Bangladesh’s dairy industry, one of the country’s most promising sectors, has seen the involvement of a global dairy giant — Arla Foods — since the 1960s.
Arla, known for its flagship brand Dano powdered milk, has played a pioneering role in introducing quality dairy products to Bangladeshi consumers for over five decades.
The company’s long-standing commitment is evident through its innovations and investments aimed at ensuring affordability, accessibility, and quality.
However, despite this track record, Arla’s operations in Bangladesh are increasingly being challenged by discriminatory taxation policies that threaten not only its profitability but also its future investment plans in the country, said Laurent Ponty, Managing Director of Arla Foods Bangladesh.
In an interview with the Financial Express, Mr Ponty has expressed his company’s vision for innovation as well as for its investment desire in Bangladesh’s dairy sector.
He said since the inception of Dano powdered milk, Arla Foods has maintained a leadership position in Bangladesh’s dairy industry.
As the only foreign direct investor in the sector, Arla has driven key innovations and launched products that have had a lasting impact on the market.
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One notable achievement is the launch of Dano Daily Pushti in 2016, a product aimed at creating an affordable powdered milk segment for the lower-income population, he said.
By introducing small sachets priced at Tk 10, Arla made dairy products accessible to even the most economically disadvantaged consumers, significantly contributing to the nutritional intake of millions across the country, he pointed out.
More recently, Arla introduced Dano Delight for culinary use and Dano Ready UHT milk, marking its continued focus on innovation and consumer convenience, he added.
To meet growing demand and improve production efficiency, Arla has partnered with Bangladesh’s Mutual Group to invest around €15 million in a state-of-the-art factory in Gazipur.
This facility represents Arla’s long-term vision to expand its footprint in Bangladesh and offer a wider variety of dairy products to meet the evolving needs of local consumers.
However, while the company is eager to invest further and introduce new innovations, its future plans are contingent on a favourable business environment, said Mr Ponty.
Unfortunately, the current economic climate, exacerbated by unfair taxation and regulatory challenges, poses significant threats to the company’s operations and investment strategies, he said.
He also said Arla Foods, like many other businesses operating in Bangladesh, has faced multiple challenges in recent years as high inflation, currency depreciation, and market disruptions have reduced consumers’ purchasing power, leading to a contraction in the demand for dairy products.
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While Arla has the expertise and global experience to navigate these macroeconomic issues, what it finds increasingly difficult to accept is the growing lack of a level playing field in the country’s business environment, said Mr Ponty.
One of the most pressing concerns for Arla Foods is the imbalanced tax and duty structure governing the import of different types of powdered milk, he pointed out.
Companies in Bangladesh import three types of milk powder: whole milk powder (WMP), skimmed milk powder (SMP), and filled milk powder (FMP).
Arla uses advanced technology to replace some of the milk fat in its products with vegetable fat, making its FMP more affordable for the mass market without compromising on quality or nutritional value, said Mr Ponty.
Despite this, the tax structure disproportionately penalises FMP with a total import duty of 28 per cent (25 per cent customs duty and 3.0 per cent regulatory duty), while WMP, which is imported in far greater quantities, faces a total import duty of just 10 per cent, he pointed out.
According to Arla’s estimates, between September 2023 and August 2024, Bangladesh imported 76,000 tonnes of WMP, 34,000 tonnes of SMP, and just 19,000 tonnes of FMP.
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The stark contrast in the tax treatment of FMP versus WMP is not only unfair to businesses like Arla but also detrimental to consumers who rely on FMP for affordable dairy nutrition, Mr Ponty said.
He also has expressed frustration at this disparity, emphasising that such policies create barriers to a fair and competitive business environment, which, in turn, discourage further investment.
Beyond import duties, Arla is also grappling with other burdensome taxation policies, he said, adding that the Advance Income Tax (AIT) at a rate of 5.0 per cent on imports is another point of contention.
The company has already raised concerns with Bangladesh’s National Board of Revenue (NBR), requesting that the AIT rate be reduced from 5.0 per cent to 2.0 per cent, he said.
Adding to Arla’s challenges is the pervasive corruption and bureaucratic inefficiencies within certain stakeholder organisations. These factors have further compounded the difficulties of doing business in Bangladesh, said Mr Ponty.
Arla’s leadership has been candid about how these systemic issues, along with the discriminatory tax structure, have diminished the company’s ability to operate efficiently and profitably.
The head of Arla Foods Bangladesh emphasised that while the company remains committed to the market, it cannot ignore the adverse impact of these challenges on its long-term sustainability.
Mr Ponty also said Arla Foods has a stringent zero-tolerance policy for corruption, which is part of its global compliance framework.
With over 140 years of business experience across multiple markets, the company recognises the long-term repercussions of corruption on business operations and sustainable growth.
Therefore, its unwillingness to compromise on these principles is critical to maintaining its reputation and ensuring the integrity of its operations in Bangladesh, said Mr Ponty.
Unfortunately, the increasing bureaucratic hurdles and lack of transparency in business practices are testing the company’s resolve, he said.
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But despite these challenges, Arla Foods continues to view Bangladesh as a land of opportunities, he added.
The company’s long-standing presence, coupled with continued investments, reflects its belief in the potential for growth in the country’s dairy sector.
Arla remains optimistic about the future, provided there is a level playing field and improvements in ease of doing business.
Arla has already demonstrated its willingness to invest in Bangladesh’s dairy industry as its recent €15 million investment in the UHT milk production facility is a great example of it.
Moving forward, the company has plans to introduce additional dairy product categories and expand its operations.
The company’s leadership stressed that Arla is not seeking preferential treatment in the market but is simply asking for fair and transparent business practices.
If Bangladesh is to attract and retain foreign investors, particularly in key sectors like dairy, it must prioritise creating a fair and competitive business environment, said Mr Ponty.
For Arla Foods, the company’s continued commitment to innovation and investment in Bangladesh will depend on whether these critical issues are addressed, he said.
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Source: The Financial Express