Output falls 25% for packaging industry amid lower demand

The production in the packaging industry of Bangladesh fell 25 percent in 2023 due to under-supply of raw materials and a decline in demand, according to industry people.

It came as the country continues to struggle because of the ongoing macroeconomic volatility and inadequate supply of US dollars.

The packaging industry is a backward linkage sector serving segments such as fast-moving consumer goods, food-processing, and readymade garments. It has been facing trouble for the last two years owing to the slowdown of economic activities.

"The situation of the packaging market is yet to improve. Rather, production dropped by around 25 percent due to a lack of necessary raw materials," said Safius Sami Alamgir, president of the Bangladesh Flexible Packaging Industries Association.

He said factories can't import sufficient volume of raw materials owing to the barriers in opening letters of credit amidst the dollar crunch.

"The packaging industry is dependent on the performance of other sectors. When others fare well, the packaging industry fares well too."

Bangladesh needs around two lakh tonnes of packing products annually, with local manufacturers capable of meeting 80 percent of the demand.

Local production was reduced by at least 50,000 tonnes in 2023 as the demand for packaging products from other sectors declined, Alamgir noted.

On the other hand, the overall production cost increased by 25 percent in 2023 following the price hike of the dollar and the gas crisis.

"But we were able to increase the price of our products by 20 percent on average," Alamgir said.

"We can't raise the price sharply overnight since we have to maintain good relations with customers to do business."

"Under the circumstances, our business is running below the capacity. We are doing business although there is no growth," said Alamgir, also the managing director of Tampaco Foils Ltd, one of the top manufacturers in the packaging industry in Bangladesh and the pioneer in the sector.

Before the present crisis hit the sector, the packaging industry clocked an annual growth of 20 percent for a decade.

In Bangladesh, the overall market size of the packaging industry was around Tk 6,000 crore in 2022 and it came down to around Tk 5,500 crore last year despite the price increase, according to an assessment of the industry.

Currently, there are more than 100 packaging factories.

Large producers are Tampaco, Arbab Poly Pack, AGI, Famous Printing and Packaging, Merchant Packaging Industries, Premiaflex Plastics, Shajinaz Eximpack, Meghna Packaging, r-pac Bangladesh, and Mohona Packages. They collectively meet more than half of the annual demand.

Kamrul Islam Likhon, who has been involved in the packaging industry for 25 years, says the industry situation is not in good shape as manufacturers can't import the required volume of raw materials.

He says that financially strong manufacturers as well as those which have strong relations with banks are doing well despite the economic slowdown. "But the number of such companies is low."

The industry is 100 percent dependent on imported raw materials.

Despite the business slowdown, the printing segment has grown enormously in recent times.

Likhon says there is over-investment and over-capacity in the packaging industry.

The annual manufacturing capacity reached 4 lakh tonnes against a demand of 2 lakh tonnes. As a result, there is intense competition among manufacturers.

Md Hossain Iraz, director for operations at Akij Biax Films Ltd, says some importers are bringing packaging raw materials under the duty-free bonded warehouse facility and selling them in the local market, hitting domestic manufacturers.

The bonded warehouse facility is extended to the companies that import raw materials to produce finished goods for the export sector.

ABFL, a concern of Akij Group, can cater to a third of the local demand for packaging products. But the ongoing economic situation is not favourable, he said.