Frozen Food Business in Bangladesh

Abstract This paper is a review of Bangladeshi Frozen Food Business. Frozen Foods in Bangladesh encompass from fishes to ready-to-cook foods. However, fishes and shrimps are exported and generate foreign exchanges for Bangladesh, whereas, the semi-processed foods are imported and produced locally. Indeed, it is a potential business where rural people can be benefited by investing little amount of money, and producing and meeting the emergence demand in the market.
This paper additionally concerns on the constraints of business such as lack of properly trained people, stiff competition for the home made processed foods. Therefore, this paper identifies new scope for the growth and development of this segment. Since this segment has got little concerns, we hope that this paper would meet the requirements for the development of the frozen food business and aid the base for further research on this segment. Introduction Though Bangladesh is an agricultural based country, its aquaculture is developing and contributing to the export of the country.
In fact, the frozen food is one of largest contributor to the foreign exchange earnings and occupies fourth position among the export items in terms of total export earnings (Bureau of Statistics, 2004). In Bangladesh, frozen food includes shrimp and fish, and shrimp contributes to the majority of earnings from the frozen food. However, in recent years, the frozen food business has become diversified, and traditional thinking about it has also changed. In Bangladesh, it has been developing based on the fishery along with processed meat and chicken.
Indeed, in Bangladesh, new trend in the frozen food business is emerging in silence, which is semi or fully prepared food in retail outlets. But unfortunately, there is not much research work on this segment of frozen food business done, which is developing and growing a new innovative concept in the vacuum space of frozen food business. In fact, this development and its policy implications have received little attention in the literature on export-led industrialization in developing countries (Athukorala & Sen, 1996).
Therefore, for our research work, we are focusing on processed frozen food found in the retail outlets, and hope that this work would help for the further development of this segment in frozen food business in Bangladesh. In Bangladesh, fishes, shrimps and prawns are exported as frozen food to various parts of the world. The frozen seafood sector is booming by exporting. Earnings from this area are increasing and have the potential to increase more. The value of these exports in 1996-97 was US$342. 26 millions (Bureau of Statistics, 1997).
However, the shrimp belt of Bangladesh is always the subject of debates on law, order, safety and production process and food quality and environmental issues. As such, in 1997, the European Union (EU) imposed a ban on Bangladesh’s frozen food exports after an EU inspection team report condemned shrimp processing plants in Khulna and Chittagong for their failure to comply with EU quality control regulations (http://www. ifpri. org). However, the agenda of concern is with the semi or fully prepared frozen food that is an emerging market in Bangladesh.
These food items have been commercialized recently under company labels like Bombay Sweets, Rich and Aftab. In addition, there are other concerns that supply with this type of frozen food and they are called homemade items. The range of frozen food can contain prepared or semi-prepared food like parathas, pizza, franks, samucha, chops, shami kabab, puri, nuggets, and many more exquisite delicacies. The increasing demand for these types of products has given rise to domestic production of these food items, whereas, a couple of years back everything was imported (Personal Interview, Nandon).
Origin of the Study Basically frozen food can be a processed or semi-processed food that is kept in freezer to preserve it for later use. However a better explanation may include, Frozen food is food preserved by the process of freezing. Freezing food is a common method of food preservation which slows both food decay and, by turning water to ice, makes it unavailable for bacterial growth and slows down most chemical reactions (http://www. wikipedia. com). Moreover, the condition required to keep frozen food is diifferent. Foods may be preserved for several months by freezing.
Long-term freezing requires a constant temperature of -18 °C (0 degrees Fahrenheit) or less. Some freezers cannot achieve such a low temperature. The time food can be kept in the freezer is reduced considerably if the temperature in a freezer fluctuates. Fluctuations could occur by a small gap in the freezer door or adding a large amount of unfrozen food. A special kind of freezer is required to constantly cool the food and in this manner the texture of the food remains the same (http://www. wikipedia. com). Food preserved by freezing or preserved by the process of freezing, is termed as frozen food.
Preserving food by freezing is a widespread method of preservation as it slows both food decays. It happens by turning water to ice, which makes it unavailable for bacterial augmentation and slows down most chemical reactions. It is not possible to grow or produce all kinds of food throughout the year or every where around the world. The need for storage and keeping food fresh for a long period of time arises to make them available in all season and everywhere. It is the blessing of science that now it is possible to keep food frozen for our betterment. Today, frozen food products are making our frantic life-styles seem a bit easier better.
In fact, successfully evolving and adapting to the needs of consumers, frozen foods have been around a lot longer than we think (http://www. reference. com). History of Commercialization of Frozen Food Business The frozen food industry that we see today can be traced back to several years back to the past. Obviously, the existence of frozen food has always been on earth; in climates that were cold enough for the food to freeze. The Chinese were the first to harness the power of freezing foods beyond the winter months. Later, the Greeks, Romans, Egyptians and Indians also discovered that (http://www. fraweb. org). Even though ice-refrigerated railroad cars allowed perishable food products to be shipped as early as the 1860s, major innovations in refrigeration engineering after World War II gave birth to the frozen food industry. Scientists also developed techniques to control the ripening of fruits, vegetables, and other perishables that further extended shelf-life. Advances in transportation came particularly fast – steamships in the mid-1800s, railroads and refrigerated trucks 19th century – and combined with falling oil prices to dramatically reduce the cost of shipping food.
It now costs 70 percent less to ship cargo by sea, and 50 percent less to ship by air, than it did 20 years ago. Furthermore, invention of frozen orange juice concentration and artificial organic food items also cause the consumers located in different geographical area to enjoy seasonal fresh foods at any time season (Halweil, 2002). With the course of time, many people developed innovative techniques of food-freezing, including Enoch Piper, William Davis, and Daniel E. Somes. But, Clarence Birdseye (1886 – 1956), an American taxidermist by trade, is credited for his quick freezing method that he invented in 1924 (http://www. oc. gov) and considered the father of the frozen food industry. He invented, developed, and commercialized a method for quick-freezing food products in convenient packages and without altering the original taste (http://www. wikipedia. com). Before the quick-freezing technique came along, foods were frozen at a fairly slow rate, making the foods loose their taste and texture. However, Birdseye theorized that food must be frozen very quickly so that its taste and texture can be maintained. His theory covered the packaging, type of paper used, and related innovations along with the ‘freezing technique’.
In fact, this quick-freezing process actually ended up creating 168 patents (http://www. loc. gov). The modern frozen food industry was born over 70 years ago, in 1930, when frozen foods were being traded commercially (http://www. nfraweb. org). Objectives of the Study This study attempts to identify the current condition of frozen food business in Bangladesh, especially the semi-processed food segment of frozen food. Therefore, our agenda focuses on the semi-processed food found in the retail outlet.
Therefore, this study will identify the future perspective of the frozen food business, space of growth, employment opportunity and scope of developing frozen food business country wide to develop the market and export for foreign earnings. Significance of the Study As we have seen from the earlier segment, frozen food business has become very important for Bangladesh due to its capability of foreign earnings and employment opportunity in this sector. However, the semi-processed food segment in the frozen food has not got any attention; consequently no proper research work is available.
Therefore, we hope our study would help the frozen food sector as it would reveal the future perspective of the frozen food business and develop the ideas on what the entrepreneurs and government should do for the development and expansion of this particular segment the. Methodology To prepare the report, we will go for massive research on the frozen food business throughout the semester. The study is mainly based on secondary data and documentary methods. Documents are an important source of information and such sources of data might be used in various ways for the research work.
To attain the study different books, journals have been studied. Different websites and portals have been visited when required. Furthermore, we took interview of Deputy Manager at Nandan. Lastly, we have concluded the study by providing some recommendations based on our findings. Limitations of the Study Everything is its limitations as it has opportunities to develop. There still exist some limitations in our study. The limitations are we only focused on the secondary source but not able to visit any production facility.
There is also time constraint as for any research work it requires more that two to three years; but within three month semester, we had to complete the study on the frozen food business. Literature Review International business is defined as ‘transactions that are devised and carried out across national borders’ and has existed since the national borders were formed and has shown growth throughout the history with greater peace and security, economic prosperity through development in transportation and communication, and technological progress, especially advent of Internet, liberalization of trade policies and reduction in ariffs, and creation of global institutes and agreements (GATT or WTO). During the last 30 years of twentieth century (1970-2000), the volume of international trade in goods and services has expanded from a level of US$200 billion to over US$6. 8 trillion – a 34- fold increase, which is faster than world output. Direct foreign investment (FDI) reached a level of US$4. 7 trillion by 2000. The sales of foreign affiliates of multinational corporations (MNCs) recorded a level twice as high as global exports.
The driving force behind the growing/changing international business is the process of globalization, which has been accelerated during the last 2-3 decades (Hussain, 2002). A noteworthy recent development in world trade is the rapid expansion of processed food exports and it is the fastest growing component in food products (Athukorala & Sen, 1996; Australian Food Statistics, 2001). The impetus for export expansion has come from new agro-based manufacturing activities, in particular various fish preparations and processed foods.
While labor-intensive manufactures too have demonstrated impressive growth dynamism in absolute terms, this has been dwarfed by the more dramatic growth record of processed goods. There is evidence that these new product lines have many positive attributes according to which the contribution of manufactures to the objectives of industrialization is normally evaluated (Athukorala & Sen, 1996).
These include economy-wide linkages, important learning effects emanating from the mastery of new production technology, higher productivity, international marketing effort and entrepreneurial skills involved in export success (Meller, 1995). Based on the conventional definition, export of manufacturing (Appendix A) share in total exports of world trade merchandise increased to 81 percent in 1994 and closely associated with the rapid expansion of manufacturing exports form developing countries those shares in world manufacturing exports increased to 24 percent in 1994.
On the other hand, share of processed food in world non-manufacturing (Appendix A) trade increased to 37 percent in 1994, and this share is sharper for developing countries compared to that of developed countries with increased to 38 percent compared to an increase to 36 percent recorded by developed countries in 1994. However, mong the 37 countries, some countries have performed far better than others in this area such as Bangladesh, Bolivia, Chile, Indonesia, Korea, Malaysia and Thailand; and among the low-income countries, Bangladesh is a notable exception, with a growth rate of processed food exports that is more than double that that of any other low income developing country (Athukorala & Sen, 1996). Foreign direct investment has been increasing at a faster rate than direct exports of processed foods over the past decades.
Although its impact is currently not quantified, national-level regulation is frequently cited as a potential source of non-tariff barriers to trade for food products. These barriers may be intentionally aimed at favoring domestic production, or merely be the innocent by-products of a country’s attempt to serve its consumers by assuring various food quality attributes. FDI allows food processors to avoid rules intended to disadvantage imported products by setting production within particular markets.
It may also allow more precise and rapid adaptation to domestic quality regulations (Hooker & Caswell, 1996). A priori reasoning and some scattered evidence suggest a number of factors, which results in growing share of processed food in the world trade. A widely observed feature of consumer behavior in the global economy has been an increasing `internationalization of food habits’ – the increased importance of processed items in food consumption patterns in developed countries as well as in large sections of the populace in many developing countries.
Factors such as international migration, the communications revolution and international tourism have contributed to this phenomenon. This may have provided a significant demand-side impetus to the growth of processed food exports from developing countries. On the supply-side, improvements in food technology, refrigeration facilities and transportation have made processed food items easily tradable across national boundaries (Athukorala & Sen, 1996). Furthermore, strategic choice of FDI or export the processed food in the international market is also influenced by national-level regulation on the ood quality standard. FDI allows food processors, by setting production within a market, to avoid rules intended to disadvantage imported products and to adapt rapidly to domestic quality regulations through greater flexibility, better designed plants, shorter shipping distance, less need for preservatives, packaging or refrigeration, superior understanding of the rules or better appreciation of local demands for goods with differing attributes to direct food quality benefits to both firms and consumers (Hooker & Caswell, 1996).
The emphasis on manufactured exports expansion in developing countries is rooted in the belief that compared to primary commodities, manufactured goods have some intrinsic characteristics, which contribute to superior growth performance. As such employment potential, terms of trade gains, knowledge and technology spill-over are among the most emphasized of these characteristics (Athukorala & Sen, 1996).
However, in general, the employment potential of resource-based manufacturing, based on standard trade theory (Heckscher-Ohlin model), is that an abundant supply of labor is not a key determinant of comparative advantage in international production (Findlay, 1985; Roemer, 1979). The Heckscher-Ohlin model (1933) was first conceived by two Swedish economists, Eli Heckscher and Bertil Ohlin at the Stockholm School of Economics. The Heckscher-Ohlin model is a general equilibrium mathematical model of international trade.
It builds on David Ricardo’s theory of comparative advantage by predicting patterns of trade and production based on the factor endowments of a trading region. The model essentially says that countries will export products that utilize their abundant factor(s) of production and import products that utilize the countries’ scarce factor(s). However, this generalization in processed food is debatable as there is no clear relationship between income levels and processed food export growth.
Furthermore, unlike in the case of further processing of resources such as minerals and timber, final stages of food processing appear to be labor-intensive. Besides, terms of trade gains from export diversification depends on the degree of income and price elasticity of demand for the commodities concerned, and processed food exports are superior to primary products in terms of these criteria. Furthermore, processed food would be even superior to conventional manufactured goods, hich are by their very nature, are highly import-dependent. On the other hand, processed food industries have large domestic resource content and tend to be closely related to activities in the rural sector (Athukorala & Sen, 1996). It is very likely that recent trade agreements and developments will significantly influence national-level regulation of food quality. NAFTA, GATT and WTO are the first attempt to specifically address food quality standards as potential barriers to trade.
National-level quality regulation takes on many dimensions or regimes because product quality itself is multidimensional. Trade theory provides a foundation for analyzing the impact of food quality regulation on FDI and trade. In its basic form, economic theory suggests that gains from trade arise when countries specialize in production of those goods to which they are best suited, thereby earning export income that allows for increased consumption.
Trade theory’s recent focus on analyzing rent seeking and rent shifting associated with national regulation, the benefits to individual sectors of an economy from trade agreements, and the divergence of outcomes between countries with different per capita income levels are also useful. New trade theory, on the other hand, discusses the effects on trade and investment patterns of imperfect competition, economies of scale, and distortions in factor markets.
It advances two quite different explanations of Intra-industry Trade – one emphasizes the interaction of product differentiation and economies of scale and second one emphasizes the literal two-way trade of identical products, with price discrimination being the driving force. It is useful for analyzing quality regulation because it focuses on the many factors that affect the welfare impacts of trade policy (Hooker & Caswell, 1996). Barriers to freer trade arising from non-tariff sources have become more prominent as progress has been made worldwide on tariff reduction.
Parties to recent trade agreements have sought to lower non-tariff barriers or at a minimum to assure that progress toward freer trade is not thwarted by increases in non-tariff barriers. Regulation of product quality can be a major source of non-tariff barriers to trade. If such barriers are to be lowered, trading partners must develop methods of regulatory rapprochement. For processed food products the level of regulatory rapprochement on quality regulation will have significant impacts on patterns of international trade in the next decade (Hooker & Caswell, 1996). Hirschberg et al. 1992) investigated the bilateral trading patterns of 30 countries and found that various market size variables (Appendix B) such as gross domestic product (GDP) per capita and the comparative size of GDP between trading partners shared border and membership in either the European Community or European Free Trade Area proved to be significant determinants of intra-industry trade. Similarly, the study of Hartman and colleagues (1992) on processed food and beverage industries resulted stressed the positive effect on intra-industry trade of US total trade and economies of scope.
The study on processed food of Handy and MacDonald (1989) found that product differentiation cultural ties, and firm size were significant determinants of FDI. Connor (1989) expanded on this evidence to suggest the importance of tariffs and non-tariff barriers to trade and domestic and foreign market structure, and stressed effects of the host country’s regulatory practices, patent protection and trademark laws as likely factors in determining FDI levels. Ning and Reed (1995) highlighted the importance of factors such as host market size, growth rate, and membership in a trading bloc in explaining FDI patterns.
In addition, research by Sheldon and Witzke (1992) provided various quality models to trade in food products and highlighted the key role played in the market by consumers’ ability to verify standards set by another country. National-level quality regulation and within trade bloc rapprochement influences firms’ choice of strategies to increase sales abroad such as export sales, joint ventures, FDI, and licensing although not yet quantified. The demand for food quality will continue to increase as incomes increase. National-level performance expectations will increase in the future.
Demand for higher quality products increases as income increases. In addition, National governments are the first in line to respond to this demand with new regulations. The demand and new national regulations are likely to outstrip harmonization efforts on an ongoing basis, leaving national regulations with an enduring influence on patterns of trade in processed food products. Quality regulation has momentum, in both more and less developed countries, making keeping up very difficult for firms and cooperating countries.
For firms working under national-level quality regulation, a very significant problem is that the regulation is dynamic, changing, and in many cases ratcheting up (Hooker & Caswell, 1996). In addition to the national-level quality regulation, many countries have implemented labeling requirements for foods. Labeling provides processor and retailers’ choice, not necessarily consumer choice. The decision of these intermediaries is central to the outcome of any food labeling policy. Consumers will be part of their labeling decision, because retailers and processors will conduct marketing studies on consumer perception (Carter & Gruere, 2003).
However, the food label is an important tool for improving the public understanding of the health benefits of following a nutritious diet. The Center for Food Safety and Applied Nutrition (CFSAN) of the Food and Drug Administration (FDA) has continued to study food labels with its Food Label and Package Survey (FLAPS). Data from the 2000–2001 FLAPS characterize various aspects of the labeling of processed, packaged foods, including nutrition labeling and various types of label claims. The final FLAPS database consists of 1,281 foods. An estimated 98. % of FDA-regulated processed, packaged foods sold annually have nutrition labels, with an additional 1. 7% of products exempt from nutrition labeling requirements. Health claims, structure or function claims, and nutrient content claims were identified on food labels. In addition to the resource this, survey provides to CFSAN in assessing health and nutrition information on the food label, registered dietitians and other health professionals can use FLAPS data to assist consumers in choosing a more nutritious diet to improve their health and well-being (http://www. sciencedirect. com).
Food safety and Environmental Requirements in International Market It is useful to distinguish between two kinds of food safety and environmental requirements. Mandatory requirements formulated by national or local governments are here referred to as ‘regulations’, while voluntary requirements formulated by the private sector, NGOs or other organizations are referred to as ‘standards’. The latter category includes those voluntary requirements drawn up by National Standards Organizations and international bodies (United Nations, 2007). Food-safety standards and regulations tend to cover multiple issues.
Apart from food safety, they cover issues such as plant and animal health, product quality, environmental protection and social welfare. Government regulations applied to imports of FFV sector largely focus on food safety, labeling and marketing requirements. Private-sector standards tend to focus on food safety, environmental protection and social welfare (Geneva, 2006). A number of factors have contributed too increasingly stringent food safety regulations and standards imposed by governments and the private sector, in particular: • Recent food scares and scandals in developed countries; Demographic developments in developed countries (i. e. ageing of population, which gives rise to be more risk-averse and quality-conscious consumer behavior); • Risk minimization efforts by retailers; and • More sophisticated detection and testing methods. Food safety standards and regulations tend to cover multiple aspects. Apart from food safety, they cover issues such as plant and animal health, product quality, environmental protection and social welfare (United Nations, 2007). Requirements laid down in government regulations are often transmitted to producers and exporters in developing countries through the supply chain.
For example, EU legislation tends to hold importers accountable for compliance with its provisions with regard to imported products. The need to take responsibility for the safety of the food they import into the EU market places importers under an obligation to exercise due diligence over supply chains (Geneva, 2006). Possible Implication for Developing Countries Developing countries face considerable constraints in meeting food safety regulations and private-sector requirements due to weak institutions, lack of infrastructure, high compliance costs, lack of information, and other factors.
One can even go so far to say that the new mandatory and voluntary requirements act to reinforce other strengths and weaknesses at production unit and supply-chain levels, i. e. in terms of technical or transport infrastructure (Geneva, 2006). Adoption of the HACCP approach to assuring safety Developed countries are increasingly requiring adoption of the hazard analysis and critical control point (HACCP) approach to assuring food safety. In the EU, the use of HACCP has become mandatory for all food categories.
The use of HACCP is not mandatory in the case of primary production. However, the use of HACCP is mandatory in packinghouses in the case of semi-processed and processed food, vegetables, and products that are pre-packed in the exporting country (United Nations, 2007). Economic Environment of Bangladesh During the last few years, Bangladesh made considerable progress in stabilizing and liberalizing its economy. As a result, inflation was much lower than previously, and average annual real GDP growth was above 5%, largely led by exports.
Indeed, one of the most striking features of Bangladesh’s trade is that textiles and particularly clothing dominate exports. This dramatic change in the composition of exports is the consequence of Bangladesh’s increased integration into the multilateral trading system. On the structural policy front, the Government has continued to pursue, inter alia, trade liberalization, financial sector reform, and privatization (www. wto. org). Unfortunately, real annual GDP growth, averaging around 6. 7% during the review period, has not been sufficient to make much of a dent in the poverty that pervades Bangladesh.
Given Bangladesh’s high incidence of poverty, its dense population, and its vulnerability to natural disasters, including periodic flooding and cyclones, food security is a major policy objective of the Government. Trade Policy Framework The Ministry of Commerce (MOC) is responsible for coordinating trade policy matters through its agencies, as well as in consultation with other Ministries and governmental bodies; national committees are formed to address specific issues on trade and industrial development.
Private sector representatives, including business groups and academic institutions, are consulted in the policy-making process through their participation in the national committees. A major institutional change involves the upgrading of the Tariff Commission under the purview of the MOC; the Commission is now empowered to conduct anti-dumping and countervailing investigations (http://www. wto. org).
Local regulations, standards and good agricultural practices (GAP) can assist developing countries in promoting safe and sustainable production systems and in supplying products for domestic, regional and international markets that meet the quality, safety and environmental standards of those markets (United Nations, 2007). Trade Policy Measures In an effort to encourage investment, the Government offers a wide range of open-ended tax incentives, notably tax holidays and accelerated depreciation.
However, the effectiveness of such incentives in attracting investment is doubtful, particularly in the absence of fiscal transparency, which would involve a detailed account of tax revenues forgone and systematic evaluation of the impact of these incentives in relation to forgone taxes. The existence of incentives complicates tax administration and taxpayer compliance, while increasing the scope for tax avoidance and evasion, both of which are reflected in Bangladesh’s low overall level of tax collection relative to GDP (http://www. wto. org). Frozen Food Business in Bangladesh
Bangladesh as a third-world country poses poverty, unstructured business environment, conservative social values for living as an inherent quality. Since this country has achieved independence, it started to changing slowly and now its changing rapidly to cope with the modern and so called western country. Its business has got new dimensions and the whole country economy has started to play a good role in shaping the worlds future to some extends. The participation of developing countries in world trade is much lower than their participation in world production, as the main producers (China, India and Brazil) have huge domestic markets.
Although China is the world’s largest producer, only a relatively small proportion of its production is exported, but its exports are increasing rapidly (United Nations, 2007) GDP growth of broad Industry sector was 9. 56% in FY 2005-06. The performance of the industrial sector was mainly based on the growth in textile and wearing apparel, drugs and pharmaceuticals, fertilizer, petroleum products, glass products, cement, electronics, footwear and food & beverage industries. In addition to that, we can see that the total export earnings registered a 21. 3% increase during 2005-2006 and rose to US$ 10156 million (16. 03% of GDP) from US$ 8655 million (14. 18 of GDP) in 2004-2005. Exports increased chiefly due to higher demand in both developed and developing countries. Garments had the major share (38. 86%), followed by knitwear and hosiery (35. 43%), frozen foods (4. 43%), jute goods (3. 94%) leather (2. 31%), chemical products (2. 52%) and raw jute (1. 03%) (Export Promotion Bureau Bangladesh, 2005-2006). Bangladesh is not well prepared to address the new requirements in international markets.
Existing mechanisms for gathering, processing and disseminating information are not working properly and there is hardly any coordination, follow-up and monitoring

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