportation costs.

Khokon pointed out that, in fact, production costs are much higher than the BBS data shows, adding that cotton prices have more than doubled in the past year, while fiber prices have risen by more than 50%. "The prices of almost all raw materials have risen by more than 25%. As a result, production costs have increased."

According to the BBS report, except for 34 of the 209 industries, the production costs of almost all domestic manufacturing sectors (such as the clothing industry) are rising.

BBS uses 2005 as the base year and 100 as the production cost to compile the index.

BBS data shows that last year, the production of tannery and finished leather increased the most, and the current index is 248.95. Last year, the production cost of the industry increased by 71.23%. The production cost of other products related to leather goods also increased by about 12%.

Tanners and leather product manufacturers say that rising global commodity prices, rising freight rates, industry failure to import raw materials on time, and idle workers have pushed up production costs.

Mohiuddin Ahmed Mahin, chairman of the Bangladesh Exporters Association of Finished Leather, Leather Products and Footwear, said that chemical prices have almost doubled in the past year. Transportation costs have also risen.

However, he observed that leaving workers and factories idle during the pandemic was the main reason for the surge in production costs.

“Because there is no export and no sales in the domestic market, the factory has been closed for many days. But the owner must bear the operating expenses of the factory. We must also pay the workers’ wages. Since the factory has to spend money even if there is no income, production costs eventually increase. "Mohiuddin said.

Last year, the increase in the production cost of vegetable oil ranked second.

According to BBS, the cost of local producers in FY21 increased by 68%. As the production cost of this daily necessities increases, consumers are also suffering from it.

According to traders, the increase in edible oil prices in the domestic market is the result of fluctuations in the international market.

Biswajit Saha, executive director of City Group, the country’s largest consumer goods company, said: “The prices of soybeans and various oilseeds on the world market have risen. Transportation and labor costs have also increased. This is the reason for the increase in production costs.”

Except for petroleum, the production cost of all intermediate products increased by 5% to 25% year-on-year in FY21, while the cost of food production increased by 12.33%, and the production cost of dairy products increased by 1.13% year-on-year.

Nevertheless, although sugar prices rose during this period, the cost of sugar production remained unchanged last year.

In the heavy industry, cement production costs rose by 5% last year. On the other hand, steel plant production costs increased by 11.6%, base metal production costs increased by 15.12%, automobile manufacturing and assembly costs increased by 11.12%, transportation material costs increased by 4%-10%, and furniture costs increased by 4%.

According to the BBS report, although the production costs of most manufacturing industries have risen last year, some have been able to avoid this fate. These industries include electrical appliances, cigarettes, plastics, petroleum products, fertilizers, melamine, electric lights, fractal plates and several other unconventional products.

However, the company claimed that the BBS report was incomplete and claimed that production costs in all departments had increased.

Rizwan Rahman, president of the Dhaka Chamber of Commerce and Industry, said: “Although there are no sales during the coronavirus pandemic, factory owners have to pay workers’ wages and bear factory operating expenses. Raw material prices are rising in the global market. Domestic transportation costs It has also risen. As a result, the production costs of all departments have increased."

BBS data shows that the market price of all products has exceeded the soaring production cost.

In the past year, the prices of poles, cement, clothing, and all daily necessities including oil, sugar, rice and beans have risen sharply. During this period, the prices of certain products doubled.

The price per ton of rods in the middle of this year was between 50,000 and 52,000 taka, and it has now jumped to 78,000 taka. The price of this important building material has risen by about 40% in the past year. The prices of more than 100 other building materials, including cement, bricks, sand, and stone, have risen at almost the same rate.

The price of soybean oil last year was around 100 taka per liter, and now it has soared to 160 taka.

According to TCB's market analysis, the price of bulk and bottled soybean oil increased by about 48% in one year, while the price of bulk and packaged flour increased by 17.24% and 20%, respectively.

During this period, the prices of sugar, beans, bread, biscuits and almost all other daily necessities have risen by 20%-25%.

All fashion products, including clothing and accessories, have also become more expensive.

Ghulam Rahman, Chairman of the Consumers Association of Bangladesh (CAB), said that compared with the increase in raw material prices and the increase in production costs, the price increase of various products at the consumer level is much higher.

"If the government takes measures to keep the supply stable, this will not happen. When prices in the international market rise, the government can also provide subsidies."

Rising fuel prices raise new concerns

The recent increase in fuel prices will further increase production costs, enterprises are worried. 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 country’s leading home appliance and food manufacturers, said: “Rising fuel prices will first increase the production costs of factories. Secondly, transportation costs will increase by at least 30%. Then various The price of raw materials will increase. Finally, the salaries of sales representatives will increase."

For all these reasons, the industry will face problems. He added that production costs will suddenly increase by 20%-25%, further pushing up product prices.

City Group executive director Biswajit Saha said that consumer marketers will also face similar problems.

He said that the prices of raw materials in the international market have remained high in the past few months, and the recent increase in fuel prices will increase all production and marketing costs. "Manufacturers must raise product prices to survive," he concluded.

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