SOURCES OF OUTPUT GROWTH IN BANGLADESH FOOD PROCESSING INDUSTRIES: A DECOMPOSITION ANALYSIS

Abstract

USTAINED growth of firms requires consistent improvement in their productivity. Within the industrial sector, the growth of the food processing industry is particularly important for Bangladesh as this is one of the major industries in terms of contribution to total manufacturing production and employment. For example, it ranks second only to textiles in terms of the value of output and employment, accounting for 25 per cent of total industrial output and 16 per cent of total manufacturing employment in 1990/91 (BBS 1995). Empirical studies (Little, Scitovosky, and Scott 1970; Steel 1972; Rahman 1983) carried out in Bangladesh and elsewhere have shown that manufacturing firms had operated with a high degree of unrealized productive capacity due to the excessive controls of the protective regimes in the 1960s and 1970s. It is expected that recent liberalization programs will encourage firms to improve productivity growth. Bangladesh can no longer afford to hold unrealized capacity and recent reforms have put an emphasis on productivity gains rather than, as in past, the injection of new inputs into the production process. Studies examining the extent of capacity realization and the overall productivity performance of firms in the food processing industry are limited in Bangladesh. The Bangladesh-Canada Agriculture Sector Team (1991) estimated a capacity utilization index using firm-level data from the food processing sector of Bangladesh. This study revealed that capacity utilization ranged from 16 per cent to 56 per cent across firms. Another study in the food processing sector conducted by the International Labour Organization (ILO) (1991) found that 70 per cent of the enterprises realized less than 50 per cent of their productive capacity; another 20 per cent realized 51 to 60 per cent and only 10 per cent realized 61 to 80 per cent of their production capacity. Several studies undertaken by the Harvard Institute for Inter-