Jute Cultivation Scheme
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RETURN TOD CIRCULATING COPY WITIHIN TO BE RETURNED TO REPORTS DESK O°f &tJl)rISF IN ERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION Not For Public Use Public Disclosure Authorized FILE COPY Report No. 114a-BD 114 Vol. 2 THE WORLD JUTE ECONOMY (in two volumes) Public Disclosure Authorized VOLUME II PRODUCTION IN BANGLADESH Public Disclosure Authorized July 12, 1973 Public Disclosure Authorized South Asia Department This report was prepared for official use only by the Bank Group. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report. CURRENCY EQUIVALENTE US $ 1.00 Takas (T) 7.28(official rate) US M11.00 Takas (T) 7.9(floating rate as of January 1973) T 1.00 US $ 0.137 T '1million US$ 137,000 INITIALS AND ACRONYNS AEJI - Association of European Jute Industry BCJC - Bangladesh Central Jute Committee BCSIR - Bangladesh Council for Scientific and Industrial Research BJA - Bangladesh Jute Association BJMC - Bangladesh Jute Manufacturing Corporation BJMC - Bangladesh Jute Marketing Corporation BJPS.C - Bangladesh Jute Price Stabilization Corporatimn BJRI - Bangladesh Jute Research Institute BJTC - Bangladesh Jute Trading Corporation IJCS - Intensive Jute Cultivation Scheme IJIRA - Indian Jute Industries Research Association IJMA - Indian Jute Mills Association JARI - Jute Agricultural Research Institute TEL - Technological Research Laboratores THE WORLD JUTE ECONOMY VOLUME II: PRODUCTION IN BANGLADESH Table of Contents Page No. SUMMARY AND CONCLUSIONS i-x I. Jute Manufacturing Industry in Bangladesh 1 II. Jute Fiber Production in Bangladesh 29 III. Domestic Marketing in Bangladesh 61 Annex 1. Relative Profitability of Jute and Paddy Cultivation 2. Analysis of Jute and Aus Paddy Production Functions 3. The Price Responsiveness of Jute Producers in Bangladesh (This report was prepared by mission consisting of M. Lav (Chief), E. Grilli, J. Harrison, K.J. H6ng, and C. Ladonne (all general economists), R. Morrison (Industrial Consultant), and M. S. Sarma (Agriculturalist, FAO/IBRD). Field work was conducted in major producing and consuming countries from November 22, 1972 to January 15, 1973.) VOLUTME II: PRODUCTION IN BANGLADESE 1/ LIST OF TABLES, CHARTS AND MAPS Page No. TABLES CHAPTER I 1. Effective Exchange Rates for Jute and Jute Manufactures 4 2. Production Costs of Jute Products 7 3. Manufacturing Capacity Utilization 8 Price and Cost Analysis 4. U.S. Ma:ket Prices of Hessian and Polypropylene Cloth for Bags 11 5. U.S. Market Prices of Jute and Polypropylene Primary Backing, 1966-1972 12 6. Relationship between CIF and FOB Prices 12 7. Unit Cost Reductions Implied by a Two Percent Increase in Output 13 8. Hypothetical Cost Structure of Bangladesh Industry with Cost of Stores at Indian Levels 15 9. Unit Cost Reductions Implied by a Two Percent Increase in Output-Hypothetical Cost Structure 16 10. Revenue Changes for Price Decrease Required to Increase Demand by Two Percent-Hypothetical Cost Structure 17 11. Production of Jute Goods in Bangladesh 20 Jute Mills in Bangladesh, as of October 31, 1972 12. Chittagong Region 21 13. Khulna Region 22 14. Dacca Region 23 1/ Tables are included in the text and there is no statistical annex. -2- LIST OF TABLES, CHARTS AND MAPS Page No. 15. Number of Looms Installed and Operating, 1972 24 16. Production (tons), 1972 24 Production Costs in Bangladesh 17. Mills Classified by Size 25 18. Mills Classified by Area 26 19. Mills Classified by Age 27 20. Mills Classified by Degree of Integration 28 CHIAPTER II 21. Bangladesh Jute Acreage by Farm Size 30 22. Raw Jute Production: Bangladesh and India 32 23. Relative Share in World Production of Raw Jute and Allied Fibers 33 24. Raw Jute Trend Growth Rate and Fluctuation Indices for Selected Variables 1952-70 34 25. Area Sown Capsularis and Olitorius Jute by District and Region 1970-71 37 26. Difference Between Per Acre Returns to Jute and Aus Paddy Production 42 27. Net Returns to Jute and Rice Production: Domestic and International Prices 45 28. Jute and Rice Prices and Jute Acreage in Bangladesh 60 CHAPTER IV 29. Public Purchase and Jute Arrivals at Secondary Markets (1968/69 - 1972/73) 63 30. Public Sector Marketing Corporations 64 31. Charges at Kutcha Balers Level 65 -3- LIST OF TABIES, CHARTS AND MAPS Page No. 32. Pucca Baling Charges 66 33. Jute Finance for the 1972/73 Jute Season 68 34. Statement Showing by Category Number of Licenses Issued/Renewed for the Years from 1961-62 to 1972-73 (up to October) 70 ANNEX I 1. Jute Per Acre Cost of Production Data 5 2. Aus Paddy - Per Acre Cost of Production Data 6 3. Jute: Net Returns Per Acre at Alternative Export Prices, Exchange Rates and Costing Assumptions 7 4. Aus Paddy: Net Return Per Acre 8 5. Per Acre Net Return to Jute and Aus Paddy . Production 9 ANNEX 3 1. Jute Acreage Responses to Jute/Rice Price Ratio Lagged One Year for 9 Districts 2. Jute Production Response to Jute/Rice Price Ratio Lagged One Year for 9 Districts 6 CHARTS 1. Cropping Pattern for Major Crops Grown in Bangladesh 58 2. Jute Acreage In Millions of Acres in Year t+l Vs. Jute/Rice Price Ratio in Year t 59 MAP I. Bangladesh - Spatial Distribution of Jute Cultivation 57 VOLUME II - PRODUCTION IN BaNGLADESH SUMMARY AND CONCLUSIONS Introduction 1. The world jute market hao been discussed in detail in Volume I. The market has been subject to cyclical trends in the past. However, strong market forces generated by a rapid expansion of synthetic substi- tutes have emerged which may well signal a secular decline on the inter- national jute market. The markets most exposed to this competition are the important hard-currency markets of Western Europe and the United States. However, the threat is not limited to those markets. Numerous developing countr4es are also producing and using synthetics substitutes for jute. Prices will need to decline by about 20 percent in real terms if jute is to maintain its share in current markets. 2. While all jute producing countries face problems, Bangladesh is in a particularly precarious position, since it will depend on jute exports for about three-fourths of all foreign exchange earnings - at least for the next 5-10 years. Some important steps have been taken to improve production and to increase efficiency, but much remains to be done. The following paragraphs summarize the findings of Volume II. Manufacturing 3. Jute manufacturing has acquired a key position in the economy of Bangladesh. It is the largest industry (providing employment for about 150,000 people) and the main foreign exchange earner. About one- half of the raw jute crop is now converted domestically to various manufactured products. This is an impressive role for an industry that is only two decades old. 4. The rapid rise in the importance of the jute manufacturing industry was the result of a development strategy primarily aimed at increasing foreign exchange receipts by increasing the proportion of jute exported as manufactured goods. Additional objectives of the develop- ment strategy were to provide profitable investment opportunities for industrialists (most of whom were non-Bengali) and to increase urban employment opportunities in a region with few sources of new employment. 5. The main component of the development strategy was a system of differential exchange rates that gave much higher returns to exports of jute manufactures than to exports of raw jute. Manufacturers were thus able to earn attractive profits even though value added in manu- facturing was typically very low and sometimes even negative. - ii - 6. The industrial structure was severly shaken by the events leading to independence. Production stopped almost completely from December 1971 to February 1972. The new Government of Bangladesh nationalized the industry, an action in part necessitated by the departure of non-Bengalis, who ow'ned 44 of the 72 mills then existing, including most of the largest ones. The industry is now controlled by the Bangladesh Jute Mills Corporation (BJMC). Mill managers, who are appointed by BMJC, control production decisions, but sales contracts (especially prices) require specific approval by the BJMC. 7. The mission investigated various factors which determine industrial efficiency among the mills. The findings, based on a sample survey, are not surprising. Important factors which tend to be associated with lower unit costs are larger size and integrated production (of carpet-backing, hessian, and sacking). Mill age did not appear to be an important factor as all mills are, in terms of the jute industry, relatively new. If the industry were to expand, these would be important considerations. However, in view of low capacity utilization (about 40 percent in 1972/73) and the general difficulties facing the industry, expansion of capacity except, perhaps, for carpet-backing, does not seem warranted. 8. Difficulties in the jute manufacturing industry can be grouped. in three categories: production constraints, the foreign exchange rate system, and lack of world market information. Production Constraints 9. Production levels during FY 1973 are likely to return to about 70-75 percent of pre-war levels, or about 40 percent of the industry's rated capacity. Significant increases in output are unlikely in the near future and it is to be expected that some time will be needed to develop efficient management and operating practices in this relatively complex industry. The management problem would be a key constraint even if it were limited to the process of familiarizing newly appointed managers with efficient production processes. The problem is, however, exacerbated by nurmerous labor disputes. All mills have at least one labor union, and few of the union leaders represent workers in more than one mill.