Bakery business: Out of the frying pan into the fire

The bakery industry that has been struggling to recover from TK12,000 crore pandemic-induced fallout is now facing another struggle for survival thanks to unbridled raw material prices.

Over the last year, prices of bakery ingredients have risen up to 300%, labour costs up to 30% and utility bills up to 10%, resulting in doubled production costs.

Local entrepreneurs say they, however, have not raised their product prices proportionately, fearing that doing so might cut their sales. Instead, they have compromised on their profit margins. 

"With our backs against the wall, we increased prices by Tk10 only, for which customers are bargaining every day," said Nurul Amin, manager of Gani Bakery, a Chattogram-based renowned bakery serving people since 1870.

"Even our sales have dropped to half," he told The Business Standard, expressing frustration on how  factories are to be run and workers paid if the  bakery does not earn minimum profit.

"There will be no alternative to shutting down the factory if this situation continues."

Some 5,000 factories with their 20 lakh workers every day produce a wide range of bakery items – mostly biscuits, cookies, cakes, bread, chanachur and patties – and deliver them across the country.

"We have already lost Tk12,000 crore in the pandemic. None of our entrepreneurs could avail of the government announced stimulus loans due to various conditions," Jalal Uddin, president of the Bangladesh Bread Biscuit-O-Confectionery Prostutkarak Samity, told the Business Standard.               

"Moreover, we faced price hikes of all raw materials at different times [over the past year]. The recent Indonesian ban on palm oil export and the latest Indian ban on wheat export have made the situation worse."

"We are now in a severe crisis. With declining sales and soaring labour and production costs, hundreds of factories are now at risk of collapse. Thousands of workers may lose jobs in that case," he said.

Talking to The Business Standard, industry insiders hinted that they might increase their product prices further within this month. Earlier, they raised prices in January this year.

"We increased prices in early January this year after prices of raw materials went up in two phases over the last year. However, in the span of four months, raw material prices doubled again. So we are forced to raise prices at least by 10% within this month," said Chattogram-based bakery manager Mohammad Idris.

Popular brand Well Food Chairman Syed Nurul Islam said the firm is continuing production with its raw materials in stock. "We are observing the situation. If we fail to outsource raw materials at current prices, we will increase our product prices."

Crisis deepens with global tension

The market for wheat, an essential item of the bakery industry, has been volatile since the beginning of the Russia-Ukraine war. Meanwhile, the Indian ban on wheat export has added fuel to the flames.

According to a BBC report, immediately after the imposition of the Indian ban, the price of wheat in the US market increased by 5.9%, which was the highest in the last two months. Besides, the global wheat market saw a 60% hike over the last year.

Meanwhile, China has planned to store at least half of the global production of wheat to increase its food stock amid the global tension. The Chinese initiative is expected to increase the prices of wheat substantially, creating a supply crunch.

"In the case of edible oil, we have seen how global volatility can create severe pains for us. Although we have alternative sources, such as Canada and Australia, of wheat, we fear a global supply shortage of the item in the near future," Md Redwanur Rahman, general manager of Bashundhara Multi-Food Products, told TBS.

Meanwhile, consumers say business people are taking advantage of the global price hikes – raising the prices of goods to levels much higher than real hikes.

"The bakery businesses increased prices even before the higher-priced flour came to the market," said Emdad Hossain Maleq, general secretary of the Consumers Forum.

"Where will people go if the prices of locally produced salt are increased in the name of a global price hike?" he asked.

A further price hike of bakery items will ultimately place another burden on lower and middle-income groups already hit hard by rapidly rising inflation.