RMG production cost skyrockets

Prices of 20 major Bangladeshi readymade garment products – exported in a year since April 2020 – have dropped on average by more than 5% although orders from major export destinations have increased during the period.

Bangladesh, the second largest readymade garment exporter in the world, is now receiving a comparatively higher number of orders from major export destinations as they gradually recover from the onslaught of the Covid-19 pandemic.

But RMG industry leaders – who are among the ones hit hardest by the crisis – say apparel makers are not getting fair prices despite a boost in orders since last month. The production cost has skyrocketed, but product prices are taking a dive, insiders have said.

Failing even to recover production costs, most factories are taking orders at lower rates just to keep their losses at a minimum. Refusing such orders will force apparel makers to pay their workers without any actual work, which in turn will compound the losses.

Quoting recent data from the National Board of Revenue (NBR), the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) said prices of these 20 products dropped nearly 4.5% on average in the last five years from May 2016 to May 2021.

BGMEA analysis also reveals that in these five years, prices of 16 of the 20 RMG products have dropped while those of four increased.

Apparel makers pointed out that their production cost has gradually gone up too in the last five years. There are a myriad of reasons why the costs have increased, such as hiking workers' wages, yearly increments, and climbing prices of utilities including gas and electricity.

BGMEA data says the apparel sector's overall production cost has gone up by 28% in these five years and wages increased by 30%, and costs related to utilities, transportation, bank charges and lab tests rose by 25%.

The unusual price increase of main raw material cotton and rising shipping costs are putting an extra squeeze on the apparel makers. On paper, the importing companies must bear any additional costs, but in reality, most of this "price pressure" is falling on the shoulders of Bangladeshi exporters, insiders have said.

The RMG industry also had to navigate through the devastating Covid-19 pandemic for the last one and half years. In a bid to save their business and survive the crisis, the entrepreneurs are being forced to take out an increasing amount of loans. 

As part of their recovery effort, many are trying to boost production by installing modern machinery at their factories. 

Managing Director of Mayc's Garments Md Ashikur Rahman Tuhin, who exports clothing items such as trousers, said, "Clothing item prices began to take a dive around the last four years. The cotton prices have increased in the past few months, which in turn caused the price of fabrics to go up too.

"Besides, in some cases, the overall shipping charges including freight have gone up ten times. Importers are supposed to pay such additional costs, but this is currently far from reality."

Providing a detailed explanation, Tuhin said, "For example, a retailer sells a t-shirt for $2. Consumers are supposed to bear the additional cost arising from the increase in cotton and shipping prices. Considering these factors, the t-shirt should be sold for $2.20.

"But our buyers are refusing to charge their customers additional prices under the current situation. So, the burden of additional costs is falling on the exporters."

Centre for Policy Dialogue's (CPD) Research Director Dr Khondaker Golam Moazzem – also an expert on the RMG sector – confirmed the apparel makers' dilemma, saying, "The RMG owners are not getting fair prices due to their factories' overcapacity.

"To recover from this crisis, the industry should focus on boosting production, product diversification and manufacturing higher-end clothing items."

Meanwhile, wishing to be anonymous, the country office chief of a UK-based clothing brand – a major importer of Bangladesh's RMG products – told The Business Standard, "No one in this supply made a profit in the last one and half years due to the Covid-19 crisis.

"Stores also counted losses for a year. However, we are paying the apparel makers extra to compensate for the increase in cotton prices in recent months. For comparatively expensive clothing, we are paying an additional $0.40-$0.50 for each item, and $0.10 for other items."

A European clothing brand representative on condition of anonymity said they too have not slashed the rates for clothing items as yet.