Bangladesh Garment Factories Campaign Against Price Pressure

June 9, 2008

Dear Colleagues,

I wanted to share with you an article from yesterday’s edition of the Bangladesh Daily Star, one of the country’s main English-language newspapers. The text is below; you can also see the article at this link.

The article discusses a campaign by garment factory owners in Bangladesh to persuade major brands and retailers in the US and Europe to stop pushing down the prices paid to factories. Economists report that prices have fallen 10% or more over the last five years and continue to fall – even as the cost of production rises. These rising costs are due in part to efforts to pressure factories to comply with code of conduct standards.

The article quotes the head of one of the nation’s export manufacturers associations: “Hoque said manufacturers have been following social compliances as per the recommendations of the buyers, yet the buyers were now not increasing prices. ‘They should also follow ethical buying practices,’ he said.”

The situation in Bangladesh is a particularly clear illustration of the problem we have been reporting to you over the last several years: relentless price pressure on factories that conflicts directly with efforts to get factories to improve their labor practices. Bangladesh is among the world’s lowest-cost producers and workers there earn less than $50 a month. Bangladesh also has a notoriously poor record on labor rights and improvements to date have been very modest. The fact that even factories in a country like Bangladesh are under constant pressure to cut prices shows just how widespread the problem is. 

I thought this article would be useful to consider as we continue to discuss the best means for ensuring compliance with university codes.

Best,

Scott

Scott Nova
Worker Rights Consortium
5 Thomas Circle NW
Washington DC 20005
ph 202 387 4884
fax 202 387 3292
[email protected]
www.workersrights.org


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Bangladesh Daily Star
Published On: 2008-06-08
Business

Falling prices, higher costs hit RMG sector
Meeting with major int’l buyers later this month on prices

Refayet Ullah Mirdha

Photo shows workers at an apparel manufacturing unit. The local apparel manufacturers started on a campaign to raise prices of their product on the international market as the cost of doing business increased remarkably. Photo: STAR

The continuing downward pressure by international buyers on clothing prices is hitting profitability in the Ready Made Garment sector and undermining efforts to improve working conditions, industry leaders have warned.

Despite increases in costs of around 15 per cent in the last year intense competition in the sector has meant producers have been unable to pass the higher costs on to buyers.

In fact unit garment prices have fallen by between 1-2 percent in the past 12 months according Mustafizur Rahman, an economist at the Centre for Policy Dialogue.

In order to try and stem falling prices leading Bangladeshi garment manufacturers have launched a campaign and will press the major international buyers at a meeting later this month.

However economists said in such a fragmented industry it will be difficult for suppliers to force increases.

Fazlul Hoque president of Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) said the issue would be addressed at a two-day meeting involving international buyers to be held in Dhaka June 28 and 29.

The meeting of the MFA Forum brings together public institutions, labour and civil society organizations and businesses. It was set up following the end of quotas under the Multi-Fibre Arrangement in 2005.

Executives from the major buyers including Wal-Mart, JC Penny, GAP, H&M, and Tesco are expected to attend.

“In the past year the fall has been 1-2 percent but over the past five years we have seen a fall in prices of more than 10 percent in the knitwear sector and the price fall in woven products has been even higher,” Hoque said.

Nazma Akthar, a founder of the Bangladesh Independent Garment Worker’ Union Federation said international buyers are reducing prices all the time.

“Then they say how important compliance is for them. It’s a mockery, you can’t take what they say seriously.”

She questioned how conditions could improve when a pair of jeans was now being sold at a major UK chain store for $6, when a few years ago they had been retailing for more than double the amount.

Hoque said manufacturers have been following social compliances as per the recommendations of the buyers, yet the buyers were now not increasing prices. “They should also follow ethical buying practices,” he said.

He said the price index of exportable apparel items declined by more than 1 percent over the last fiscal while the cost of doing business in Bangladesh particularly in ready-made garment sector increased by 15 percent.

According to the industry, the erratic gas and power supply, higher freight charges both in local and international markets, the yarn price hike, implementation of the minimum wage for workers, higher transport costs and higher prices of capital machinery were the main reasons for the higher cost of doing business over the last year.

Hoque said recently exporters have been considering fixing a baseline price for some basic items to avoid unhealthy price competition.

CPD’s Mustafizur Rahman said that in Bangladesh it is often a ‘race to the bottom’ and buyers are able to force prices down.

“The manufactures are trying to produce a united front but it is so difficult and there are so many exporters and producers, ” he said.

“If some of the big players can unite they may have a chance,” he added.

Other economists said the only way out for the industry was to focus on improving productivity.

RMG exports account for around 75 per cnet of the country exports. Knitwear, the largest export earned $3.913 billion during July-March period of the current fiscal, marking a 17.34 percent growth over the same period of the previous fiscal.

During this time, woven garments earned $3.770 billion, a 7.54 percent growth over the same period of the previous fiscal.

Manufactures have been able to increase export earnings despite falling prices by raising the volumes of exports.