Challenges of the agro-processing industry in Bangladesh
Developing countries are experiencing rising sales of ready-to-eat meals, increasing participation of women in the labour market, ageing of the population, growing share of single-person households, changes in food consumption pattern and higher demand for ethic and ethically sourced products.
People's integration in an urban way of life leads to less time available to prepare traditional foods at home. Urban people benefit from the availability of stored, processed, easy-to-prepare or convenient foods in some form or other. In these contexts, the agro-processing sector of Bangladesh has prospects concerning both the domestic and the international markets.
As the role of agriculture in food production and food security is extremely important, the significance of industrialisation in the structural transformation of the economy is vast. The agro-processing sector can play a crucial role in the industrialisation process of a country while maintaining the vital linkages between agriculture and industry.
There are three vital reasons for brighter prospects in the agro-processing sector in Bangladesh. First, agro-processing in Bangladesh, compared with other manufacturing sub-sectors, enjoys a much higher value addition in the production process, given the domestic availability of raw materials. Second, as the sector is expanding, there is a shortage of workers in packaging, temperature control and other technical works, which indicates that this sector enjoys the potential to absorb a large number of skilled and semi-skilled workers in the coming years. Moreover, this sector can generate employment for women, which can help enhance female labour market participation in Bangladesh. Third, this sector has enormous potential for development through the forward and backward linkage industries.
Despite growth in recent years, the share of the agro-processing sector in GDP in Bangladesh remained less than 2%. This industry employs a little over 2% of the country's total workforce. The exports from this sector have remained less than US$ 500 million.
Bangladesh's agro-processing exports include frozen fish, shrimps, other frozen food, tea, vegetables, tobacco, cut flower, fruits, spices, dry food and other processed agricultural products. In terms of market share, shrimps dominate, with a growing share of other processed agricultural products and dry food. The major export destinations are the EU, the Middle East and the US. Though Bangladeshi shrimp exporters managed to position themselves in the main high-end markets, other agro-food exports remained engaged primarily in some regional markets through targeting ethnic food niches in countries with a large Bangladeshi diaspora (i.e., in the UAE, India, Saudi Arabia and other Gulf countries).
There are some critical constraints to the development of the agro-processing sector in Bangladesh.
First, market access, both in terms of tariff and non-tariff measures and related procedural obstacles, is a concern for the exporters of agro-processing products from Bangladesh. Compliance with SPS standards, especially in high-end destination markets, such as in the EU and the US, remains a challenge for many Bangladeshi agro-processing exporters. For SMEs in particular, the burden is much higher.
Second, high transport costs, resulting from road congestion and transportation related delays, affect business operations. Lack of access to electricity is also a drawback to the sustainable agro-industrial development of the country. Despite the improvement in the availability of electricity in recent years, many firms, especially SMEs, still face problems related to accessing new connections to the power supply and accessing quality power. The lack of cold storage, mills, warehouses for storage and equipment, such as scales and packing machines, has led to difficulties in meeting health and sanitation requirements. There are also problems related to poor air cargo management, inadequate cold storage and cold chain transportation facilities for vegetables and lack of processing unit near the airport.
Third, the agro-processing sector encounters problems at most of the processing stages. Problems exist from the cultivation of vegetables or crops to the packaging stage. At the primary level, farmers use too much pesticide and fertiliser. Farmers' lack of knowledge on post-harvesting techniques also leads to a very high level of damage. At the packaging stage, exporters face challenges regarding buyers' differences in packaging requirements. Also, tariff rates on the import of packaging materials are high.
Fourth, access to finance is one of the most critical problems affecting supply and export responses. The problem is even worse for SMEs, including export-oriented ones. Although GoB's cash incentive plays a vital role in the export of agro-food processing products, exporters complain about difficulties in access to this subsidy due to bureaucratic and other procedural obstacles.
Fifth, organisations like Bangladesh Customs, the National Board of Revenue, Bangladesh Standards and Testing Institution (BSTI), Bangladesh Accreditation Board (BAB), Plant Protection and Plant Quarantine Wings of the Department of Agricultural Extension, The Public Health Laboratory (PHL) of Ministry of Health, and Ministry of Fisheries suffer from institutional inefficiency. Capacities of BSTI and other standard assessing agencies are far from the desired level as certificates issued by these organisations are not accepted by many export destination countries. BSTI and other standard related agencies suffer from a shortage of skilled human resources, financial resources, testing labs and relevant infrastructure.
For realising the full potential of the agro-processing sector, the government should undertake several steps:
(i) Provide assistance to enhance the domestic capacity of Bangladeshi exporters in meeting SPS regulations in export destinations. (ii) Manage traffic conditions and improve trucking fleets to reduce transport delays and their associated costs. (iii) Ensure that the growing agro-processing sector has access to new and quality connections of electricity. (iv) Provide financial incentives to investors to set up cold storage facilities. (v) Ensure better access to financial services – i.e. easier payment system (electronic, e-cash etc.) and take the necessary steps to make the Entrepreneurs' Equity Fund effective. (vi) Provide wider training facilities to generate a skilled and semi-skilled workforce. (vii) Provide supportive tax and tariff policies. (viii) Improve the capacity of BSTI and other standard related agencies by increasing staffing levels, training and retention, increasing investment in equipment and facilities, introducing a single-window depository and dissemination of all required documentation, setting up more testing labs and building the required infrastructure.
The aforementioned discussion points to the fact that there are considerable institutional challenges in the agro-processing sector in Bangladesh, which require a solution. The institutional challenges in the first stage of agro-processing in Bangladesh are relatively low. Hence, even without much government supports, initiatives by entrepreneurs can achieve some success. However, institutional challenges become acute in later stages when issues are related to marketing, integration with the value chain, further value addition, processing, and exporting. For these stages, the quality of institutional support matters.
Raihan, S. (2022, February 4). Challenges of the Agro-Processing Industry in Bangladesh. The Business Standard. https://www.tbsnews.net/supplement/challenges-agro-processing-industry-bangladesh-366286