Are fair prices going to remain a myth only?

Over the decades, the readymade garment (RMG) sector of Bangladesh has flourished and spread its reach in exporting its products across continents. As per recent reports, 206 Bangladesh's garment industry had LEED Certification by the USGBC and over 500 factories are awaiting the certification in the pipeline.

It not just strengthens our goal towards sustainability but also proves the commitment of Bangladesh’s apparel industry towards being the safest industry in the world. But is this commitment being paid for by our buyers despite the strides made? It’s an alarming issue nonetheless as our apparel sector is grappling in obtaining fair prices for its products from international buyers.

As apt as we see the global buyers are in ensuring safety measures, Green factory initiatives, etc, we manufacturers look forward to the day when our workers, their workmanship, our products and dexterity shall be equally valued and paid for in terms of “Fair Prices.”

Bangladesh RMG sector has taken up to transform not just into green factories but with other compliant facilities of eco-friendly technologies, focus on reducing energy consumption, minimizing waste, and maintaining higher standards of worker safety and well-being.

A huge personal investment was made by the individual RMG industry for these compliances. But the challenges in achieving fair prices from buyers make business tougher for manufacturers, alongside maintaining the debt of these investments.

The journey of manufacturers to ensure fair prices of their products is an old feud. International buyers are consistently paying lower than the global average price to apparel manufacturers in Bangladesh but higher to some of the country's competitors.

International Trade Centre (ITC) stated that it looked at the problem using a cost-to-value analysis and saw a different picture. According to the ITC, local garment manufacturers receive rates that are 32 per cent to 83 per cent lower than the highest prices paid to the suppliers in other countries. This validates, for the first time, Bangladeshi garment manufacturers' claims about receiving lower prices from global buyers and underscores the importance of moving up the value chain. Fair and ethical prices are necessary to ensure that the garment manufacturers could work towards improving the sector in terms of safety, security and workers’ rights.

In a study report titled “The Garment Costing Guide for small firms in value chains” ITC stated there is a growing argument that customers -- retailers and brands -- should pay their suppliers a fair free-on-board (FOB) price since they are often paying the prices that are below the factory costs. Many factories have been forced to close because of the lower FOB prices.

It’s crucial we realise that the problem is not that customers are paying these RMG factories less, but rather customers are paying everyone else more. One may think why this is happening and research states clearly that the lower prices that is causing the handful of RMG factories to fail in running and finally succumb to their losses and close down, the value provided by the failing factories is nearly worthless.

The scenario is not only in Bangladesh, countries like Pakistan, and Cambodia are also consistently paid lower than the world average prices, whereas Vietnam, Indonesia, Turkey and Mexico are given higher than the average rates. For instance, men's woven cotton trousers made in Bangladesh were sold for $7.01 per piece in 2020, which was 9.20 per cent below the global average of $7.72, being one of the many examples.

Often these rates are justified on the grounds that the supplying countries that fail to meet the needs of the customers (i.e. requirements) are paid lesser than the others. But Bangladesh is no longer in that state to receive lesser prices, reasons stated above already.

Another report published by World Trade Organization shows that Bangladesh gets lower prices compared to its competitor countries like Vietnam, Cambodia, India, Turkey, etc. from its two largest apparel exporting destinations – the United States and European Union (EU) countries.

This devaluation of our products is persistent due to certain reasons. The opacity of pricing structures within the fashion supply chain is a significant hurdle. The negotiating grounds for the Bangladesh RMG manufacturers are very scarce and limited. Often, buyers negotiate prices based on their own projections, leaving manufacturers with little room for negotiation.

This lack of transparency makes it difficult for factories to understand the fair value of their products. Additionally, the power dynamics between buyers and manufacturers further exacerbate the issue. A buyer who has a widespread global ambit holds an upper hand due to their global reach and access to multiple suppliers and can possibly determine and also dictate terms, leaving manufacturers with limited bargaining power, due to the fear of losing the orders.

The market competition is such that manufacturers in Bangladesh fear that buyers from across the globe shall shift their orders sooner than imagined to their competing nations nearby. Long-term contracts between manufacturers and buyers were often seen to lock factories into unfavourable terms, making it difficult to renegotiate prices even if costs or market conditions change.

Bangladesh has always been known for its ardent and delicate hand in production at lower production cost. The phrase “Cheap Labour” has often overshadowed our significant growth and despite passage of decades, the global ideology remains quite the same. As massive investments are made to transform into green factories as a means to add value to our production chain, even then overcoming this stereotype and justifying higher prices remains a challenge, often threatening the viability of these efforts.

To combat this state, the manufacturers in Bangladesh are opting for a new sect in production – value-added products. A little while ago, a major European retailer in Dhaka stated, "It is true that the prices of garment items made in Bangladesh are a bit lower compared to those in other countries and the average world price because local manufacturers are still strong in basic garment items." He further added, "So, a hidden unhealthy competition has also kept the prices of the items lower." The state is not as simple as the words display it to be. This major change shall be a challenge for several medium and small manufacturers in Bangladesh who shall still be combating the price cuts.

A fair pricing of our products from foreign buyers shall support entrepreneurs to provide decent wages and maintain congenial atmosphere in the garment factories of the country, further allowing the maintenance of standards of production and labour rights. The statement is simple, higher standards in value addition in production requires high prices, these are complementary stances and shall allow us to accentuate the RMG state.

Around 85 per cent of the garment factories in Bangladesh have already met the international standard, as assessed by Accord and Alliance — the two international organisations of major global retailers. Hence fair pricing has been a major and long-standing demand of the Bangladesh RMG producers.

As ruthless as it might sound, some factories are forced to handle rising overheads, compounded further by the recent hike in workers’ minimum wage, amounting to 51 per cent increase, and even then compromise in prices just to breakthrough the competition chain and keep their factories running, as closing down shall be an even greater loss than the numerous financial debts that pile up during their functioning.

The manufacturers seek a more equitable partnership between buyers and manufacturers, by means of enhancing transparency in pricing, and fostering a deeper understanding of the value proposition presented by green garment factories can be some effective solutions. Regulatory interventions, such as international guidelines for fair pricing, could also play a role in levelling the playing field and it must be a collective initiative of all the stakeholders involved.

The RMG sector in Bangladesh houses a history of constant growth, contributing significantly to the rise of the nation singlehandedly at times too. Hence its subsistence and growth is a matter of National concern as this sector is nothing less than a National Asset.

The prices that the manufacturers seek are not just righteous but also deserving given the products manufactured and its quality and demand across the globe. The tag of “Made in Bangladesh with Pride” is not just a statement but a pride, and it’s time that it’s rightly valued.

The writer is a director of Bangladesh Garment Manufacturers and Exporters Association and director of Envoy Group and an Advocate of the Supreme Court of Bangladesh.