Row over raw jute export

Dhaka,  Mon,  05 December 2016
Published : 26 Nov 2016, 21:11:51

Row over raw jute export

Shahiduzzaman Khan
The government is reported to have taken a move to solve problems facing the country's raw jute exporters. They are in deep financial crises due to recurrent losses. The exporters allege that they are sustaining losses due to the government's wrong policies.

The finance minister has asked the secretary of the Bank and Financial Institutions Division (BFID) to sit with him to find out a bailout solution.

The chairman of the Bangladesh Jute Association (BJA) wrote to the Prime Minister requesting her intervention for resolving the problems. In his letter, he said the exporters had incurred significant financial losses due to the frequent imposition of a ban on raw jute export by the government unilaterally in fiscal years (FY) 1984-85, 2009-10 and 2015-16. 

The BJA chief explained that the volume of country's raw jute export declined to one million bales only from 2.8 million bales because of ban imposed repeatedly by the government in the past years. As a result, the exporters, the farmers,  workers, and other people involved with the sector were hit hard.

The ban on Bangladesh's raw jute export in FY 1984-85 led to the closure of many jute mills in many countries. As a result, the raw jute exporters, who already bought jute at Tk 700 to Tk 800 per maund, had to make a distress sale of the golden fibre locally at Tk 100 to Tk 150. The same situation they faced in FY 2009-10 again when the government had slapped a ban on jute export.

Due to underselling of raw jute, the exporters incurred colossal losses and defaulted on bank loan repayment. Many exporters were forced to leave the business while many faced cases filed by the banks. They also lost foreign buyers due to the export ban. They incurred financial losses due to high rates of bank loan interest, paying godown rent, insurance premium and wages of workers.

On its part, the government claimed that the decision to ban raw jute export was taken to meet the country's additional demand for jute in implementing the mandatory jute packaging law. 

Bangladesh produces around 5.8 million bales of jute a year, which is equivalent to 1.04 million tonnes. The country's internal consumption is 3.8 million bales. Bangladesh exports, on an average, 2.1 million bales of raw jute a year. The price of the exported raw jute is around Tk 10 billion.

In recent months, the government launched a country-wide drive to promote jute-based packaging. The jute minister said the producers and traders of plastic packaging materials will not be spared if they impede the use of the eco-friendly jute bags.

Though many government agencies come under the purview of the law, there has been little interest on their part to use jute bags, let alone private enterprises and businesses. Full enforcement of the packaging law will create demand for 840 million jute bags a year for selected agricultural and non-agricultural products.

By one estimate, about 70 per cent of local raw jute will be needed for use in the production of those bags. According to the Bangladesh Jute Mills Corporation (BJMC), there are 205 jute mills, including 81 jute spinners in Bangladesh. Of them, 27 units are state-owned. Most of the jute mills do not have purchasing centres in major jute trading village markets of the country. Moreover, those few jute mills which have purchasing centres do not purchase all the jute that is brought to the market by the farmers. In most cases they do not purchase jute directly from the farmers, but do it from the intermediate traders. Also, they do not purchase their total yearly requirement at a time, instead they buy in a staggered way throughout the year -- depending on their operating capital, production plan and storage capacity.  

Most farmers are unable to hold their stock for a long time. They sell it as quickly as possible to the intermediate traders. The intermediate traders and the stockists are the main suppliers of jute to the mills round the year.

The main reason for imposing ban on export, according to the jute exporters, is not non-availability, but the rise in the price of raw jute in the market. Market price is determined by the market force and the government should not have interfered in the market to serve the interest of the jute mills owners, forcing the intermediate traders, stockists and farmers to suffer huge losses, they claimed.

If the present market operation system is broken or disrupted, it may have a negative impact in future. The intermediate traders and stockists are the primary purchasers of jute in the village markets. They purchase jute directly from the farmers. Primary market price of jute is determined by the market operation and projection made by them depending on the basis of local and foreign demand. 

In the past, government announcement of minimum price could not give jute growers fair price, neither could the government ensure it. Farmers were compelled to sell jute at a price lower than the government-fixed minimum price in the absence of adequate number of purchasers from the government and the private jute mills.

Foreign jute mills make profit by purchasing jute from Bangladesh at the pre-ban price while their labour cost is higher than that of Bangladesh. If Bangladesh jute mills give better price for jute they can easily buy jute from local markets. But unfortunately, they are reluctant to operate in a competitive market. They seek protection in the market so that they can make high profit at the cost of the jute growers.

If jute growers get better price, production will increase. Since demand for natural fibres is on the increase worldwide, the demand for raw jute and jute goods will also increase. As such, the government should take decisions taking into considerations all the facts involved. It should not serve only the interest of the local jute mills. 

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