Jute

The importance of one cash crop overshadows all else as the source of Bangladesh's export earnings. Bangladesh is the world's largest producer of jute, a fibrous substance used in making burlap, sacks, mats, rope and twine, and carpet backing. Jute is sold on the international market either raw or in the form of manufactured goods. This so-called "golden fiber" is cultivated on the same land as rice; thus each season farmers must decide which crop to plant.

During the colonial period, when East Bengal was used by the British to produce primary goods for processing elsewhere, raw jute was the main product. Calcutta became the manufacturing center where jute was transformed into twine and rope, sacking material, and carpet backing. The partition of British India in 1947 put an international boundary between the source of the basic commodity and the manufacturing center and imposed a great burden on Pakistan to compensate for the disruption of the industry that was its greatest source of foreign earnings. Between 1947 and 1971 jute mills were constructed in East Pakistan, but industrialization proceeded slowly.

In the 1960s, petroleum-based synthetics entered the market, competing with jute for practically all of its uses. The upheavals culminating in the emergence of independent Bangladesh drove many traditional buyers of jute to shift to synthetics. World trade in jute and jute goods declined absolutely from 1.8 million tons in 1970 to 1.5 million tons in 1982. Despite some major year-to-year swings, prices fell precipitously through the mid-1980s. Prices were too low to cover the costs of production, but the government nonetheless deemed it essential to subsidize growers and industry and ensure the continued existence of as large a foreign market as possible. Ironically, Bangladesh's indispendable foreigh exchange earner was thus itself a drain on the economy.

There have been enormous year-to-year fluctuations both of producer prices and of production. An extreme example occurred between FY 1984 and FY 1986. Carry-over stocks had been run down since the previous production surge in FY 1980, and serious floods in 1984 resulted in unanticipated production losses. The price doubled to US$600 per ton at the export level, which triggered the traditional response of farmers; they planted much more of their land in jute, and between one year and the next production rose more than 50 percent, from 5.1 million bales in FY 1985 to 8.6 million bales the following year. History proved true to itself yet again when export prices then fell by 50 percent at the export level and by more than 30 percent at the farm-gate level. The drop would have been even greater had the government not intervened. It bought 30 percent of the crop through the Bangladesh Jute Corporation and persuaded private mills to buy more raw jute than justified by their own projections of demand.

Jute is a highly labor-intensive crop, much more so than rice, but the yield per hectare is also higher than is generally achieved for rice. When the farm-gate price for jute is 50 percent higher than the price for rice, farmers respond by planting more land in jute at the expense of rice. With the expansion of irrigation facilities in the 1980s, the economic incentives to stick with rice have increased, but there may be scope for increasing jute production by substituting it for the low-yield broadcast aus rice grown on unirrigated land during the same season as jute.

The fact that jute production is so labor intensive has played to Bangladesh's strength, given the country's large rural underemployment. Because wage rates in Bangladesh have been lower than in other jute-producing countries and because Bangladesh has the ideal growing conditions for jute, the country has benefited from encouraging its production even when world price and demand projections have offered bleak prospects. High as Bangladesh's share of world trade has been--in 1985 it amounted to 77 percent of all raw jute trade and 45 percent of jute goods--there are realistic possibilities for expanding the share still further. The World Bank has estimated that Bangladesh's share could rise to 84 percent for raw jute and 55 percent for manufactures. Jute production appeared in the late 1980s to be an essential part of the long-term development plan because, for all the troubles and struggles associated with its planting and marketing, no alternative activity offered any promise of being more profitable.

Many economists believe the key to preservation of the viability of jute as an international commodity lies in maintaining price and supply stability. That has proved a difficult task. Of thirty major primary commodities traded internationally, only about six have as much price and supply instability as jute. Demand is highly sensitive to price increases, but not nearly as sensitive to decreases; once a portion of the market is lost to synthetics, it is very difficult to win it back through price competition. For example, in FY 1986 export sales remained low despite a 35-percent decline in export prices; the fall in world oil prices had also resulted in declines in the prices of polypropylene substitutes for jute as well, and most buyers that had switched to synthetics chose not to return to jute. In the late 1980s, there was nothing in the offing to arrest the trend of several decades of decreasing global demand for jute and declines in the value of jute relative to the goods Bangladesh must import to meet the basic needs of a desperately poor economy.

The government has an ongoing responsibility to monitor the jute situation, to intervene when necessary, and to preserve the economic viability of the commodity responsible for one-third of the nation's foreign trade earnings. It sets floor prices and becomes the buyer of last resort. In 1986 buffer-stock operations were extended through the Bangladesh Jute Corporation and resulted in the government's buying 30 percent of the entire crop. These stocks then become available for use by the government-owned Bangladesh Jute Mills Corporation or for sale to private mills or overseas customers. But in this case, the limitations of this government tool were demonstrated the next year, when the jute crop was of normal volume but the price of raw jute fell a further 35 percent, to the lowest levels in a decade. The government could not arrest the decline because its financial resources and storage capacity were already stretched to the breaking point.

Some hope for a better future has been placed in cooperation among jute-producing countries through the International Jute Organization, based in Dhaka. Member countries in 1988 were the producing countries of Bangladesh, Bhutan, China, India, Nepal, and Thailand and more than twenty consuming countries, including the United States. The goals of the fledgling International Jute Organization were appropriately modest to begin with, centering on better dissemination of basic information, coordination of agricultural and industrial research and of economic studies, and steps toward coordination of marketing. It remained to be seen in mid-1988 whether this poorly financed new organization, representing the first feeble effort at a coordinated approach to the problems of jute, would be effective in arresting its long decline as an important international commodity.

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Source: U.S. Library of Congress