Jute Supply Response in Bangladesh

SCP-13

Jute SupplyResponse in Bangladesh Public Disclosure Authorized

FILECO PY Takamasa Akiyama

WORLD BANK STAFFCOMMODITY WORKING PAPERS Number 13 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized i..i7i -) -7 E

WORLD BANK STAFFCOMMODITY WORKING PAPERS Number 13

Jute Supply Response in Bangladesh

Takamasa Akiyama

This is a document published informally by the World Bank. In order that the information contained in it can be presented with the least possible delay, the typescript has not been prepared in accordance with the procedures appropriate to fornal printed texts, and the World Bank accepts no responsibility for errors. The publication is supplied at a token charge to defray part of the cost of manufacture and distribution. The World Bank does not accept responsibility for the views expressed herein, which are those of the author(s) and should not be attributed to the World Bank or to its affiliated organizations. The findings, interpretations, and conclusions are the results of research supported by the Bank; they do not necessarily represent official policy of the Bank. The designations employed, the presentation of material, and any maps used in this document are solely for the convenience of the reader and do not imply the expression of any opinion whatsoever on the part of the World Bank or its affiliates concerning the legal status of any country, territory, city, area, or of its authorities, or concerning the delimitation of its boundaries or national affiliation. The full range of World Bank publications, both free and for sale, is described in the Catalogof Publications;the continuing research program is outlined in Abstracts of CurrentStudies. Both booklets are updated annually; the most recent edition of each is available without charge from the Publications Sales Unit, Department T, The World Bank, 1818 H Street, N.W., Washington, D.C. 20433, U.S.A., or from the European Office of the Bank, 66 avenue d'lena, 75116 Paris, France.

Takamasa Akiyama is an economist in the Commodity Studies and Projections Division of the World Bank.

Library of Congress Cataloging-in-Publication Data Akiyama, T. (Takamasa),1944- Jute supply response in Bangladesh.

(World Bank staff commodityworking papers, ISSN 0253-3537 ; no. 13) Bibliography:p. 1. Jute industry--Bangladesh.I. International Bank for Reconstructionand Development. II. Title. III. Series:World Bank staff commodityworking paper ; no. 13. HD9156.J8B2527 1985 338.1'7354'095492 85-17979 ISBN 0-8213-0596-4 - iii -

ABSTRACT

This paper uses quantitative methods to identify major factors affecting jute supply in Bangladesh. As well as estimating the impact of the jute-to-riceprice ratio on acreage harvested, estimates of the impact on jute supply of weather variations, labor costs, fertilizer availability,value of jute sticks and irrigation availability were also made. The analysis of acreage and yield response was carried out at the district level as well as at the national level to identify district supply characteristics.A distinction was also made between tossa and white jute as the prices paid for these different varieties and the land on which they are grown differ.

Some of the main findings include:

(i) Jute acreage is very responsivenot only to jute and rice prices but also to agricultural labor costs, which differ from district to district;

(ii) The production share of Tossa jute has increased substantiallyin the past 15 years because of its higher price and because it is less influenced by irrigation (expanded irrigation has expanded the potential for rice growing);

(iii) Jute yields have increased in all districts over time and are positively influenced by fertilizer availabilityand jute prices;

(iv) Higher yield increases were observed *in districts where tossa is mainly grown and where yields were below average 15 years ago;

(v) The value of jute sticks has been an important factor affectingjute supply.

The potential for jute production in Bangladesh has remained nearly constant for the past 15 years, as increasing yield has offset to a large degree the declining acreage caused by the expansion of irrigation and rice growing. The recent low levels of production were largely the result of low real jute prices during the 1979-82 period and adverse weather conditions. Under higher prices and more normal weather conditions jute supply is likely to expand through increases in acreage and yield. - iv -

ACRONYKSAND ABBRVIATIONS

B.B.S. - Bangladesh Bureau of Statistics HYV - High-Yielding Variety iJCS - Intensive Jute CultivationScheme MJ - Ministry of Jute and Textiles

Conversion Factors

1 maund = 37.326 kg 1 bale = 180 kg = 4.822 maunds 1 long ton = 1.016 mt -v -

TABLE OF CONTENTS

LIST OF TABLES AND FIGURE ...... vi

I. INTRODUCTION AND SUMMARY ...... 1

II. AN OVERVIEW OF JUTE PRODUCTION IN BANGLADESH ...... 9o**..... 5

III. DISTINCTION BETWEEN TOSSA AND WHITE JUTE PRODUCTION ...... 0 9

IV. AN ANALYSIS OF JUTE ACREAGE RESPONSE AT THE NATIONAL LEVEL...... 15

Data ...... 15 Supply Response Specification. . . . . o.o.o.e...... o.. o... .17 Results ......

V. AN ANALYSIS OF JUTE ACREAGE RESPONSE AT THE DISTRICT LEVEL ...... 25

VI. ANALYSIS OF JUTE YIELD RESPONSE ...... o...... oo . .31

VII. IMPACT OF PRICE FLUCTUATIONS ON PRODUCTIONo...o..o...... 36

P-EFERENCES ...... o38 - vi -

LIST OF TABLES AND FIGURE

Table 1: Acreage and Production of Major Agricultural Crops in Bangladesh, 1974/75, 1977/78, 1980/81 and 1982/83 ...... 6

Table 2: Illustrative Cropping Patterns on Bangladesh Jute Farms...... 8

Table 3: Average Acreage and Production of Tossa and White Jute in Major Jute-Growing Districts, 1975/76-1982/83...... 4..**... *...... 10

Table 4: Producer Prices of Tossa and White Jute (Nominal)...... 12

Table 5: Estimates of Jute Supply for Bangladesh according to Three Official Sources, 1969/70-1982/83...... 16

Table 6: Estimates of Bangladesh Jute Crop Damage Caused by Floods, 196-8...... 019

Table 7: Jute Acreage and Jute and Rice Prices in Bangladesh, 1970/71-1982/83...... *o...... oe.0.. 20

Table 8: Estimated Value of Jute Sticks, 1970-82 ...... 21

Table 9: Daily Wages of Agricultural Labor (without Food) by District, 1969/70-1982/83...... 6...... 2

Table 10: Trends and Price Responses of Jute Acreage in Major Jute-Growing Districts***..*****.***** ...... 28

Table 11: Estimated District-Wide Jute Yield Equations...... 34

Figure 1: Real Producer Prices for White and Tossa Jute: Bangladeshl...... l I. INTRODUCTIONAND SUNKARY

1. Because jute exports are the most importantsource of foreign revenue

for Bangladesh, several studies, including previous studies by staff of the

World Bank, have been carried out on jute supply response in Bangladesh.1/ In

most of these earlier studies, the main focus has been the quantitative

relationship between jute acreage and the jute to rice price ratio. Other

possibly relevant variables such as irrigation,jute stick prices and weather were not explicitly incorporated into these quantitative analyses, although

they were recognized as important factors affecting jute production. The

present study examines the impact on acreage and yield of relevant non-price

factors as well as jute and rice prices at the national and district level. In

detail, the main features of the present study which distinguishit from other

jute supply studies include:

(i) Analyses of factors affecting area harvested at the district level.

We expected and were confirmed in our expectations that jute supply

response characteristicsdiffer significantly from one district to

another. By distinguishingdistrict characteristicsin jute produc-

tion we have been able to improve significantlythe understandingof

the effects of factors affecting jute productionin Bangladesh;

(ii) Quantitative analysis of factors affecting jute yields at the

national and district levels. Past studies have dealt with explana-

tions of yield determinantsin a crude manner. In the present study,

we identifiedimportant variables affecting jute yield in each major

jute-growingdistrict;

1/ See References at the end of the paper. -2-

(iii) Distinction between the supply characteristicsof white and tossa

jute. This distinctionwas necessary because the types of land where

the two main jute varieties, tossa (olitorious) and white

(capsularis),are grown, differ and because producer prices of the

two jute varieties differ; and

(iv) Quantification of the effects of factors relevant to jute supply

other than producer prices of jute and rice, such as weather

variation, the extent of irrigation and fertilizer distribution.

2. Following the summary the paper presents an overview of jute production in Bangladesh and a discussion of the distinctionbetween tossa and white jute production. Sections III and IV give an analysis of acreage response at the national and district level, respectively.Section V presents an analysis of yield response. The last section discusses the possible impact of price fluctuationson production.

3. The main findings of the present study are the following:

(i) Jute acreage is very responsiveto changes in the real prices of jute

and rice at the national level. The estimated own-price elasticity

for jute is between 0.68 and 0.77 and the elasticity with respect to

the rice price is between -0.19 and -0.20;

(ii) Price elasticitiesfor jute acreage vary with district over the range

0.4 to 1.0 and the elasticitieswith respect to rice prices range by

district from -0.16 to -0.70;

(iii) Agriculturalwages also have an important impact on jute supply-the

higher the wage the lower the jute acreage;

(iv) Irrigation appears to have reduced jute acreage in a few districts,

especially in the Jat Area where white jute is mainly grown; -3-

(v) During the period 1970-84, the impact of weather on production was

severe in 1974 and 1984 but minor in other years;

(vi) The value of jute sticks is becoming an increasinglyimportant part

of the total value of the jute crop;

(vii) The share of the tossa variety in total jute acreage and production

has increased in recent years. The reasons for this appear to be the

higher and more stable prices for tossa and the limited availability

of irrigation in areas where tossa is grown. The share of tossa is

likely to continue to increase and the rate of increase could be

enhanced by improved supplies of good quality tossa seed;

(viii) There are significant district-leveldifferences in the trends and

fluctuationsin jute acreage and yield. These differences arise from

differences in various factors including soil characteristics,extent

of irrigation, frequency of weather damage, level of agricultural

wages, competing crops and availabilityof fertilizers.

(ix) Jute yields have increased in all districts over time but fastest in

those districts where yields were lower. Another trend observed is

the higher yield increase in districts where tossa jute is mainly

grown and where flood damage is infrequent;

(x) In recent years, jute yields have reached the 3.5-4.0 bales/acre

level in all districts, a level which appears to be an upper limit

given present technologies;

(xi) Since jute yields have increased in many districts, compensatingfor

the long-term decline in jute acreage due to the increase in irriga-

tion (used mainly in rice production), jute's production potential in

Bangladesh has not declined. The low levels of jute production 4

experienced over the last 4-5 years were a consequence of low real

jute prices and adverse weather. Production is likely to increase to

over 1,000,000 mt with a return of prices to higher levels and with

years of more normal weather; and

(xii) It was found to be very difficult to obtain any statistically

significant impact from price stabilization on jute production.

Still, there are reasons to believe that jute price stabilization

would have a positive impact on production. - 5 -

11. A (onVIEW OF JUTE PKOICTlON IN BANClAJESH

4. Jute growing is widespread in Bangladesh with the main growing areas along the Tista, Bramaputra, Jamuna and Ganges rivers. The total Jute acreage of 1.3 to 2.2 million acres occupies about 6 to 10% of the total agriculture land area. Although this area is much less than the area sown to rice, jute is the second most important agricultural crop in terms of land use after rice

(see Table 1).

5. Except for the estimated 300,000 acres of land along the Jamuna

River, where flooding during the monsoon season makes rice growing too risky, rice can be grown on all land where Jute is grown. In fact, in most jute growing areas, jute is generally grown next to rice. A typical jute farmer allo- cates a portion of his rice land to jute, with the extent of Jute acreage depending in part on the expected profitability of jute growing versus rice growing. This competition for land use between Jute and rice is a well-known phenomenonand several studies have investigatedit quantitatively.

6. In evaluating Jute/ricecompetition, there are two socio-geographical factors to be taken into account. First, as mentioned above, there is some

"hard-core" Jute land for which rice growing does not compete. There is also additional "quasi-hard-core"jute land where jute/rice competitionis limited due to soil type and frequency of flooding. Second, Jute is a cash crop and rice is a. food crop. Farmers do not use jute--exceptfor the jute sticks-- therefore, it has to be sold in the market at the prevailing price. 1/ On the other hand, rice can be consumed by farmers themselves or easily sold to

1/ Since most of the Jute farms are small and land use is very intensive,it is very difficult for growers to store the bulky jute fibers. TABLE 1: ACREAGE AND PRODUCTION OF MAJOR AGRICULTURAL CROPS IN BANGLADESH, 1974/75, 1977/78, 1980/81 AND 1982/83

------__------__------

1974L75 1977L78 1980/81 _ 1982L83 Crops Acreage Production Acreage Production Acreage Production Acreage Production ('000 Acres) ('000 Tons) ('000 Acres) ('000 Tons) ("000 Acres) ('000 Tons) ('000 Acres) ('000 Tons) ------__------__------

Rice-Aus 7,857 2,859 7,815 3,103 7,689 3,237 7,805 3,018 Rice-Aman 13,469 6,000 14,260 7,422 14,918 7,837 14,812 7,483 Rice-Boro 2,871 2,250 2,703 2,232 2,867 2,589 3,542 3,490 Wheat 311 115 467 343 1,461 1,075 1,283 1,078 Gram 138 39 140 44 143 37 134 40

Masur 173 47 196 51 207 - 49 121 44 Kheshari 196 61 244 70 228 63 230 74 Chillies (Rabi) 179 46 188 45 167 36 170 42 Sugarcane 380 6,635 380 6,670 368 6,495 410 7,242 X Jute 1,416 632 1,805 975 1,569 883 1,425 872 c,

Tea 107 32 106 36 109 39 110 40 Tobacco 113 40 137 49 127 47 129 49 Potato 232 866 222 849 252 983 272 1,131 Sweet Potato 164 707 177 770 168 693 163 702

Source: Bangladesh Bureau of Statistics (B.B.S.). - 7 -

neighbors. V/ In this sense, rice has a 'floor" price. This distinction suggests that farmers with risk-averse tendencieswould feel more comfortable growing rice than jute, if farmers perceive the profitabilityof the two crops to be not very different.

7. Competition between jute and rice for land use takes place in two major ways-with Aus and with HYV (high-yielding variety) Aman/HYV Boro combination. In order to clarify the nature of this competition,illustrative year-round cropping patterns of farmers that grow jute are given in Table 2.

8. Table 2 shows the main crops that are grown on jute land during the non-jute season. Of these, Aus rice is the most commonly grown. However, where good irrigationfacilities are available, the cropping pattern often takes the following form.

July-Dec Feb/Mar - Apr/May HYV Aman late HYV Boro

These two EYV rice crops are more profitable than the cropping patterns in

Table 2.

9. Yield per unit of land is a very important factor in analyzing jute supply. However, little quantitativeanalysis has been made of jute yields in

Bangladesh. In the short run, jute yield is affected mainly by husbandry and weather. Deep ploughing and application of fertilizer during sowing are probably the most significant factors affecting yield. Sowing, weeding, thinning and application of fertilizer during the maturing period also have a significant impact on yield.

1/ Unfortunately, there are no detailed data on the amount of rice traded within districtsor among districts. - 8 -

TABLE 2: ILLUSTRATIVE CROPPING PATTERNS ON BANGLADESHJUTE FARMS

Jute Species Crops grown in the jute area during (late April - mid-October) non-jute season Tossa if irrigated (mid-Oct - early March) (Feb-Mar) HYV Boro Wheat

Tossa if not irrigated (mid-Oct-Jan) (Feb-Mar) Potatoes,vegetables Pulses Pulses, Tobacco Vegetables

(mid-Feb -July/Aug) (August - Feb) Low Area White if not irrigated Transplantedlocal Aman No other crops can be grown if area is deeply flooded

High Area White if not irrigated (May-February) Transplantedlocal Aman

if irrigated (Aug-Dec) (Jan-Feb) HYV Aman potatoes pulses vegetables

Source: EPDCS.

10. Weather crucially affects both area harvested and yield. At sowing time moderate amounts of water are required. Lack of rain in the months of

February, March and April can prevent farmers from sowing. Even if the crop can be sown, a reduction in ground moisture can make deep ploughing difficult, and yields are reduced.

11. Flooding during the months of June through Septemberhas reduced Jute production in Bangladeshby as much as 20% in certain years. White jute, which is grown on lower lands than the tossa variety, normally is affected more than tossa in terms of the frequency and severity of flooding.Water is required on the farm for the process of retting the jute. Lack of water at retting time

(August-October)reduces the quality of the fiber. - 9 -

III. DISTINCTION BETWEENTOSSA AND WHITE JUTE PRODUCTION

12. Tossa jute produces a higher quality (longer and finer) fiber and at the growers' level tossa is usually priced higher than white jute. An additional advantage of the tossa variety is that since less of the stick is lost in cutting, it has a higher fiber yield than white jute. As tossa jute cannot tolerate flooding, it is grown on higher lands than white jute. The difference in altitude between tossa and white jute land is subtle-often a difference of only a few inches. In many districts where both tossa and white jute are grown, they are grown almost next to each other.

13. Although both tossa and white jute are grown in all the major jute growing districts, some regional differencescan be found (see Table 3). White jute is mainly grown in the Jat area (Dacca, Mymensingh, Tangail and Comilla) and the two northern districts of the northern area, Dinajpur and Rangpur. In the three districts between the Jamuna and Ganges rivers--Bogra,Rajshahi and

Pabna--the ratio is about 50:50. In the three districts south of the Ganges river--Kushtia,Jessore and Faridpur, tossa is the main variety grown.

14. Farmers prefer to grow tossa because of its higher price and, as a result, its share in total jute production has increased from 25 - 30X in the early 1970s to the present level of almost 45X. Informationon producer prices paid for tossa and white jute is shown in Table 4 and Fig. 1. In the last 12 years the premium paid for tossa jute has varied between 4 and 40%. The price differentialwidens in years of bumper crops because at that time buyers have the option of purchasing a higher quality of jute at lower prices and because the average quality of white jute tends to be low in bumper crop years. As demand shifts from white to tossa jute, the price differentialwidens. These fluctuationsin price differentialshave important implicationsfor the year- TABLE 3: AVERAGE ACREAGE AND PRODUCTION OF TOSSA AND WHITE JUTE IN MAJOR JUTE-GROWING DISTRICTS, 1975/76-1982/83

------__------__------Tossa White Share of Tossa Districts Area Production Area Production Area Production ('000 Acres) ('000 Bales) ('000 Acres) ('000 Bales) () ---- M----

Jat Area Comilla 4.8 17 79.4 278 6 6 Dhaka 28.3 105 105.6 387 21 21 Mymensingh 55.9 200 363.0 1,056 13 16

Northern Area Dinajpur 5.4 21 55.1 168 9 11 Rangpur 46.5 163 247.3 826 16 16 Bogra 27.0 63 36.5 81 43 44 Rajshani 26.1 82 23.4 70 53 54

District Area Pabna 28.8 92 35.9 115 44 44 Kushtia 62.9 185 2.5 8 96 96 Jessore 133.1 427 27.0 93 83 82 Faridpur 98.8 330 57.8 167 63 66

Source: Bangladesh Bureau of Statistics (B.B.S.). FIGURE 1: REAL PRODUCERPRICES FOR WHITE AND TOSSA JUTE:: BfMLADESH iA TOSSA JUTE WHITE JUTE

R E A L /

R 14. ,''1':~~~~~~\\< 0

C 12. . E

p io.~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.

R I c \%' E S. -- S

P~~~~~~~~~~:IIiYEf - . .

1S7281 1982-81I CROPYEARS

/A PRODUCERPRICES IN TAKAMIAIUNDDEFLATED BY AVERAGEAGRICULTUR IABOR WAGES(TAKA DAY).

SOURCE: B,B.SS. - 12 -

TABLE 4: PRODUCERPRICES OF TOSSA ANDWHITE JUTE (NOMINAL)

Weighted Average of Ratio of Season Tossa White Tossa and White Tossa to White

… ---- (Taka/Maund) …

1972/73 58.37 51.22 54.79 1.14 1973/74 58.22 53.92 56.07 1.08 1974/75 92.29 88.73 90.51 1.04 1975/76 98.38 94.05 96.21 1.05 1976/77 119.61 101.23 110.42 1.18

1977/78 160.55 154.04 157.30 1.04 1978/79 151.58 131.12 142.59 1.16 1979/80 135.52 96.05 116.34 1.41 1980/81 132.44 99.06 115.75 1.34 1981/82 155.91 122.31 137.89 1.27 1982/83 171.38 137.77 155.97 1.24

SOURCE: B.B.S. to-year price fluctuations of tossa and white. Because tossa prices decline less steeply in bumper crop years, the year-to-year price fluctuations are much less pronounced for tossa. In fact, the coefficient of variation for white jute prices is found to be 30% higher than that for tossa prices for the period 1972/73-1982/83.

15. A regression analysis of the tossa/white jute price ratio shows that

the ratio is inversely related to the production ratio of tossa and white jute

and to a weighted average of jute prices expressed in real terms. I/ (1) log PPROLI 1.415 0.576 JUPPRB 0.261 log PROOLI (1) logP-PRCAPm (7.40)- (5.92)'09 -WA-GAGB (2.87)° PFR_OCAP

R - 0.88 S.E.E. m 0.034 D.W. - 1.96

1/ The deflator used to obtain "real" jute prices is the daily wages of agricultural labor (without food). There is further discussion on the deflator question later. - 13 -

Period of estimation:1/ 1976/77-1982/83 where:

PPROLI - Producer price of tossa variety

PPRCAP - Producer price of white variety

JUPPRB - Weighted average of jute prices

WGAGB = Agriculturallabor wage

PROOLI - Bangladeshproduction of tossa variety

PROCAP - Bangladesh production of white variety

16. Another important reason for the difference in the production trends for the two varieties is that white jute land faces more severe competition from rice. Because white jute land is of lower elevation, irrigation is more feasible, which favors rice growing. It should be noted, however, that the increase in the share of tossa jute in total production from 30% in the early

1970s to about 45% in recent years has not been due to increased planting of the more popular variety. In fact, white jute acreage has been declining at the rate of 3.5% p.a. since 1971/72, whereas there is no statisticallysigni- ficant trend for tossa jute acreage during the same period. However, in the lowlands where the chance of flooding is high, white jute will continue to be grown as farmers face a higher possibility of complete crop loss if tossa is grown.

17. A shortage of tossa seed may have been responsible for a slower increase in the share of that variety than would otherwise have occurred. 2/

Because the time for sowing tossa variety is later than for white jute, far-

1/ The estimation period is rather short because no reliable data on tossa and white jute productionexist before 1976/77.

2/ The acreage share of tossa jute fell sharply in 1981/82. This fall coincided with a reduction in the share of tossa seeds distributedunder the Intensive Jute CultivationScheme (IJCS). - 14 -

mers who intend to grow the tossa variety lose the chance of sowing any jute if they are not able to obtain tossa seeds by late April. Also, because it is more profitable to grow tossa, farmers may be interested in growing it exclu- sively and shortages of tossa seed could hamper total production.Improvements in the supply of tossa seeds could lead to an increase in jute production. - 15 -

IV. AN ANALYSISOF JUTE ACREAGERESPONSE AT THE NATIONALLEVEL

Data

18. As noted above, several studies have analyzed the relationship between jute acreage and the jute/rice price ratio. In the present study, the analysis is focussed on a recent period--1970/71to 1982/83. The reasons for choosing this period are: (i) some data, especially data on a district basis, were available only for this period; (ii) there are good reasons for doubting the reliability and consistency of data of the 1950s and 1960s; and (iii) analysis of a short period is less prone to biases introduced by structural changes in the sector.

19. Needless to say there are shortcomingsin doing time series analysis on short periods of data. We attempted to compensate for these by comparing our results with longer-term analysis carried out by other researchers.

However, we have to stress that the main drawback of long-term time-series analysis for Bangladesh agriculture is inconsistencyin the acreage data. For example, the data for the period 1969/70-1971/72 are considered to be unreliable due to the social turmoil Bangladesh experiencedduring the war of independence. Jute experts at the Extension Services of the Ministry of

Agriculture and The Bureau of Statistics indicated to us that data prior to

1974/75 are not accurate. Therefore, while the data used in this study cover mainly the period 1970/71-1982/83 there is rather free use of "dummy variables" in the early years of the period, whenever we considered data to be

"out of line".

20. There is another complicatingfactor in respect of the jute acreage and production data-the existence of three sets of data (see Table 5). These are: (a) production,acreage and yield data at aggregate and district levels, estimated by B.B.S. (published in the "Monthly Statistical Bulletin of TABLE 5: ESTIMATES OF JUTE SUPPLY FOR BANGLADESH ACCORDING TO THREE OFFICIAL SOURCES, 1969/70-1982/83

B.B.S. Ministr of Jute and Textiles Production Area Yield Production Area Yield Trade Estimates '000 -000 bales/ '000 '000 bales/ Production bales acres acre bales acres acre '000 bales

1969/70 7,171 2,465 2.91 7,084 2,410 2.91 7,449 1970/71 6,670 2,200 3.03 6,930 2,267 3.06 6,855 1971/72 4,193 1,675 2.50 4,320 1,714 2.52 4,320 1972/73 6,514 2,194 2.97 6,566 2,212 2.97 6,677 1973/74 6,000 2,197 2.73 6,048 2,195 2.76 6,199

1974/75 3,476 1,417 2.45 3,999 1,440 2.79 4,032 1975/76 3,938 1,277 3.08 4,381 1,262 3.47 4,381 1976/77 4,806 1,603 3.00 5,544 1,627 3.41 4,737 0 1977/78 5,359 1,805 2.97 6,048 1,798 3.36 5,551 1978/79 6,443 2,052 3.14 7,056 2,099 3.36 6,774

1979/80 5,962 1,874 3.18 6,082 1,899 3.20 7,295 1980/81 4,942 1,569 3.15 4,674 1,459 3.21 4,820 1981/82 4,645 1,412 3.27 4,536 1,249 3.63 4,351 1982/83 4,881 1,429 3.42 5,558 1,551 3.58 5,514

Source: B.B.S. and Ministry of Jute and Textiles. - 17 -

Bangladesh" and "Agricultural Yearbook of Bangladesh"); (b) production, acreage and yield data at aggregate and district levels estimated by the

Ministry of Jute and Textiles (publishedin "An Annual Review" of the Ministry of Jute and Textiles); and (c) aggregate production estimates made by the

Ministry of Jute and Textiles, based on the actual jute arrivals in the market

(publishedas "Trade Estimates" in "QuarterlyJute Goods Statistics"of BJMC).

21. The B.B.S. data is the official data and their discrepancieswith the first data set of the Ministry of Jute and Textiles are in most years small.

Efforts have been made in recent years to consolidatethe two sets. For these data, estimates were made using sampling techniques at the thana levels. 1/

However, large discrepanciesexist in the production estimates from these two sources and the data in "Trade Estimates." In some years the difference is as much as 15%. The major reasons for the discrepanciesare thought to be due to traders' and farmers stock changes and to smuggling.

22. In the present study we utilized B.B.S. data for the analysis at district level and both B.B.S. data and the first data set of the Ministry of

Jute and Textiles at the aggregate level. Because the jute supply that impacts most directly on jute prices is market arrivals, and because the "Trade

Estimates" sources balances production, consumption, exports and stocks in

Bangladesh, "Trade Estimates" data are also used in the World Bank's global econometricmodel for jute.

Supply Response Specification

23. The main variables used in the regression analysis to explain jute acreage changes are: (i) weather variations; (ii) extent of irrigation; and

(iii) "real" producer prices of jute and rice.

1/ Details of the estimation method are given in 1982 AgriculturalYearbook of Bangladesh,B.B.S., December 1982, pp. 12-14. - 18 -

24. Changes in the weather affect jute acreage in two main ways-water availability during sowing time (late February to mid-April) and damage caused by flooding during the period June to September. As deep-ploughing is necessary for jute planting, a moderate amount of water is required for proper soil preparation before sowing. As farmers tend to economize on the use of pumps for irrigation of jute land, the amount of rainfall has an important influence on jute sowing (especially in the northern growing areas). Although it is known that lack of rain during the sowing season was an acute problem in the northern districts in 1979/80 and 1983/84, we do not have quantitative estimates of the impact on jute acreage. The extent of damage from floods in the summer, on a district basis is well documented by the Bureau of Statistics. At the national level, the 1984 flood caused by far the most serious damage to jute output in recent memory, followed by the 1974 floods (see Table 6). It is of interest to note, however, that during the 1975/76-1983/84 period, jute output suffered little from adverse weather conditions.

25. As noted in Section II, irrigation enables farmers to grow two crops of high-yielding rice within a year-HYV boro and HYV aman. As these two rice crops are more profitable than the jute-aman combination, the increased availability of irrigation in recent years has resulted in reduced jute acreage.

This reduction is more prominent on the white jute growing land of Jat Area and Dinajpur 1/ as irrigation can be implemented much more easily and less costly than on tossa growing land which is at a higher elevation.

1/ See discussion on Dinajpur in Section V below. - 19 -

TABLE 6: ESTIMATES OF BANGLADESH JUTE CROP DAMAGE CAUSED BY FLOODS, 1969-84

Area Completely Area Partially Loss of Production /a Year Damaged Damaged (Bales) X of Tc-tal

1969 1,711 21,462 23,146 0.3 1970 53,285 141,420 278,330 4.0 1971 19,446 49,705 105,563 2.5 1972 16,820 78,990 475,725 6.8 1973 103,844 238,140 512,640 7.3

1974 61,625 175,470 374,875 12Bi 1975 90 370 631 0.0 1976 30,452 82,549 173,834 3.5 1977 11,621 67,767 108,015 2.0 1978 8,629 31,388 41,513 0.6

1979 221 5,049 1,417 0c 1980 0 0 0 0h 1981 11,376 8,937 44,621 1" 1982 0 0 0 0.0 1983 0 0 0 0.0 1984 /b - - 872,000 16.2 /c

/a Percentage is calculated with the sum of production loss and aec production as the denominator. /b Estimates made by B.B.S. /c Based on the estimated production of 4,500,000 Bales.

Source: B.B.S.

26. Probably the most important influences on the jute acreage are the prices of jute and rice in the preceding year (see Table 7). In many 0o-7thah statistical studies of jute supply response, the price ratio of jc ; was used to explain changes in jute acreage. This specification implicitly assumes symmetry in the price elasticities.In other words, it is assumed that a 10% increase in the jute price would have the same effect on jute acreage as a 10% decline in the rice price. The advantage of using the price ratio is that the difficult question of which deflator to use (to obtain real jute and rice prices) is avoided. In this study, district-levelagricultural wages were used as deflators and the deflated jute and rice prices were included as - 20 -

separate explanatory variables. The choice of the deflator was made on the basis that: Ci) agriculturallabor wages largely reflect production costs and the opportunity cost of growing jute and rice; and (ii) other deflators such as the Consumer Price Index or the Wholesale Price Index are not availableat the district level. Even if it were available the Consumer Price Index would pose difficultiesas it is strongly correlated to the price of rice. Use of

the jute and rice prices as separate explanatory variables enables us to test the symmetry of the price elasticities.

TABLE 7: JUTE ACREAGE AND JUTE AND RICE PRICES IN BANGLADESH, 1970/71-1982/83 ------__------_ Crop Year Jute Acreage /a Real Jute Real Rice Ratio of Jute Price /b Price /b to Rice Prices --of Preceding Year --- ______

('000 Acres) (Taka/Maund) (Taka/Day)

1970/71 2,267 10.06 12.89 0.78 1971/72 1,714 11.23 12.00 0.94 1972/73 2,212 11.14 14.05 0.82 1973/74 2,195 11.48 15.95 0.70 1974/75 1,440 7.89 15.02 0.53

1975/76 1,262 9.51 23.15 0.41 1976/77 1,627 10.19 14.12 0.72 1977/78 1,798 11.24 12.71 0.88 1978/79 2,099 14.91 14.75 1.01 1979/80 1,899 13.07 14.05 0.93

1980/81 1,459 9.19 16.17 0.57 1981/82 1,249 7.27 12.02 0.60 1982/83 1,551 8.90 14.33 0.62

/a Data of Ministry of Jute and Textiles. /b Prices deflated by daily wages of agriculturallabor.

Source:Ministry of Jute and Textiles,B.B.S.

27. Jute sticks are produced as a by-product of fiber production,and the

value of the sticks is recognized as an increasingly important component in - 21 -

evaluating the profitabilityof jute growing. Unfortunately,no reliable time- series data exist for prices of jute sticks. The main use for jute sticks is as firewood. 1/ Assumptions have been necessary to estimate the value of jute sticks for the period since 1970. We take a recent estimate of the price for jute sticks (22 Taka/maund for 1981) and assume that before 1981 prices moved in the same manner as the prices of gazari firewood, for which data exist. Two maunds of jute sticks are produced for each maund of jute fiber. Therefore, to estimate total revenue from jute production the price of one maund of jute has been adjusted by adding the value of two maunds of jute sticks. In recent years the value of jute sticks has become much more important in relation to the value of the fiber, increasing to over 30% of the value of fiber (see

Table 8).

TABLE 8: ESTIMATED VALUE OF JUTE STICKS, 1970-82

Estimated Price Producer Price Percentage of the Value of of Jute Sticks of Jute Fiber 2 Maunds of Jute Sticks to (Taka/Maund) (Taka/Maund) One Maund of Jute Fiber

1970 3.7 35.15 21.1 1971 3.4 38.80 17.5 1972 5.0 52.58 19.0 1973 7.6 52.81 28.6 1974 9.8 86.08 22.7 1975 10.6 89.84 23.6 1976 11.3 100.01 22.5 1977 11.9 140.00 17.1 1978 14.1 141.65 19.9 1979 15.6 114.47 27.3 1980 19.6 101.86 38.6 1981 22.0 136.86 32.2 1982 23.0 151.98 30.3 ------__------

SOURCE: EPDCS AND B.B.S.

1/ They are also used for fencing and thatching and as inputs in the manufacture of particle board. - 22 -

28. Jute prices used in the regression analysis below include the estimatedvalue of jute sticks. Results

29. The results of the regressionequations estimated to explain the jute acreage for Bangladeshare set out below:

JUPPRBL RCPRB1 (2) JUAHBA - 238.5+ 42.61- - 8.67 + 218.69 DM 7273 (3.23) (10.35) -1 (2.91) WGAGB 1 (9.80)

R2 0.97 S.E.E. = 28.65 D.W. = 2.31

BBS JUPPRB1 1 RCPPRB_ (3) JUAHBA - 321.66 + 36.70 - 9.16 + 217.93 DM7273 (4.78) (9.78) WGAGB 1 (3.38) WGAGB_1

i2 = 0.97 S.E.E. - 26.11 D.W. = 1.54

Period of estimation:1971/72 - 1982/83 where:

JUAHBA - Bangladesh jute acreage; superscriptsMJ and BBS refer to data by the Ministry of Jute and Textiles and by B.B.S., respectively;('000 hectares).

JUPPRB1 - Sum of average yearly jute producer price and value of 2 maunds of jute sticks, as given in Table 8.

WGAGB - Average agriculturallabor wage (Taka/day) (see Table 9).

RCPPRB - Producer price of rice (Taka/maund).

DM7273 - Dummy variable for 1972/73 and 1973/74 seasons. Takes value of 1.0 for these seasons and zero otherwise.

30. The differences between the two regression equations are rather small. In both equations the jute and rice price variables were statistically highly significantand, with the dummy variable,explain 97% of the variations in Jute acreage. The equations capture all the major turning points. For these acreage equations the inclusion of the total irrigated area and the area - 23 -

acreage equations the inclusion of the total irrigated area and the area

damaged by floods did not improve the results. The reason for this lack of

response may be due to: (i) the overwhelminginfluence of jute and rice prices

on changes in jute acreage; (ii) errors in the estimated area damaged by

floods as well as in the area under jute; and (iii) the rather small impact which floods and irrigation have had on jute acreage in the sample period

(1984 is not included).

31. The estimated jute price elasticitiesare 0.77 (using the Ministry of

Jute and Textiles data) and 0.68 (using B.B.S. data), and for the rice price

-0.19 (Ministry of Jute and Textiles data) and -0.20 (B.B.S. data). Equations

(2) and (3) suggest asymmetry in the price elasticities.In order to confirm

the asymmetry, a regression using Ministry of Jute and Textiles data was run with the price ratio, JUPPRB1/RCPPRB.The result with R2 of 0.88, S.E.E. of

111.9 and D.W. of 1.23 suggests that equation (2) explains the changes in jute

acreage better and reinforces the notion of asymmetry in the price elasti-

cities. 1/ As discussed below, one of the main reasons for this asymmetry is

probably the increasing importance of tossa jute which does not compete with

rice as directly as does white jute. The estimated price elasticities are

within the range of elasticitiesestimated by other researchers.

32. Equations (2) and (3) also suggest that farmers adjust area planted

to recent jute and rice prices changes very quickly; 2/ they also suggest that

1/ A regression including jute and rice prices deflated by the consumer price index was also run but showed significantlyinferior results compared with equation (2). It was also found that the correlation coefficient between the jute acreage and the one-year lagged real prices showed a higher value than that between the jute acreage and jute/rice price ratio, i.e. 0.79 for the former and 0.76 for the latter for the period 1972/73-1982/83.

2/ A regression with a lagged dependent variable showed no statistical significancefor that variable. -24-

the agricultural wage is an important factor in determining jute acreage. In order to examine this latter point more closely, equation (2) can be rearranged to give:

JUPPRB1 WGAGB - (4) JUAHBA 1142.0+ 1294.6 1 9770 3 -1 + 557.1 DM7273 (7.35) (8.21) RC -1 (3.23) _1 (9.11)

R2 0.940 S.E.E. - 78.2 D.W. - 1.58

Period of estimation: 1971/72 - 1982/83.

33. Equation (4) implies that the higher the agricultural labor wage the lower the jute acreage. It confirms the a priori expectation that jute acreage is inversely correlated to the production cost, a major portion of which is labor cost. - 25 -

V. AN ANALYSISOF JUTE ACREAGERESPONSE AT THE DISTRICT LEVEL

34. The preceding analysis identified jute and rice prices and agricultural wages as important determinants of jute acreage in Bangladesh. The present section examines the characteristics of jute acreage behavior by district and thus identifiesfactors affecting jute acreage in more detail.

35. For the district-basedjute acreage analysis, the area data used were the sum of the estimated jute acreage and the jute area estimated to be completely damaged by flooding (both B.B.S. data series). This adjusted acreage is believed to represent the jute area farmers intended to harvest had there been no flood damage.

36. Jute producer prices were calculated for each district, taking into account the relative importance of tossa and white jute acreage in each district and the value of jute sticks, as follows:

(5) JUPPR = Wi PPROLI + (1-Wi) PPRCAP + 2.0 PRJS where:

JUPPRi = Estimated jute producer price in district i

wi = Average share of tossa acreage in district i during the period 1975/76-1982/83

PPROLI = Producer price of tossa jute (Taka/maund)

PPRCAP - Producer price of white jute (Taka/maund)

PRJS - Estimated price of jute sticks (Taka/maund)

37. Since producer prices of rice by district are not available,country- wide data were used. The deflators used for jute and rice prices were district-levelagricultural wages (see Table 9). The wages paid to agricultural labor are fairly uniform across the major jute growing districts except in Dhaka and Comilla. The relativelyhigh agriculturalwages paid in these two TABLE 9: DAILY WAGES OF AGRICULTURAL LABOR (WTT'HWt F:X3T3) BY D'TRICT LS

Division/District 1969/70 1970/71 1971/72 1972/73 1973/74 1974/75 1975/76 1976/77 1977/78 1978/79 1979/80 1980/81 1981/82 1982/83

(Taka per day)

Rajshani 2.74 2.84 3.21 4.26 5.71 7.39 8.06 7.83 7.92 9.78 11.00 12.23 13.88 14.82 Dinaipur 3.03 3.18 3.92 4.35 5.62 7.89 8.30 8.00 8.00 10.00 10.83 10.50 11.83 14.00 Rangpur 2.56 2.64 2.64 4.10 6.18 6.79 7.35 7.54 7.50 9.58 10.17 14.80 15.17 14.33 Bogra 2.82 2.71 3.17 4.06 5.33 6.83 7.92 8.42 8.42 9.58 10.00 10.00 12.08 15.00 Rajahani 2.76 3.12 3.25 4.13 5.61 7.88 8.08 7.29 8.00 9.17 13.00 14.00 15.67 14.92 Pabna 2.51 2.54 3.08 4.67 5.81 7.55 8.63 7.91 7.67 10.58 10.17 11.83 14.67 15.83

Khulna 2.73 2.78 3.02 3.94 6.10 8.40 8.48 8.63 9.30 9.96 12.27 13.57 13.93 14.73 Rushtia 2.37 2.26 2.33 3.18 4.83 7.42 7.32 8.00 8.84 9.50 11.50 11.17 10.92 11.58 Jessore 2.44 2.97 2.86 3.17 4.91 6.92 7.50 7.67 9.00 9.67 10.33 12.50 12.92 13.58 Khulna 2.85 2.30 2.87 3.29 5.40 7.09 8.55 7.50 9.09 10.00 13.75 15.00 15.17 15.58 Barisal 2.81 2.94 2.95 4.41 8.52 10.83 10.20 10.08 10.00 11.33 13.83 15.42 15.83 16.00 Patuskhali 3.18 3.41 4.11 5.64 6.82 9.75 8.81 9.92 9.59 9.33 11.33 13.75 14.83 16.92

Dhaka 2.63 3.02 3.25 4.99 6.76 9.02 7.82 8.27 9.17 10.81 12.15 13.80 15.11 16.58 Jamalpur /a - - - - - _ _------

Mymensingh /b 2.76 2.98 3.13 5.26 6.35 8.64 7.63 8.09 8.92 11.08 11.08 11.87 14.17 14.71 ' (Mymensingh) /c (2.61) (2.97) (3.19) (5.15) (6.87) (8.43) (8.09) (8.50) (10.00) (11.83) (12.50) (12.50) (13.50) (15.00) (Kishoreganj) d (2.92) (3.00) (3.07) (5.37) (5.82) (8.86) (7.16) (7.67) ( 7.84) (10.33) (10.67) (11.33) (14.83) (14.42) Tangall 2.00 2.83 3.20 4.75 6.60 8.21 7.27 6.71 8.00 9.58 11.67 14.50 15.00 15.00 Dhaka 3.22 3.71 3.56 5.63 8.92 11.74 9.29 9.29 10.00 10.92 13.83 16.25 21.25 23.50 Faridpur 2.41 2.60 3.21 4.06 5.58 7.85 7.27 9.17 10.00 11.42 12.50 12.58 14.08 15.00

Chittagong 3.75 3.87 4.02 5.68 8.18 11.40 10.92 10.85 11.15 12.81 15.23 16.43 18.60 22.08 Sylhet 3.67 3.88 4.59 6.47 8.86 11.52 11.55 10.29 11.17 12.42 15.00 15.00 15.42 20.00 Comilla 2.96 3.26 3.28 4.82 6.51 10.14 9.42 8.96 8.67 12.42 14.75 15.00 17.08 18.75 Moskhali 3.53 3.94 3.74 5.70 8.50 12.38 11.27 9.33 10.25 11.75 16.42 16.42 19.42 22.75 Chittagong 4.52 4.38 4.50 6.23 8.77 12.08 11.07 12.27 12.84 13.00 13.75 18.50 20.25 24.25 Chittagong Mill Tracts 4.06 3.88 4.00 5.17 8.27 10.86 11.29 13.42 12.84 14.50 16.67 17.25 20.83 24.75

Country Average 2.96 3.13 3.38 4.72 6.69 9.05 8.82 8.90 9.39 10.84 12.46 14.01 15.38 17.05

______--_-_------_------_------_--______------

/a Jamalpur was a subdivision of Mymensingh until December 26, 1978. /b Including Jamalpur from 1967/68 through 1981/82. 7-c In some presentations of agricultural statistics, data for Mymensingh district are shown separately for Kishoreganj subdivision and for the rest of Mymensingh district; in this table, Jamalpur is included in Nymensingh agricultural district from 1967/68 through 1981/82.

Note: All district, division and country averages are unweighted averages of the wage rates in the respective constituent administrative units.

Source: Bangladesh Bureau of Statistics. - 27 -

districts reflect higher agricultural productivity and/or higher wage opportunities in non-agricultural activities. Other variables used in the regression equations were the total area irrigated in each district and dummy variables for observationswhich appeared to be "out-of-line".

38. A summary of the statisticalresults is given in Table 10. Due to the unavailability of reliable price and acreage data by district, the time periods for which the statistical analyses were performed are short--often only 9 observations covering the period 1974/75 and 1982/83. However, this difficulty is compensated for by the large number of districts (11), which made possible extensive comparison of estimatedelasticities.

39. The statistical results shown in Table 10 reveal several significant characteristicsof jute acreage behavior including:

(i) Jute acreage declined in all the major jute-growingdistricts, except

in Bogra, Kushtia and Jessore where tossa occupies a large share of

total jute acreage and where flood damage has been less frequent and

less severe;

(ii) Irrigation is found to have had an important influence in reducing

jute acreage in all three districts in the Jat area and in Dinajpur

where white jute is mainly grown;

(iii) Price elasticities are considerablyhigher in districts where tossa

jute is mainly grown than in districts where white jute is mainry

grown.

40. The conclusion (i) above, stating the relationshipbetween the tossa jute acreage share, the frequency of flood damage and the trend in total jute acreage, does not apply in Rajshahi district, which has a large tossa acreage and infrequent flood damage but showed a large decline in 'ate:- TABLE 10: TRENDS AND PRICE RESPONSES OF JUTE ACREAGE IN MAJOR JUTE GROWING DISTRICTS …______…_____------…--

Average Share Annual Average Coefficient of Price Elasticities Effect of District of Tossa Growth Rate Variation /A Jute 7B Rice 7B Irrigation /C 1975/76-1982/83 1972/73-1982/83 (CV)

____(%- p.a.)- __- -(%

Jat Area Comilla 6 -3.8 2.5 0.49 -0.49 -0.35 Dhaka 21 -2.0 3.9 0.45 -0.54 -0.63 Mymensingh 13 -3.8 2.5 0.42 -0.21 -0.37

Northern Area Dinajpur 9 -5.7 3.1 0.44 -0.44 -0.50 Rangpur 16 -2.1 2.5 0.44 -0.16 N.S. /D Bogra 43 3.7 9.9 0.63 -0.43 N.S. Rajshahi 53 -5.7 6.9 0.69 -0.27 N.S.

District Area Pabna 44 -2.3 9.2 1.19 -0.25 N.S. Kushtia 96 0.8 8.1 1.44 -0.50 N.S. Jessore 83 3.2 6.5 1.26 -0.70 N.S. Faridpur 63 -2.8 4.7 0.30 -0.44 N.S. __ _ _ _------_-_------_-_--______/A CV - S.E.E. of log linear trend regression / mean of log values of acreage. /B Deflated by agricultural wage. /C Acreage reduced by unit area of irrigation. For example, the-value -0.35 for Comilla implies that with 1.0 acre of irrigation, 0.35 acres of jute land will be displaced. /D Statistically not significant.

SOURCE: EPDCS. - 29 -

reason for this exception is most probably the large population increase which

Rajshahi has experiencedin the last 10 years, which in turn has increased the

demand for rice.

41. The relationshipbetween irrigation and jute acreage, stated in item

(ii) above should be interpreted with caution. Since in many districts the

irrigated acreage has been increasingwith time, the coefficientfor the irri-

gation term might represent the underlying secular time trend. Thus, these

coefficientshave to be examined in light of other district informationavail-

able. The sign and the magnitude of the irrigation coefficient for the three

districts in the Jat area appear to be reasonable as irrigation is extensive

in these districts. However, in Dinajpur the area under irrigation is limited, which casts doubt as to whether the irrigation variable for Dinajpur is cap-

turing the time trend instead of the actual irrigated area. In fact, when a

time trend variable is used as an explanatory variable instead of the irriga-

tion variable, a better fit is obtained while the price elasticitiesremained

virtually unchanged. The reason for the negative trend in Dinajpur's jute

acreage is probably the same as in Rajshahi. Rajshahi and Dinajpur have had

the highest population growth rates among the districts with no major urban

centers i.e. 3.0% p.a. and 3.2% p.a. respectivelyduring the period 1974-1981.

42. The exception to conclusion (iii) above is Faridpur. The reason is probably the frequent and severe flooding experiencedin this district. As the

risk of losing the jute crop due to flooding is high, the expected revenue

from jute is lowered. This may make farmers less responsive to prices. - 30 -

43. The higher estimated price elasticities for tossa jute 1/ are thought to be due to three factors: (a) only white jute is grown in the "hard-core" jute land, i.e. in these areas jute is grown irrespective of price levels; (b) because tossa jute is less prone to flood damage and to price fluctuations, farmers are likely to feel more confident in their expected profitability for tossa jute when adjusting acreage in response to prices; and (c) tossa jute land is less suitable for rice growing and thus competes with other cash crops besides rice, such as vegetables. The farmer's decisions on which of these cash crops to grow are very sensitive to price changes.

1/ The district-level acreage response analysis carried out by the Bank in 1973, using 17-year data for the period 1950/51-1966/67, also obtained higher price elasticities in districts where tossa jute has important shares. The magnitude of the elasticities estimated therein are not very different from those in this report. - 31 -

VI. ANALYSISOF JUTE YIELD RESPONSE

44. After sowing, the jute yield is determined mainly by the height the plant is able to achieve before harvest. Factors that influence jute yield include; (i) the availability of good quality seeds; (ii) the extent of fertilizer application and the depth of ploughing before sowing; (iii) the application of fertilizer during the maturation period; (iv) weather during sowing and maturation; and (v) the extent and timing of weeding and thinning.

45. In the following statisticalanalysis only those factors which can be quantified and for which data are available have been included. The explanatory variables used here are deflated prices of jute and rice, fertilizer consumption,extent of flood damage and jute acreage.

46. In most cases farmers who grow jute also grow rice at the same time.

Thus it is hypothesizedthat the amount of time a jute farmer spends on jute growing in terms of weeding, thinning and applying fertilizer depends on relative prices of jute and rice.

47. Although only a small amount of fertilizeris known to be applied to jute, the availabilityof fertilizer should have an effect on jute yields. A greater availabilityof fertilizer enables farmers to allocate organic manure and fertilizer to jute which otherwisewould be used for rice. Another way in which fertilizer availability affect jute yields is indirect. If fertilizer were not used directly for jute growing, but for a crop that preceded jute sowing, jute yields could be improved by the residual fertilizer in the soil.

This residual effect may be significant,especially in cases where crops such as potatoes, tobacco and vegetables precede jute sowing, as these crops are normally heavily fertilized. - 32 -

48. The flood damage variable used in the acreage analysis was also used in the yield equation under the hypothesis that flooding reduces yield. Jute acreage is used as an explanatory variable on the assumption that when jute acreage is expanded, more land less suitable for jute is sown to jute, and as a consequence, yields will decline. A complementary hypothesis is that when jute acreage is large, farmers are able to spend less time per acre of jute land for crop husbandry.

49. At the country-widelevel, the statisticalanalysis was performed on two sets of yield data-one published by the Ministry of Jute and Textiles, the other published by B.B.S. The regression equations for nation-wide Jute yields are shown below: NJ (6) log JUYLD 1.272 - 0.219 log JUAHBA t 0.196 log JRPRRAT (2.87) (4.19) (4.71)

- 0.201 DM71 t-0.095 log FTDSTTB (4.80) (3.95)

R - .91 S.E.E. - 0.034 D.W. - 1.97

(7) log JUYLD - 0.588 1-0.141 log JRPRRAT 1 0.871 log FTDSTTB (2.54) (2.49) (2.42)

- 0.009 log ACDMBD (1.74)

-2 0.77 S.E.E. - 0.046 D.W. - 1.92

Period of Estimation:1969/70-1982/83. where:

JUYLD - Jute yield in Bangladesh. SuperscriptsMJ and BBS refer to - 33 -

Ministry of Jute and Textiles and B.B.S. data, respectively: (bale/acre).

JUAHBA - Jute acreage in Bangladesh('000 acres).

JRPRRAT = Ratio of jute to rice producer prices.

FTDS = Total fertilizer consumptionin Bangladesh (long tons).

ACDMBD = Area completely damaged by flood ('000 acres).

50. Both results are satisfactoryin terms of the overall fit, significance of explanatory variables and magnitude and signs of the coefficients.

The obvious difference between equations (6) and (7) is that in the former, the flood damage variable showed no significance while in the latter the acreage variable showed no significance;these variables were removed from the equations. However, the coefficients of the jute/rice price ratio and fertilizer consumption variables were of similar magnitude in the two equations. These results show that short-run jute yields respond strongly to changes in jute prices and total fertilizer consumption.As the quantity of fertilizer directly applied to jute is considered to vary with jute prices, the results imply that it would be difficult to obtain high yields when jute prices are low. The results also point to the stabilizingeffects of yield on

jute supply. When acreage and production are low and jute prices high, yield will increase to compensate to some extent and vice-versa.

51. Jute yields were also analyzed on a district basis (see Table 11).

These results were less satisfactory.One reason for this may be the quality of the data. Estimation of yield is probably more subject to error than estimation of acreage. The good results obtained at the national level could reflect the fact that district-levelerrors get "washed-out".Observation of

the statistics in Table 11 lead to the following conclusions. TABLE 11: ESTIMATED DISTRICT-WIDE JUTE YIELD EQUATIONS

Jute Yield Statistics Regression Coefficients Trend 3-Year Movipg Avere Coefficient Jute Fertilizer Flood Price Elasticitz District 1972/73 197172- 1980781- of Acreage Consumption Damage Jute Rice 1982/83 1973/74 1982/83 Variation (t p.a.) - (bales/acre)---

Jat Area Comilla 1.2 3.29 3.62 7.0 0.04 -0.03 - Dhaka 1.8 3.14 3.50 8.0 -0.16 0.07 - 0.32 -0.32 Mymersingh -0.23 - 0.05

Northern Area Dinajpur 5.5 2.06 3.39 8.0 - 0.35 - - - Rangpur 3.8 2.70 3.62 7.8 - 0.21 - - -0.18 Bogra 4.1 2.51 3.51 8.8 Rajshahi 2.8 2.55 3.52 7.0 -0.09 0.14 -0.02 - -0.13

District Area Pabna 3.9 2.65 3.59 8.9 0.18 - - -0.26 Kushtia 2.1 2.55 3.23 7.9 - 0.14 -0.02 0.15 - Jessore 0.3 3.06 3.24 3.1 -0.06 0.04 0.07 Faridpur 0.1 2.66 2.88 13.5 - - -0.14 0.24

Source: EPDCS - 35 -

(i) Jute yields have increased in the last 10 years in all the jute

growing districts although the growth rates vary substantially from

one district to another;

(ii) As in the country-wide analysis, district-based analyses also show

the significant impact of jute and rice prices and fertilizer

consumption on yields;

(iii) The impact of jute prices and fertilizer consumption are more

important in the districts in the Northern Area, Pabna and Kushtia;

(iv) The wide discrepancies in yield between districts which existed in

the early 1970s narrowed in the early 1980s. This was brought about

by low yield growth in districts which already had relatively high

yields in the early 1970s (Comilla, Dhaka, Jessore) and high yield

growth in districts which had relatively low yields in the early

1970s (Dinajpur, Rangpur, Bogra, Rajshahi, Pabna, Kushtia).

(v) Trends in district yields suggest that yield growth slows down once

yields of 3.5 - 3.7 bales/acre are attained. Statisticai analysis

shows that with the present technology, achieving yield levels of

over 4 bales/acre at district or national level is difficult even if

jute prices and fertilizer consumption increase. - 36 -

VII. IMPACTOF PRICE FLUCTUATIONSON PRODUCTION

52. In the present investigation of jute production in Bangladesh, we have not examined statisticallythe influenceof price fluctuationson acreage and/or yield. The major reason is that in the last 12-15 years, where we have concentrated our analysis, there were no periods of price stability long enough to compare or analyze. Some previous studies have assumed that if there were periods of price stability of two or three years (which is about the maximum duration of price stability during the last 15 years), farmers would expect the next year-s price to be stable and risk-averse farmers would be more inclined to increase acreage and yield. However, this assumption implies fairly myopic behavior on the part of farmers, given the fairly regular cyclical price behavior of the past.

53. Although very difficult to confirm empirically,there are reasons to believe that price stability would lead to increased jute supply. They include:

(i) The recent large production increases in wheat, HYV aman and HYV boro

rice are considered to be due, at least partly, to the Government's

price support/stabilizationpolicies;

(ii) As mentioned in Section III, higher production growth of tossa

compared with white jute could be due to the relative price and

production stability of tossa jute;

(iii) The relatively slower growth of jute acreage and yield in Faridpur

district may well be due to the higher level of uncertainty of

eventual output on these farms because of the frequent flooding.

(Although this is more of a production instability problem, we could

expect farmers facing price uncertainties to react in a similar

way.); - 37 -

(iv) In order to obtain higher yields, preparationsfor seeding such as

deep ploughing and fertilizer application are necessary. If jute

farmers delay their decision as to whether to grow jute or rice

because of price uncertainty, the time available for good land

preparationis reduced; and

(v) A good knowledge of and experience with a particular plot of land

should lead to higher yields. Stable prices of jute and rice could

help farmers to develop an appropriate long-term crop rotation which

would enhance the farmer's knowledge and ability to increase yield.

54. It is also expected that given the high price responsivenessof jute farmers, stability of jute and rice prices would contribute to jute supply stability. - 38 -

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