Production cost devours processed food profits

The processed food industry has reported more than 20% growth in sales on the back of increasing demand for such products both at home and abroad during the Covid-19 pandemic.

However, owing to an increase in raw material prices on the international market, the manufacturing cost of processed food products has also gone up.

This has had a negative impact on the profits of the processed food companies as they did not raise the prices of their products.

A number of processed food manufacturers, notably Square, Pran, ACI and Ifad, have said the prices of many items – including edible oil, flour and sugar – have risen abnormally on the international market in recent times.

This has resulted in an increase in production cost by more than 15%. But during this period, sales of processed food products – biscuits, chips, noodles, bakery products, chanachur, frozen foods and snacks – in both local and international markets have also increased by 20-30%.

According to Reuters, the price of soybean oil on the international market has risen from $700 per tonne to $1,150, or by about 40%, in the last six months.

The price of unrefined sugar has gone up by 4% and refined sugar by 8.20%. Wheat is selling at a price 7.04% higher compared to a year ago.

Speaking to The Business Standard, Syed Alamgir, managing director of ACI Consumer Brands, said, "Raw material prices on the international market have risen by at least 25-30%.

"We have not yet increased the prices of our products, though rising production costs are affecting our profits."

During the pandemic, exports of processed food products have also increased.

According to Pran and Ifad, the demand for biscuits alone has increased by at least 30% to 35% in the country and abroad. Square says it has also posted double-digit growth in sales of processed foods.

According to the Bangladesh Export Promotion Bureau, in the first six months of the current fiscal year, the country exported dried food worth $173.5 million, which had been $115 million in the same period of the previous financial year.

Kamruzzaman Kamal, director (marketing) of Pran-RFL Group, told TBS, "Although sales have increased during the coronavirus pandemic, we have lagged behind in profits.

"That is because even though the price of raw material has increased, no products saw a rise in prices. The profit has to be minimised."

He also said the situation needed to be handled by minimising the cost in various areas, such as distribution chains and transportation.

Increased demand for processed food was created when light food shops outside were closed and people turned away from street food during the pandemic, officials said. During this time, people have been focusing on quality food.

Mahfuzur Rahman, general manager (Exports) of Ifad Multiproducts, told TBS, "Export growth in the biscuit market has been 30-35%. But production cost has increased by about 15%.

"We have still not been able to raise the price of our products due to competition in the international market."

At present, there is a demand for Bangladesh's manufactured biscuits worth Tk6,000 crore in local and international markets.