Published in The Independent on 10 July 2011
The Independent compared the cost of imported foods in Bangladeshi supermarkets with those in the United Kingdom, and found that items in Bangladesh are, on average, 160 percent more expensive.
This investigation — the first of its kind in Bangladesh– attempts to provide an explanation for the surprisingly high costs of imported food. It includes insights from some of the industry’s main players, including supermarket executives, suppliers, customs and National Board of Revenue officials.
Sabera Ashraf’s seven-year-old son is something of a fussy eater – a rather common phase for a child his age. “I have to put cheese in everything he eats,” she says a little wearily.
The mother-of-two spends “big bucks” on Three Cow Cheese at Agora supermarket in Gulshan — plus the other three varieties he likes – but says, “I can’t stop buying it because we don’t have a local equivalent.”
And as a busy working mother without a domestic help, Sabera buys imported breakfast cereals to save time in the morning.
According to the President of The Consumers Association of Bangladesh Quazi Faruque, Sabera is one of a growing number of people in Dhakapurchasing imported products from the two largest supermarket chains, Agora and Meena Bazar.
Dr Sajjad Zohir, director of the Economic Research Group said, “Many Bangladeshis have been exposed to outside tastes if they have been abroad, and some prefer supermarkets if they do not like too much bargaining.” He also believes supermarkets have an emerging social function, “It’s a place where couples can spend time together for recreation.”
However while local products are quite reasonably priced, the cost of imported items in Bangladeshi supermarkets is exceptionally high, even by international standards.
German intern Birgit Gassner told The Independent that the high prices forced her to alter her diet after arriving inDhakatwo months ago.
“There’s an enormous range of imported products in Agora, but it’s enormously expensive compared with German supermarkets,” she said.
“I stick to buying bananas and mangos because they are so much cheaper than imported fruits, and I avoid packaged foods altogether. But it would definitely become a problem if I was here on a longer stay.”
After comparing the prices of 44 identical items (both in terms of brand and weight) in Bangladeshi supermarkets and theUnited Kingdom’s largest supermarket, Tesco, I discovered that shoppers at Agora and Meena Bazar pay an average of 160 percent more per item [please refer to price comparison chart at the end].
Moreover, the 160 percent price increase is strictly a minimum, as the study excludes Tesco’s promotional and bulk-buy offers (which account for 40 percent of its sales during holiday periods), and its own extensive, low-cost product range. The following two comparisons based on Tesco brand prices illustrate an even starker disparity: when Sabera buys a box of Special K cereal from Agora, she spends 414 percent more than if she were to purchase Tesco’s cereal brand equivalent. Likewise, a can of Heinz spaghetti inBangladeshis 1,442 percent more expensive than Tesco brand spaghetti, which costs just Tk 17. Both Meena Bazar and Agora intend to release their own line of products in the not too distant future, but as Niaz Rahman, group officer of Agora’s parent company Rahimafrooz states, “It’s difficult to offer discounts on items because we have limited stock and the potential for wastage is too great.”
In some ways, it’s unfair to compare Tesco’s prices with those inBangladesh, as it’s the world’s second largest retailer in terms of profits (£3.4bn in 2010) and its buying power is now so massive that it’s become a source of criticism within the UK. Most vocal is the Tescopoly Alliance, whose website states, “Growing evidence indicates that Tesco’s success is partly based on trading practices that are having serious consequences for suppliers, farmers and workers worldwide, local shops and the environment.” And according to the UK activist group, “War on Want”, “From Bangladesh to South Africa, supermarkets dictate the terms at which overseas producers are forced to sell their goods. With threats to find new suppliers, they force prices down around the world.” In response to such allegations, Tesco’s website states, “We have now trained over 400 suppliers in Bangladesh, India, China, Spain and the UK in improving labour standards.” But even so, Tesco is certainly no corporate saint (if ever there was one): following an investigation in 2008 by Private Eye Magazine, the UK government closed a tax loophole used by Tesco to avoid paying a corporation tax liability of £50 million a year.
Yet all that aside, it’s difficult to comprehend from a socioeconomic perspective how Bangladeshi consumers are able to fork out so much more than those in the UK, where the average worker earns Tk 60,000 a week – which is around 77 times more than their Bangladeshi counterpart.
However unlike the UK, where supermarkets are engaged in competitive “price wars” and frequented by the masses, Sajjad Zohir believes that the main clientele ofDhaka’s supermarkets are the wealthy middle-class who work in multinationals or have access to remittances, own real estate or garment factories, as well as wealthy foreigners. Consumer expert Quazi Faruque believes there are also a large number of extremely wealthy people in Dhaka, who are, ironically, mostly comprised of import and export traders.
When presented with my findings, Agora’s Niaz Rahim, who is also the son of its late founder, looks shocked.
“This difference isn’t fair,” he says with furrowed brows, before asking an assistant to photocopy the data.
Niaz hints that the expansion ofBangladesh’s supermarket industry is being hindered by prices that are prohibitively high for the vast majority ofDhaka’s twelve or so million inhabitants.
“We’ve been stuck at five stores for ten years,” he says, before adding, “Supermarkets are dying to grow.”
Niaz explained that Agora’s limited buying power forces it to rely on suppliers rather than dealing directly with manufacturers, which would yield lower wholesale prices. However Agora’s turnover must be reasonable, because 10 new stores are set to open over the next two years. He assured me that prices will then lower considerably. While attempting to conceal the hint of desperation in my voice (I too, have a penchant for cheese), I ask Niaz whether the limitations on buying power could be immediately overcome if Meena Bazar (which has 11 stores) and Agora placed their orders with manufacturers jointly. Niaz replied that no such cooperation exists at present, but agrees “it would be great, because we could eliminate suppliers.”
Meena Bazar’s Enayam Haque cited an indirect supply chain as being largely responsible for the high prices. He explained that when fruit is ordered from Australia, Switzerland and USA, it must come via Dubai, regardless of whether or not it makes geographic sense. Haque said that excluding items sourced directly from China, the items imported from 20 different countries change hands five times before reaching the consumer, who ultimately covers the cost of such a protracted supply system. “In future we plan to build our own supply chain,” Enayam said.
In a limited sense, Meena Bazar and Agora already have. Around five percent of imported goods are sourced from “informal suppliers” rather than enlisted ones. Informal suppliers purchase products from airports in places such asSingaporeandDubai, and transport the goods in their luggage, thus avoiding taxes and other associated costs. When I ask Agora’s Niaz whether this method can be deployed for dairy products that require refrigeration, he replies, “It’s no problem, just a five hour flight.”
Price comparison: Agora and Meena Bazar (Bangladesh) vs Tesco (United Kingdom)
|Item||Meena Bazar||Tesco UK||Difference||Difference by percentage|
|Weight||BD Taka (VAT inclusive)||BD Taka||BD Taka|
|Lemnos Australian fetta cheese||200g||1,325.95||179.72||1,146.23||
|Red capsicum||per kilo||862.50||162.95||699.55||
|Heinz Spaghetti||420 grams (g)||258.75||59.91||198.84||
|Castello Danish Blue Cheese||100g||411.70||119.81||291.89||
|Bega Tasty Cheese||250g||548.55||179.72||368.83||
|Black and Gold Skim Milk||1 litre||251.85||86.27||165.58||
|Twinings peach tea bags||25.00||417.45||155.76||261.69||
|Thai plum||per kilo||1,581.25||597.87||983.38||
|Raspberry Yoghurt Pot||125g||126.50||47.93||78.57||
|Heinz Yellow Mustard||255g||330.05||131.79||198.26||
|Kelloggs Special K||500g||763.60||342.67||420.93||
|Frys Turkish Delight||55g||158.70||71.89||86.81||
|Praise Italian dressing||350ml||395.60||191.70||203.90||
|Heinz Baked beans in tomato sauce||415g||148.35||76.68||71.67||
|Nestle Honey Gold Flakes||220g||247.25||141.38||105.87||
|John West Wild Pink Salmon||418g||603.75||478.05||125.70||
Difference by percentage
|BD Taka||BD Taka||BD Taka|
|Devondale Thickened Cream||100ml||299.00||46.00||253.00||
|Chicken Tonight Butter Chicken||495g||385.25||118.16||267.09||
|Whiskas cat food||400g||187.45||63.50||123.95||
|Heinz Reduced Fat Mayonaise/Hellmans||220g||333.50||113.82||219.68||
|Kiwi fruit (Dubai)||1 kilo||989.00||359.44||629.56||
|Evian mineral water||1.5 litres/2 litres||264.50||100.64||163.86||
|Twinings Yellow Label Peach Tea||25 bags||339.25||129.40||209.85||
|VittoriaEspresso Ground Coffee||200g||895.85||357.04||538.81||
|Diet Coke can||330ml||103.50||47.93||55.57||
|Heinz Starwberry and Banana Custard||110g||166.75||80.27||86.48||
|Laughing Cow cheese portions||8 portions||179.40||89.86||89.54||
|Black and Gold Cream of Chicken Soup/Batchelors Chicken Soup||85g||227.70||115.70||112.00||
|So Good Vanilla Bliss Soy Milk||1 litre||276.00||148.57||127.43||
|Heinz Baked Beans in Tomato Sauce||415g||131.10||76.68||54.42||
|Kraft Cream Cheese||288g||276.00||172.53||103.47||
|Capilano Honey/Gales Honey||400g||506.00||317.50||188.50||
|Sanitarium Peanut Butter/Skippys||375g||362.25||238.43||123.82||
|Prego Pasta Sauce/Dolmio Pasta Sauce||397g||343.85||227.64||116.21||
|NB: Exchange rate – 1 GBP = 119.83|
Yet why not save even more on air-freight expenses by importing from neighbouring India, as it has seen a large amount of investment by multinational brands? This will not work, wrote Niaz over email. “We at several occasions attempted to get products from India as well as from Pakistan. Unfortunately we did not find those parties inclined to cater to Bangladeshi consumers, perhaps because they could fetch a higher margin and volumes from western markets. We are still… looking for suitable partners in regional countries.”
Yet isolation cannot be the only answer. According to Sharron Stretton, a long-term resident of the South Pacific island nation of Fiji, which has a population of just 849,000, “The cost of imported food is the same as, if not cheaper, than Australia or the USA. Everyone in Fiji shops at supermarkets.” Along with sugar and garment exports, Fiji’s economy is heavily reliant on tourism (the annual number of tourists per year is more than half its population), which may provide extra incentives to keep the costs of imported goods as low as possible.
A Meena Bazaar store manager (who wishes to remain anonymous) suspects that many suppliers are cheating him. He said, “I first met one of our suppliers in 2001. He dressed in Bangladeshi clothes, lived in a rented flat and traveled by rickshaw – he seemed very poor. Nowadays he drives a Prado and owns a lot of land.”
However according to supplier Anwar Hossain, proprietor of Saika International at DCC Market in Gulshan, when he supplies 10 to 15 lakh worth of goods to Meena Bazar each month, his profit margin is just three to five percent. His grumbles concern customs.
“I face many problems with customs – I am forced to pay cash bribes to have my goods released. Sometimes there are delays of up to a month before my cargo is released. It’s unnecessary and causes my goods to expire.”
Meena Bazar’s store manager elaborated further, saying, “Suppliers have told me that if they don’t give free products to officials, they will not release the cargo. Immigration officials also steal food at the airport. Apparently, it happens every time.”
Agora’s Niaz says, “We hear that about customs. But you don’t have to give into the pressure if your documentation is correct. As a regulation, food can’t be held for more than 24 hours, so we could take legal action if there were delays.”
Shahalam Khan, director of the customs departments at the National Board of Revenue said, “I’ve never received a complaint or heard of such allegations. I’ll definitely look into it if I receive one.” Khan said that delays may occur if importers fail to comply with quarantine certificates. After a little more prodding, he concedes, “Maybe there is some corruption in customs – some baksheesh for food.”
However according to Niaz, none of the factors listed above affect prices more than high taxes.
“Taxes are the number one reason for the high prices,” he states emphatically. Niaz has sent letters to the National Board of Revenue’s (NBR) Chairman Fariduddin Ahmed requesting reforms to duty taxes, but is yet to receive a reply. He plans on holding seminars next year to raise public awareness on the issue.
NBR is the central authority for tax administration, and its main responsibility, according to its website, “is to mobilize domestic resources through the collection of import duties and taxes, VAT and income tax for the government.”
There is no shortage of taxes applicable to imported goods. Niaz reels off a list without pausing: import tax can be as high as 40 percent, customs duty is 25 percent, regularity duty is 5 percent, advanced trade tax is three percent, pre-shipment inspection is 1 percent, and the largest form of taxation, supplementary duty, varies (somewhat wildly) according to item. Supplementary tax ranges from 20 to 500 percent on imported products, and from five to 20 percent for local products.
According to the VAT Act of 1991, supplementary duty is imposed on “luxury and non-essential goods, socially undesirable goods… and other goods… that are justified in the public interest.”
Socially undesirable items such as imported cigarettes and alcohol (though obviously not sold in supermarkets) are taxed at a rate of 350 percent. NBR’s Khan elaborated on the “public interest” principle by saying, “Supplementary duty is a policy issue determined by NBR, according to requests from local manufacturers. It’s designed to protect local foods.” He cites biscuits as an example: imported biscuits attract a supplementary duty of 100 percent, a rate he considers high enough “to protect the good biscuits of Bangladesh.” However as Meena Bazar’s Chief Operating Officer Shaheen Khan points out, when all the taxes on imported biscuits are combined, the total rate of tax amounts to 213 percent. This is the same rate of tax imposed on imported energy drinks, carbonated beverages, chips, margarine and mayonnaise.
Protectionism is undoubtedly a good policy, but when applied excessively, it results in a lack of consumer choice. Moreover, while most consumers would be more than happy to buy products made in Bangladesh, it is often difficult to identify them as such. “Rich Foods,” for example, displays the Union Jack flag, under which it is stated that the product – chicken nuggets and the like — was made in Bangladesh (“with UK technology”). Other items, such as Bangladeshi jam jars, feature Arabic lettering, as they are also sent for export. There is currently no uniform logo to identify products that were made in Bangladesh.
Furthermore, NBR’s definition of “luxury” for taxation purposes appears to apply to everything imported. According to Meena Bazar’s Shaheen Khan, “Items such as chips, shampoo, and jams are considered luxury items. Most [imported] products are for rich people.” One couldn’t agree more.