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Factory safety compliance to push up production cost

  • Published at 08:11 am September 6th, 2013
Factory safety compliance to push up production cost

Apparel manufacturers expect the cost of clothing production to increase sharply in the days to come, because of setting high the factory safety standards and wage hikes in the wake of the Rana Plaza building collapse.

Stakeholders, however, have assured that Bangladesh’s garment industry would still remain competitive in the global market.

Rising labour cost is going to be the main factor in the increasing cost of production, they said. Compliance costs, which involve the need to reduce factory subcontracting and commit to action plans, including the EU’s Accord on Fire and Building Safety in Bangladesh, is another factor.

“Manufacturing costs will be higher in the days to come,” said Rubana Huq, managing director of Mohammadi Group, a large manufacturer that supplies retailers such as H&M, Zara, Wal-Mart and Esprit.

“Prices of garment items may increase by some 15-20 cents after the implementation of a new workers’ wage board and factory safety plan,” she said. “Despite the increase, Bangladesh will remain competitive in the world market.”

Workers’ leaders have proposed a minimum monthly wage of over Tk8,000 while the factory owners indicated that the minimum wage board would be between Tk4,500 and Tk5,000 per month, more or less 50% higher than the existing minimum wage Tk3,000.

The government will soon set a minimum wage for the workers, who are the lowest-paid workers in the industry in the world, with a legal minimum wage fixed in 2010.

The Accord on Fire and Building Safety in Bangladesh is a five-year legally binding agreement among international labour organisations, NGOs and retailers engaged in the textile industry to maintain minimum safety standards in the Bangladesh textile industry.

“This will add additional costs to the production,” said Anwar-Ul-Alam Chowdhury, former president of Bangladesh Garments Manufacturers and Exporters Association (BGMEA). “I cannot say what the exact increase might be right at this moment but it will be a sharp one.”

The total cost for improving factory may be $1bn, about $500,000 per factory, according to an estimation of global retailers.

Vice President (finance) of BGMEA Riaz Bin Mahmud said already the manufacturers had begun to feel the rising costs of production.

“Ensure fire and building safety in the factory will be costly in addition, the industry is already feeling the pain of growing transport and electricity costs,” he said.

The government is facing pressure to improve standards in the garment industry following the terrible industrial accident on April 24 in Savar, which left more than 1,100 people dead and hundreds injured. Many of the injured need prolonged and expensive medical support, and many have lost the capacity to work. The country’s garment industry, employing more than 3.6m people in over 4,500 factories, is the second-biggest exporter of clothes in the world after China.

After implementation of the minimum wage board, cloth making costs might rise from 45%-55%, as cutting and manufacturing (CM) cost of a basic pant will rise to $13-$14 from the present $11-$12, said an industry expert.

The expert said the small factories would bear the brunt of the production cost as big factories are already compliant in some of the criteria. Ripon Fakrul Kabir, managing director of HRM Sourcing Ltd, a local sourcing firm, said: “Despite the increase in production costs, Bangladesh will remain competitive than any other countries.”

“It is one of the few places in the world that has low labour cost, high manufacturing capacity and vast experience to provide what retailers demand,” he said.  

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