THE PERFORMANCE OF THE JUTE INDUSTRY IN BANGLADESH

Submitted to: Touhida Tasnima Senior Lecturer Department of social science

Submitted by: Dilruba Sharmin ID: 2010-1-40-021 Sec: 01 Semester: 3rd Date: 15th December, 2010

Introduction: Jute is the most popular natural fiber next to cotton. 90% of world's total production of Jute is harvested in Bangladesh. That's why Jute is called the Golden Fiber of Bangladesh. Jute is totally eco-friendly and very much popular worldwide because of its cost effectiveness. Products made of Bangladeshi Jute could be used years after years as Bangladesh produces strongest and highest quality jute in the world. Jute exports from Bangladesh have surged up 70 percent year-on-year this year with the fiber now the Countrys second largest export after garments. The production of jute yarns in the jute spinning Sector has increased from around 27,000 M.Tons in 1982-83 to around 300,000 M.Tons in 2005-2006.
History of jute industry in Bangladesh:

The jute industry in the public sector, by virtue of its location in East Pakistan, became the property of Bangladesh after independence in 1971. Pakistani mill owners (about 68% of the total loom strength) left the country, leaving the industry in disarray. Abandoned jute mills were subject to heavy looting. The new government of Bangladesh had to take up the responsibility of rebuilding the industry. By a nationalization order, about 85% of industries, including all jute mills, were nationalized. Bangladesh Jute Mills Corporation (BJMC) was formed to manage and look after all the 73 jute mills having 23,836 looms at that time. In the 90s, the government focused again on the jute sector problems through a restructuring program in order to create a commercially viable jute industry. Supported by the World Banks Jute Sector Adjustment Credit (JSAC), the government put together a Jute Sector Restructuring Program (JSRP) in 1993 to rationalize the cost structure in the jute industry and to introduce mechanisms through which financial discipline and accountability could be established. The measures under the program included closing the worst performing mills (9 out of 29) and

downsizing two large public mills, privatization of at least 18 of the remaining 20 public mills, retrenching 45 percent of labor force, and debt restructuring of about Tk.35 billion (roughly US$900 million). For the retrenched workers the JSRP had a safety net program, which included separation benefits varying between $2,600 and $13,000 depending on the years of service, and re-training. All the 20,000 retrenched workers got the separation benefits, but the retraining program failed to attract their participation.

Jute manufacturing sectors in the economy of Bangladesh:

Jute manufacturing sector is one of the oldest traditional manufacturing sectors of Bangladesh, which emerged in erstwhile East Pakistan in the early 1950s. During the 1960s and 1970s major share of the manufacturing sector in national income and manufacturing employment was accounted for by this sector. Exports of jute and jute goods were the two most important sources of foreign exchange of Pakistan during the 1960s. However, both share and importance of jute and jute goods in manufacturing, export and overall foreign exchange earnings, and the Gross Domestic Product (GDP) have gradually declined over time. The sector currently accounts for a more 3.9 per cent of the countrys total export, which is of extremely low significance when compared to its
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contribution in the overall export observed during the1970s (89.9 per cent in 1973). The ascendancy of the export-oriented readymade garments (RMG) was a major reason. However, this was also the result of successive policies pursued by Bangladesh alongside decline in the demand for jute goods in both domestic and international markets over time. Jute industry products: The most environmentally friendly natural fiber due to inherent unique properties has counts of advantages over manmade fiber products. Dimensional Stability: Extends only 0.5% under stress to stable form. Capacity to Grip: Hairy strands of fabric grips to any surface, permitting high and wide stacking without risk of slippage. Physical Stability: Stable upto ignition point at 193C. Safety: Burning emits same fume as burning wood and has no adverse effects on human body and Mother Nature. Western consumers who shun environmentally unfriendly plastic bags are helping to revive the traditional jute industry in Bangladesh. Jute exports from Bangladesh have surged up 70 percent year-on-year this year with the fiber now the countrys second largest export after garments. We are exporting millions of jute bags to eco-friendly foreign buyers who want the finest products made of top quality material, [Mon. A.M.i, entrepreneur and jute promoter, 2010]. According to IJSG standards, the Bangladesh Jute Mills Corporation (BJMC) is producing traditional products including appropriate and quality jute cement bags, food grade jute bags, rot proof jute fabric, jute polished yarns and diversified jute items to fight the threat of synthetics.

Problems of jute industry:

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After Bangladeshs independence in 1971, the government pursued a program of nationalization of large manufacturing enterprises. As part of this program it took over all the abandoned jute mills and nationalized those owned by Bangladeshi citizens. In the 90s, the government focused again on the jute sector problems through a restructuring program in order to create a commercially viable jute industry. Supported by the World Banks Jute Sector Adjustment Credit (JSAC), the government put together a Jute Sector Restructuring Program (JSRP) in 1993 to rationalize the cost structure in the jute industry and to introduce mechanisms through which financial discipline and accountability could be established. For the retrenched workers the JSRP had a safety net program, which included separation benefits varying between $2,600 and $13,000 depending on the years of service, and retraining. All the 20,000 retrenched workers got the separation benefits, but the retraining program failed to attract their participation. Due to nonpayment of and arrear wages of 21 weeks, I have no money to pay for school fees of my children and buy food stuff. Now I am in debt trap,[ Action Aid quotes workers, The Khulna mills,2003] It was anticipated that at the completion of the reform program, most of the jute mills would be in private hands. However, political instability in the following years stalled the reforms. Debt restructuring, loss financing and labor retrenchment were implemented but closure and privatization of jute mills were put in abeyance. There was an unintended and adverse shift in production from the relatively more efficient private mills to less efficient public mills largely because of the creation of an uneven playing field for private mills. BJMCs access to budgetary funds as well as a guarantee of loss financing for several years allowed it to under-price its products, making it harder for private mills to compete. The poor financial performance of jute mills continues to be a major concern. Today BJMC is the second largest loss maker among public sector manufacturing enterprises, with annual losses of Tk.2.3 billion, accounting for over 50 percent of total manufacturing SOE losses in FY2006. "Following the World Bank's recommendations, the government is
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destroying our industry and laying off the workers[Kamal.S, former jute minister of Bangladesh, 2008 ]

Prospects and opportunity: One possible direction the jute sector in Bangladesh could take is to consolidate production capacity in the more efficient mills and to create a market-responsive and cost-competitive industry. The governments new jute policy is expected to focus on enhancement of the countrys production capacity, diversification of the product base and growth of export earnings. It would be good if it is complemented with good corporate governance practices within the remaining BJMC mills to ensure that both public and private mills can compete on equal footing. BJMCs financial losses continue to be a significant fiscal burden. This has arisen not only from BJMCs nearly automatic access to loans from the nationalized commercial banks (NCBs) for many years, but also BJMCs greater control over the purchase price of raw jute and export price for jute goods. These conditions do not create a level playing field for the private mills. Addressing these issues would enhance efficiency and competitiveness of the sector and may help Bangladesh regain its past glory in the jute market. Jute has a huge future as an export for Bangladesh, [Lutfar.L.B, Dhaka-based International Jute Study Group] According to the International Jute Study Group, jute geo textile has 'immense potential' both in domestic and international markets as it possesses more advantages than the synthetic fibres as reported by the media Dhaka, [June 15, 2010]. It can be produced in local mills as raw materials are widely available. Jute geo textile that is used in controlling soil erosion roadside, riverbanks and hillsides, can be made even from inferior quality jute. It is biodegradable and it does not spoil the nutrition of soil plus it is highly hydroscopic and can suck water as well as help consolidate and enhance flexibility of soil. Jute geo textile has so far been used locally in two projects in the capital city.
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Recommendation: If we want to utilize this sector properly we have to several plans like, Research into the development of the home market. This market is Underestimated and can play an important role in the development of experience for exports and offers a stable turnover for producers Research into the role and functioning of government bodies like the JDPC and EPB, which should support each other, but currently working with different interests and for different ministries Research into the possibilities to improve the number of JDP producers. Producers have to be informed about the advantages, costs and possibilities for the JDP market Research into the possibilities of FDI into Bangladesh by stakeholders from Europe, in order to develop the market and bring knowledge from Europe into Bangladesh CONCLUSION: A large number of people of the region directly or indirectly related to the industry have been passing a miserable time and causing social unrest. The irregularity in raw jute collection, a large number of outdated looms, insufficient funds and mismatch in timing of getting funds by the public sector jute mills have been hampering the production, productivity and growth of the industry. The problems associated with sourcing, production, distribution and policy issues hamper the development of the jute industry in the south-west region of Bangladesh. Procurement of lower quality raw jute, failing to collect jute in the peak season and high cost incurred due to procuring raw jute at higher prices from the agencies are the main problems faced by the jute industry of the south-west region of Bangladesh originated
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from its backward linkage sections. The outdated looms, lower capacity utilization, excess workforce, workers movement, high interest burden of loans, corruption and managerial inefficiency cause low productivity, decrease in production and increase in losses year after year. Absence of proper marketing policy, absence of trading companies to introduce the product in the world market and failure to introduce mass consumption of jute products domestically are the main constraints associated to the forward section of the industry that also constrain the production and sales of the industry. Similarly, the role of government in financing, privatization, hiring and firing, research and development and peoples conscious development to use jute goods and the role of World Bank and other organization in the restructuring of the industry are questionable. All these problems related to sourcing, production, distribution and policy issues contribute in slowing down and gradual worsening the performance of the jute industry in the south-west region.

References:
1. Weijers, P. (2007). Export of jute products from Bangladesh to Europe;

University of Twente.
2. Moni,A.M (2010). Bangladesh jute industry revitalized; entrepreneur

and jute promoter; 2010, june 21.

3. Shu,S;(2010). Bangladesh Jute Industry: Time to rise to the occasion;

country director, world bank, Bangladesh..

4. http://www.worldjute.com/jute_bangladesh/bangladesh_jute_news.html

5. http://english.aljazeera.net/news/asia/2008/12/2008121035022494523.html
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