Supermarket sob story: Why are imported foods so expensive in Bangladesh?

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)