The geography of low-cost medicine
The unique geography and demography of Bangladesh have helped price deregulation deliver some of the world's most affordable medicines
A hardworking medical representative from a very large pharmaceutical company visits a one-man pharmacy on Kutubdia island and procures an order for two boxes of paracetamol worth Taka 702. Unremarkable — but it sets off a rapid chain of events.
The medical representative relays the order via smartphone to the company's Cox's Bazar depot. The depot processes and dispatches the package on a company vehicle plying the Cox's Bazar–Kutubdia route. At Mognama Ghat, a delivery man hires a speedboat and hand-delivers the tablets to the chemist.
Order to delivery: Less than a day.
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Now compare an island in the Philippines. A small pharmacy on Sitangkai orders two boxes of paracetamol from a pharmaceutical company's contracted agent. The agent says the volume is too small — the chemist must wait for orders to pool.
Several days pass. Once enough orders accumulate, the Manila warehouse arranges a vessel to the depot in Zamboanga City — 3 to 5 days. Then an inter-island ferry to Bongao, Tawi-Tawi, which doesn't run daily. Finally, a pump boat to Sitangkai — 2 to 4 hours in good weather.
Order to delivery: 2 to 5 weeks.
The two countries are similar in GDP, area, and population. But Bangladesh is densely populated and easily accessible, making its pharmaceutical supply chain short and simple. The Philippines is fragmented across thousands of islands with mountainous interiors.
Other factors notwithstanding, this divergence goes a long way in explaining why medicine prices are lower in Bangladesh. Here, it makes economic sense for a company to own the entire process — manufacturing, marketing, selling, distribution. Vertical integration works.
In the Philippines, it doesn't. The supply chain is fragmented across different firms, each adding mark-ups, raising costs.
Similar dynamics apply to India and Pakistan. India is vast; Pakistan has many hard-to-reach areas. In both countries, manufacturers outsource distribution to networks of sub-distributors, each taking a cut.
The ease with which the entirety of Bangladesh can be accessed also prevents the rise of regional monopolies, thereby fostering competition. Contrast this with eastern Indonesia — Papua, Maluku, Nusa Tenggara — where the entire region is served by effectively one distributor with enormous bargaining power.
Bangladesh is densely populated and easily accessible, making its pharmaceutical supply chain short and simple. The Philippines is fragmented across thousands of islands with mountainous interiors. Other factors notwithstanding, this divergence goes a long way in explaining why medicine prices are lower in Bangladesh.
In essence, Bangladesh's geography and demography create a natural environment for pharmaceutical competition. Thus, price deregulation since 1994 has not only built a vibrant industry but also delivered the lowest medicine prices in the world.
Policymakers should take note: in a country this compact and dense, price-deregulation isn't a gamble — it's practically guaranteed to work.
Kaiser Kabir is the CEO of Renata PLC. He has an MPhil. in economics from the University of Oxford.
