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39 % RMG exporters accept prices below their production costs

Buyers are simply shrugging off the responsibilities of workers livable wage

A research conducted by the Fair Wear Foundation (FWF) revealed that apart from the threat of severed business ties, the suppliers accepted work orders from foreign buyers at rates lower than their production costs for errors in cost calculation or to one-up their competitors.

39% BD RMG exporters accept loss
Figure: The apparel suppliers accepted work orders from foreign buyers at rates lower than their production costs to keep the factory running.

A press release said that the findings of the study were shared at a supplier seminar on ‘Labor minute costing and price negotiations with buyers’ organized by the Fair Wear Foundation (FWF) and the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) on November 7, at the Lakeshore Hotel in Gulshan, Dhaka.

Freight on Board (FoB) prices of buyers (2011-2016)

Sourcing: Sourcing Survey

Markets 2011 2016 % change
All $5.03 $4.64 -7.79
US buyers $5.32 $4.75 -10.67
European buyers $4.91 $4.47 -9.04
Trading houses $4.90 $4.63 -5.50

The FWF tool also makes it possible to calculate the labor cost per product based on a higher wage level, such as a living wage benchmark or a wage agreed through collective bargaining agreement (CBA).

Alarmingly the study also found that around 39% of Bangladeshi RMG exporters accept prices less than their production costs for the sake of business relations with international retailers.

Freight on Board (FoB) prices of buyers (2011-2016)

Sourcing: Sourcing Survey

Products 2011 2016 % change
Knit $3.80 $3.40 -10.50
Woven $6.48 $6.05 -6.61
Bottoms $6.43 $6.10 -5.17
Tops $5.01 $4.58 -8.55
T-shirts $2.72 $2.43 -10.70

“We found that many buyers were not willing to pay more and the brands accept to increase prices when fabric costs increase or currency fluctuates. But start bargaining when the minimum wage goes up, making the argument that factories simply need to increase their efficiency,” said FWF Expert Klaus Hohenegger.

“The factory management also accepts lower prices in the hope of price hike and profit in the future,” he also added.

The study also found some looming catastrophes. Some 33% think they will face the risk of closure and 29% will face difficulties in wage payment to workers.

“We found that many buyers were not willing to pay more and the brands accept to increase prices when fabric costs increase or currency fluctuates. But start bargaining when the minimum wage goes up, making the argument that factories simply need to increase their efficiency.”

FWF Expert Klaus Hohenegger

After the recent wage hike of 51%, only 13% of the buyers who source from Bangladesh increased the prices of apparel items.

“There is an imbalance in the negotiation table. We are fearful of losing work orders,” said Mohammad Abdul Momen, Director of the Bangladesh Garment Manufacturers and Exporters Association.

“Our view is that it is the buyer’s responsibility to comply with legal wage requirements, but this starts with transparency, with knowing the labor component as part of an FOB [Free on Board] price,” Hohenegger stressed.

“The pressure is always put on the wage of the workers in this tug of price war between the factory management and the retailers,” said KI Hossain, President of the Bangladesh Garment Buying House Association.

Participants insisted for bigger transparency in cost price negotiations between apparel buyers and their suppliers in order for wage compliance to be achieved and for wages to improve.

Suppliers are at times reluctant to provide a detailed breakdown of costs, concerned that it will be used against them and they will be pressured to lower prices even further. Though Bangladeshi apparel manufacturers turned their factories into role models for safety by spending billions of dollars, the retailers are not practicing responsible buying practices.

FWF is an Amsterdam based European multi-stakeholder initiative working to improve workplace conditions in the garment and textile industry. Governed by labor unions, non-governmental organizations and business associations.

If anyone has any feedback or input regarding the published news, please contact: info@textiletoday.com.bd

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