Businesses reel under soaring costs

Steep rise in raw material prices, goods shortage, skyrocketing freight charges and higher transport costs and devaluation of taka against dollars – all have combined to increase costs of imports and production.

But businesses cannot always pass on all the extra costs to consumers to stay competitive in the market. What they do is either compromise on profits or count losses.

Take Olympic Industries, a top food company listed on the capital market, for example: it registered a 42% year-on-year fall in profits in January-March of the fiscal 2021-22.

Md Nazimuddin, executive director and company secretary of Olympic Industries Limited, told The Business Standard, "Input costs have ticked up but we cannot hike product prices even if we want because of the competition."

Fair Electronics, local manufacturer of Samsung phone and electronic products, experienced a 7% year-on-year drop in its sales towards the later part of April this year and also suffered losses during the time.

Mesbah Uddin, chief marketing officer at Fair Group, said, "Prices of all kinds of raw materials have gone up by 30% on average in the past six months. Besides, freight and transport charges, and operation costs also shot up by at least 23%, but we were unable to push up product prices.

"We have kept production on despite losses to stay in the market in the long run."

Global inflation is causing all local manufacturers to forgo profitability and suffer losses. With sales and profits declining, product and service sectors are now going through instability.

Industry insiders say in the last six months, prices of all daily food items, frozen food, cosmetics, plastics, cement, rods, ceramics, paints, electronics, home appliances and fashion items and almost all raw materials have gone up by 30-35%.

Freight charges have soared 8-10 times in one year. On the other hand, taka has lost its value by at least 16% against the US dollar in the last one year. That is why entrepreneurs are struggling to survive amid increasing business costs, they point out.

Businesses of some sectors are counting losses, they also say.

Entrepreneurs also claim that tax cuts in various sectors in the last budget and the government's stimulus support have helped the business community turn around from the current crisis.

Rizwan Rahman, president of the Dhaka Chamber of Commerce and Industry, said no sector has been able to increase prices of goods in keeping with steep increases in raw material prices and freight costs. Stimulus provided by the government is not enough to safeguard businesses from impacts arising out of soaring global inflation and devaluation of taka against the dollar. So, they are finding it very difficult to survive.

ACI Limited has about 50 companies in almost all business sectors – including life-saving medicines, food, daily essentials, home appliances, plastics, fast-moving consumer goods and animal feed. Global inflation has put ACI in a tight corner as well.

FH Ansarey, president at ACI Agribusinesses, said they have to cut profit margins in all sectors. They are suffering losses too. Yet, they have continued factory operation to sustain their brand's existence on the market.

"We could not raise product prices in line with rising manufacturing costs mainly to stay competitive in the market. If we had increased the prices, it would have put a lot of pressure on consumers, leading to a fall in consumption and subsequent dent on the industry in the long run."

Sales of rod, cement drop 17-20%

Rising prices of daily commodities in the country have had a major impact on all construction materials, including rod, cement, ceramics and paints, leading to a drop in sales of such products.

Cement sales in April fell by at least 17% year-on-year. On the other hand, sales of rod and ceramics tiles decreased by 20-25%.

Mohammed Amirul Haque, managing director and chief executive officer of Premier Cement Mills Limited, said prices of all raw materials, including clinker, have risen by more than 30% in the past six months. Prices of cement increased by Tk80 per bag, while sales declined.

Manufacturers are now counting losses, he noted.

Sarwar Alam, director of Golden Ispat Ltd, said, "The price of rod scrap has almost doubled in one year and a half from November 2020 to March this year. We have increased rod prices by 50-60% in the country's market."

But this has caused a significant drop in sales, especially in the private sector – by 80-85% in the last two months. Companies are now surviving because of sales in some government projects, he added.

Electronics sector in tight corner with crisis of semiconductors

Semiconductor chips or microchips are used in various devices, such as electric tea kettles, washing machines, mobile, headphones, computers, automobiles and warplane missile systems. 

Demand for semiconductor chips has grown significantly as a result of a rise in manufacturing of electronics products, but the current production of such chips is not enough to meet the rising demand.

Local entrepreneurs say prices of semiconductors in the global market have risen by up to 40% in the last six months. On the other hand, prices of various raw materials, including compressors, have gone up by 20-25%. 

But, several companies, including Walton, Panasonic, LG and Haier, have hiked prices of electronics products, such as refrigerators, washing machines and air conditioners, by 10%. 

Claiming that they have to significantly cut their profit margins, they said prices should be raised further.

Anis Mallik, chief executive officer of Walton Fridge, said, "We have recently increased prices of some products to avoid losses. But our production cost is still higher than product prices." 

Mesbah Uddin said, "Semiconductors have to be used in mobiles, refrigerators and all home appliances. Their prices have risen by at least 30% owing to the global crisis. But we have not yet been able to increase product prices in the country's market. We are selling products at losses. So, prices need to be adjusted soon."

Bakery item manufacturers cut profit margins 

Bakery business is now in a deep crisis owing to a big jump in raw material prices. 

Big companies like Olympic have kept buyers by reducing profit margins. However, both sales and profits of small and medium enterprises are declining.  At least 10,000 entrepreneurs have invested in biscuit, noodles, pasta, chanachur, ice-cream and frozen food industries.

Md Shafiqur Rahman Bhuiyan, president at Bangladesh Auto Biscuits and Bread Manufacturers Association, said some big companies are selling products with a 10-12% price increase. But their profit margins have dropped significantly. Small businesses are running at losses.

Elaborating on the rise in raw material prices and commodity prices in the last one year, he said, "A year ago, palm oil was sold at Tk57 per litre, now it is Tk155 per litre. Dalda price has risen to Tk173 from Tk100 per kg. The price of sugar has gone up from Tk48 to Tk76. Flour price has increased by Tk15 to Tk47 per kg."

Besides, prices of baking soda, dyes and other spices have doubled. Factory management bills have also gone up. Gas, water and electricity bills have increased too.

Chowdhury Kamruzzaman Kamal, director (marketing) at Pran-RFL Group, said although production costs had shot up by 40% in the last four months, they cannot push up product prices in keeping with that. 

"It now costs twice as much to make a loaf of bread. But we have been able to raise its price by only 10-20%," he noted.

They cannot increase prices suddenly, given people's purchasing power and market competition. So, they are now continuing production only for survival, he added.

Retailers sell at lower profits too

Amjad Hossain sells consumer goods, including soap, shampoo and beauty cream of a top brand, at his store in Eskaton. The company reduced retailers' profit margin by 3% on sticker prices after Eid.

His commission on price tags has now dropped to 9% from 11% before Eid, he said.

The commission on products, such as noodles, chanachur, bread, pasta, powdered milk, plastic, home appliances, is also decreasing, he added.

Habibur Rahman, manager of Bharta Bhat restaurant in Moghbazar, said, "After Eid, we have increased prices of some food items by 10-12%. But our costs are much more than the hike. Now, our profits have almost halved."

Mohammad Helal Uddin, president of the Bangladesh Shop Owners' Association, said profit margins of 40 lakh retailers across the country have come down.

Cost burden on consumers getting heavier 

At present, buying one kilogram of powdered soap, half a litre of liquid soap for washing dishes, a perfumed soap, a bottle of shampoo and toothpaste now cost Tk557, which is Tk50 more than what was before Eid.  This means that they have to spend about 10% more than their previous budget to buy these products. 

Prices of rice, pulses, oil, sugar, flour, onions, fish, eggs, meat, milk and almost all kinds of daily commodities are increasing day by day.

Dr MA Razzaque, chairman of Research and Policy Integration for Development, told TBS, "Our inflation is still lower than business costs. It is good for consumers but will not last for a long time."

So, to mitigate the dollar crisis, the government should rein in unnecessary imports and ensure more flows of remittances through proper channels, he noted.

There should also be necessary steps to reduce internal business costs, he added.