“Viability of Small Scale Jute Industry for Export”.
1. ORIENTATION TO THE REPORT 1.1. Background Jute manufacturing sector is one of the oldest traditional manufacturing sectors of Bangladesh, which emerged in former 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 % of the country’s total export, which is of extremely low significance when compared to its contribution in the overall export observed during the1970s (89.9 % in 1973). The ascendancy of the exportoriented 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. In July 2007, Government of Bangladesh took a number of decisions as regards public sector jute mills and their poor performance. The major decisions included: closing down four jute mills – Peoples, Karnaphuli, Forat-Karnaphuli, and Kaomi and retrenchment of 14,000 workers from 22 state-owned jute mills, of which 6,000 workers were from the four closed down jute mills and another 8,000 workers were from the remaining 18 jute mills as a result of which the total work force of Bangladesh Jute Mills Corporation (BJMC) mills was decreased by 50 %. The government agreed to provide Tk. 2 billion to finance procurement of raw jute of which Tk. 1.38 billion was to be financed from banks through issuing of government bonds. Procurement target was set at 5.5 million tons of raw jute from 58 procurement centers for the 18 jute mills. Government also took the initiative to sell 120 acres of land (out of BJMC’s 1,200 acres of land) to generate more funds for the industry. Various stakeholders and civil society organizations have expressed concerns with regard to the economic judgment which led the government to close down the jute mills and retrench workers at a time when it
was widely believed that resurgence of jute was emerging in both global and domestic markets.
1.2. Origin of the Report This report has been prepared as a requirement to complete the International Business Environment course, instructed by Prof. Dr. Abu Yousuf M Abdullah. The title of the report is “Viability of Small Scale Jute Industry for Export”.
To gain a perception of the jute industry of Bangladesh
To acquire relevant information on jute exports from Bangladesh
To understand small scale jute industries
To propose a business model for the export-oriented small scale jute industries in Bangladesh
1.4. Scope The report focuses mainly on the export strategy of jute industries. As this report has been prepared for the International Business Environment course, less emphasis will be provided on the specialized functional areas of the jute industries. More emphasis will be given on the export and production strategies of small scale jute industries, keeping in mind that the main theme of the report. The interviews that were carried out were inside Dhaka. This report also highlights some of the recommendations we have made for jute industries based on the successful production and export strategies being followed in our neighboring countries in the promotion of jute.
Primary Data Formal interviews with Mr. Mazharul Haque, Deputy General Manager – Marketing, of Bangladesh Jute Mills Corporation (BJMC) were conducted in order to find out about the jute industry and its prospects, marketing policies and any other relevant information to analyze the strategies of our jute industries. Secondary Data
We found valuable information on BJMC website (www.bjmc.gov.bd) Ministry of Textiles & Jute website (http://www.motj.gov.bd/ministry/index.html), and several secondary research and newspaper articles related to the jute industry of Bangladesh, which were instrumental in the enrichment of the report.
1.6. Limitations ď‚§
We could not obtain exact statistical information. Therefore, we had to estimate many of our research findings.
A more detailed and vast consumer survey could have produced better analysis. It was impossible to go for such detailed analysis due to time constraint and limitation of the scope as most of the export markets are beyond our geographic scope.
2. OVERVIEW OF THE GLOBAL JUTE INDUSTRY Today, jute can be defined as an eco-friendly natural fibre with versatile application prospects ranging from low value geo-textiles to high value carpet, apparel, composites, decorative, upholstery furnishings, fancy non-wovens for new products, decorative colour boards etc. Jute with its unique versatility rightfully deserves to be branded as the "fiber for the future". In coming decades, a number of jute mills and mini-jute plants will be seen engaged in a big way in production of jute and jute blended yarns, especially of finer accounts, through various routes of yarn manufacturing. The uses of jute are manifold although the traditional use remains in packing as sacking, hessian and carpet backing. These light weight yarns are to be used in value added textile applications like upholstery, furnishing, garments and bags etc are just a few example Jute, popularly called the 'Golden Fiber', is a plant that yields a fibre used for sacking and cordage. Known as the raw material for sacks the world over, jute is truly one of the most versatile fibres gifted to man by nature that finds various uses from Technical textiles to Handicrafts. Next to cotton, jute is the cheapest and most important of all textile fibers. Jute is the cheapest lignocelluloses, long vegetable best fibre available in the world. Jute cultivation provides direct employment for millions of farmers, landless labourers, and industrial workers including women and provides livelihood for many more indirectly.
2.1. Manufacturing Technology Since jute was first mechanically spun in Dundee, it has used a modified version of flax carding, and spinning technology. But now jute requires processing machinery for producing various types of new products as well as for producing better quality traditional products. It may be mentioned here that the last major technological change was in the 1950s when the industry adopted sliver spinning instead of spinning from twisted â€˜roving.â€™ Since then, unlike cotton and synthetic textiles, there has been very little effort to innovate and develop exclusive jute machinery. The present jute process machinery was largely designed and made in the UK prior to the 1980s, although jute spinning machinery is being manufactured in Kolkata since 1954 A start has been made to develop more efficient and productive jute processing equipment in India. In the early 1990s some fund was given to jute machinery developers in India under a UNDP project. The main thrust of mill modernisation for the industry during the last decade has been more in import of second hand equipment designed for jute or which can be modified for jute processing. In the past carding machines, shuttle looms and winders were made to 1960s and 1970s UK designs in volume in India. In broad terms the existing jute conversion process from raw material to finished yarn or fabric requires about 40 man days per ton. This needs to be reduced to half, in other words to double labor productivity in the jute spinning process. It will have to double the productivity of the workforce and yet remain simple, efficient and practical to operate. Therefore, any new process technology has to surpass what exists by a generous margin to justify its investment cost. Up to now it has proven too difficult or too daunting a challenge for Indian machinery makers who are aware of the huge investment and effort needed to finance and complete new machinery designs and their commercial development. To develop new jute machinery the manufacturer has to be confident that there are buyers and a market prepared to buy jute and jute products. Moreover, there is no certainty that the new machinery will not simply be copied and thus there would be no return on R&D investment. A leading Jute machinery manufacturing company in India in expressing the present situation remarked that it is difficult for a company like theirs to develop the envisaged new spinning and weaving technology by itself without assistance
from either national or international agencies. Jute Technology Mission launched by the Govt. of India in 2006 has a component of R&D for machine manufacturing but little progress has taken place in this area.
2.2. Current Status - Existing Products and New Product Development The specifications and standards of classic jute products have remained unchanged for decades. First comes sacking, which is used for making heavy bags for food grains and other commodities. Generally each sack weighs about one kilo net and is used to transport or store fifty kilos of produce. This item represents about half of the industry’s output. In the last decade, an improved ‘food grade’ sack has been developed, produced and marketed. This sack is physically very similar to the conventional one but does not contain any mineral oil. The use of ‘food grade’ bags is specified by importers of Cocoa and Coffee beans. Next is ‘Hessian,’ which is a cloth made from finer yarns and which generally weighs half as much per square meter as sacking. Some Hessian is used to make finer sacks and bags and the rest is used in a wide variety of applications from wrapping plants or collecting grass cuttings to furniture and as a support cloth for linoleum flooring. Hessian cloth represents a little less than twenty percent of the total output of the world jute industry. Yarn and twine are also major traditional products. The yarns are primarily exported to carpet weavers in Europe and the Middle East where they are woven into the back of the carpet to provide bulk and stability. Jute sold in the form of yarns for carpet or twines represents close to twenty percent of total industrial output. Wide Hessian cloth, known as carpet backing cloth is used on the back of tufted carpets. At one time it was used for both, primary and secondary backing but has been phased out of primary backing altogether. This application once consumed far larger volumes of jute than it does today when it accounts for less than two percent of output and a very minor part of the market.
The remaining ten percent or so of output is taken up by a wide range of small amounts of specialist products. Among these one can mention ‘soil saver’ an open weave construction using very heavy yarns used for geo-textiles which are laid on
the ground. Jute woven matting or carpets are used as household floor coverings. Shopping bags are made from the better qualities of Hessian cloth. Furnishing fabrics, and rope soled shoes are also produced from jute and are finding consumer acceptance.
Considerable emphasis is now being placed by the jute industry on the production of non-traditional products. These are called as the diversified products. The intention to move towards ‘diversified’ products made wholly or partially from jute fibers has important consequences for the industry. The yarns used in such applications are generally finer in count and considerably higher in quality than those used in the ‘traditional’ products. Significantly finer counts will mean a move to ring spinning and away from the conventional flyer spinning. In short, the manufacture of diversified jute products require the use of the best grades of raw jute, more capital investment, higher ‘textile’ levels of design and marketing skill, more capable and focused mill management, a degree of entrepreneurship above and beyond that usually found in the traditional industry, and on top of that, considerable R&D expenditure.
2.3.Global players The production is concentrated in India and Bangladesh India with overall of ~66% of world’s production tops the production of jute. Bangladesh with ~25% lies at second position followed way behind by China with ~3%. INDIA The jute textiles industry in India occupies an important place in the national economy. It is one of the major industries in the eastern region, particularly in West Bengal. It supports nearly 4 million farm families, besides providing direct employment to about 2.6 lakh industrial workers and livelihood to another 1.4 lakh people in the tertiary and allied activities. The production process in jute industry involves cultivation of raw jute, processing of jute fibres, spinning, weaving, bleaching, dyeing, finishing and marketing of both raw jute and its finished products. The jute industry is labour intensive and therefore, its output ratio is high. The capacity utilization of the industry is around 75 percent. These apart, the contribution of jute textile industry to textiles exports is between INR.1100 -1200 crores per annum.
The Government announced a comprehensive National Jute Policy in April 2005, to develop a strong and vibrant jute sector. The policy aims to revive the jute economy through supportive measures covering research and development, technology up-gradation, creation of infrastructure for storage and marketing of raw jute and product; and market development activities for jute and jute diversified products. The Government will ensure a reasonable market for jute products by continuing with the ongoing policy of reserving food grains and sugar packaging in jute bags. The Jute Technology Mission is a major component of the National Jute Policy. The mandatory packaging of agricultural products in jute sacks and the Indian government sack purchasing policy has provided stability and continuity to the industry and to the millions of poor jute growers. This remains the rock to which the industry is anchored. A collapse in the internal Indian jute use of sacking would put huge pressures not only on growers but also on export markets. Another important factor in the reduction of market possibilities for jute has been the growth in favour of bulk handling. Sacks can also be made from Kraft paper, widely used for animal feeds, and from blown film plastic which are commonly used for chemicals and fertiliser. PAKISTAN Pakistan imports most of its raw jute from Bangladesh and occasionally some from Myanmar. Over the last few years production has been relatively stable at 50,000 to 60,000 tons a year of Sacking. 10,000 to 14,000 tons of Hessians and 10,000 to 14,000 tons of yarn and twine. The overall output of the Pakistani mills has remained for many years in the range 75,000 to 85,000 tons despite very keen competition from Polypropylene woven bags. The vast bulk of production is sold to markets within Pakistan but some yarn and Hessian is exported to Afghanistan, Iran and Middle East markets. Pressure from competition in the domestic market is necessitating a change in orientation towards export markets. CHINA The Chinese jute growing and manufacturing industry reached its zenith in 1985 when output was over a million tons. By 2000 FAO figures suggest a production of 126,000 tons with some recovery by 2003 to around 165,000 tons and the number of mills remaining in active production had fallen dramatically. The process machinery from several of these closed down mills was sold to Indian jute mills.
The reason for the collapse of the Chinese industry was the widespread use of locally woven sacks made from Polypropylene and High density polyethylene. Formal statistics on the number of woven plastic bags currently being made and used each year in China do not exist, but a conservative estimate would be about five billion bags or half a million tons of polymer. (Equivalent to five million tons of jute sacks). Recently in China there has been a decline jute and kenaf crop In 1999 the harvest was 260,000 tons taken from 100,000 hectares and in 2003 according to FAO and the Chinese agricultural statistics, about 150,000 tons from 60,000 hectares. The crop is predominantly grown in Hunan, Sichuan, Hubei, Henan, and Anhui provinces with an average yield of 2,500 kilos per hectare. Since 2003 China appears to be importing about 30,000 or 40,000 tons a year of raw jute primarily from Bangladesh. China also imports a little jute yarn from Bangladesh (in addition to raw jute) but volumes are small, of the order of 1,000 tons a year. Together with a slight recovery in production since 2000, it appears that there is still some significant demand for jute sacks in China although nowhere near the levels of the mid 1980s.
OTHER COUNTRIES WITH JUTE INDUSTRIES Thailand, Myanmar, Nepal and Brazil continue to grow and produce jute and kenaf products, as do Vietnam, Indonesia and Cambodia. With the exception of Thailand and Myanmar which also export some fibre, these countries consume most of their locally grown fibre internally. The aggregate amount of fibre processed in these countries can be estimated at between 100,000 tons and 120,000 tons a year. The end product profile is probably similar to that in China with sacking being the predominant item. A few remaining countries retain a traditional jute goods manufacturing capability based wholly or partially on imported fibre; the most notable examples being the Ivory Coast, Brazil, Egypt and Cuba. These countries in aggregate use about 50,000 tons of fibre. End products are primarily sacks and bags for internal use. As the world market for jute goods shrinks and consolidates, the experience of the past has been that the jute industries outside the main competitive producers in the Indian subcontinent drop out and close down. Jute manufacturing is nowhere consolidating into its heartlands of India, Bangladesh, Pakistan, Myanmar and Nepal and will continue to do so in future.
2.4. Research & Development Research and development by reputed organizations in India, have led to the strengthening of the natural attributes of jute. With technological support coupled with government's developmental efforts, the golden fiber, today, has entered into a varied range of applications generating employment, contributing to sustainable human development and leading to a cleaner and healthier environment. Intensive R & D efforts through various research institutes mainly funded by Government of India have resulted in remarkable breakthrough in product diversification. Prominent Products are: •
Hydro carbon-free Jute Products for packing food grade products like cocoa, coffee, shelled nuts etc.
Major R & D works in DREF Spinning System.
Production of jute blended yarns with jute as the major component-using Jute/Viscose, Jute/Acrylic, and Jute/Cotton--jute content varying from 60 to 70% by weight. Such yarns suitable for blankets, shawls, pullovers and as also thick dress materials.
Production of fine blended yarns using Jute/Cotton, Jute/Silk, Jute/Wool etc. for apparel use, where jute content is 30-40%.
Jute based fabrics used particularly in areas of furnishing, upholstery, carpets, blankets and other home textiles. R & D Institutions have developed Jute Reinforced Composites in the form of flexible, semi rigid sheet and rigid board to substitute wood, timber, and plywood. UNDP jute program has also facilitated diversification of jute sector by developing new technology, promotion of employment opportunities by encouraging new entrepreneurs to set up production units and development of indigenous machine manufacturing sector. Some of the on-going projects are use of jute for paper production; jute based needle-punched carpets, development of multi-component yarn from wool, jute and other fibers for floor coverings blankets and knitwear.
2.5. Diversification In order to enable jute-based products to make successful inroad into the textiles sector, jute has been largely experimented with. In view of challenge faced from
cheaper prices of synthetic substitutes, more thrust has been given on diversification of jute products. Major thrust areas of value-added diversified jute products include Jute Handlooms and Handicrafts, Non-woven and Industrial Application, Jute Rigid Packaging, Decorative products and Geo-Jute etc. The traditional excellence of Indian craftsmen & artisans is reflected in a wide range of jute handicrafts of utility, decoration and novelty. A beautiful mosaic of Jute handicrafts comprising of carpets & floor coverings, wall coverings & window dressings, table mats & table-wares, swings, hammocks, office bags, table covers, table mats, pen and pencil stand, wall hangings & room decor, bedspreads & bedroom slippers, blankets & shawls, skirts & jackets, shopping & travel bags and a host of other home textile made ups are available in various outlets all over the country and has a ready market where demand outstrips supply.
2.6. Commercial Successes The diversification efforts can already claim a number of commercial successes: 1. Major automobile manufacturers have started using jute fibre to replace glass fibre in upholstery. 2. Some well-known furniture manufacturers in India and Bangladesh are using substantial amounts of jute particle boards in their products. 3. Since last decade, a significant development has taken place in the spinning segment of the jute industry. The mills in this sector are mostly private owned and the segment is still flourishing, contributing substantially in the foreign exchange earning of the jute sector. 4. There are a good number of private sector SMEs who are producing and exporting a variety of diversified jute products and the volume of export is continuously increasing. It may be mentioned have that about 1.3 million people are employed in the jute diversified product sub-sector. 5. Diversification efforts have made jute a substitute in areas as wideranging as automobile manufacture, furniture, shopping bags and erosion control â€œgeo-textileâ€?. This humble, once-scorned commodity
has established itself as a fashionable, eco-friendly item – a golden fibre – in niche markets. The new diversified products included fine yarn, up-holstery and furnishing fabrics, aesthetically appealing shopping bags, fashion & decorative accessories, jute-plastic composites, jute particle boards (or chipboards), jute gardening products, non-woven products, home textiles, fashion textiles, handicrafts, gift items, promotional materials, and hand-made paper. These are all commercially available. New applications for jute, such as non-woven articles and special textiles, have emerged.
2.7. The Versatile Option
Rapid expansion of jute into a wide range of life style consumer products has been made possible due to the versatility of Jute. Spinning of high quality yarns and weaving of light-weight fine-textured fabrics of uniform structure in exotic colours and designs are made in both jute factories and hand loom sectors. With vastly improved bleaching, dyeing and finishing processes and by blending jute with other natural or synthetic fibres, the finished jute products now ensure feel, lustre, abrasion resistance and aesthetic appeal. 2.8. Competitors and Trends in Major Markets The jute industry is primarily based on the manufacture and supply of sacks and bags for agricultural produce. About 1.5 million tons worldwide out of a total output of 2.8 million tons or some 53% of production flow into this application. Of this world textile packaging market using jute India accounts for 1 million tons. What happens in the Indian market will crucially affect the rest of the world jute industry. China encouraged substitution of jute packaging by cheaper oil based woven olefin plastics. The result was that the Chinese jute industry all but collapsed. Underdeveloped economies with a weak transport infrastructure and large populations provide market opportunities for jute bags. Despite the ‘green’ or ecology friendly arguments which favour jute, and the fact that jute sacking will outwear and outlast woven plastic by on average 7/8 transport uses as compared to 3/4 for plastic these have not been factors which have had a significant impact in favour of jute. More important has been stack-ability where jute holds the advantage in terms of stability and ease of handling.
In contrast to the discouraging situation for jute in packaging the future use of jute yarns in the world carpet manufacturing industry has a growth profile. The problem is that growth in this area cannot remotely make up for the declining international market for jute in packaging.
Other diversified textile products which represent new applications for jute can be exploited, however to grow jute for pulp and paper seems unlikely to be economic except on a small and specialized scale such as is being done in Myanmar which exports paper to Japan. A prospect which has the potential to use large volumes of jute fibre is in the replacement of glass fibres for plastics reinforcement. This opening exists both for compression moulding and for injection moulding. The replacement of even ten percent of the glass fibre used in plastic reinforcement would open up a potential market for several hundred thousand tons of fibre. The problem with this market is that it provides little or no value added for existing jute mills. Jute geotextile is one of the most important products of jute which has wide potential applications in large scale & volume viz. soil erosion control, vegetation consolidation, agro-mulching, soil reinforcement, protection of riverbanks & embankments/dams, land reclamation, road pavement construction etc. The distinguishing features of jute like high moisture absorption & retention capacity, flexibility, drainage property, biodegradability etc. make jute geotextiles more advantageous and suitable. Jute geotextiles have the potential of being sustainable and environmentally friendly and sound. The IJSG with the support of its members like India and Bangladesh is endeavouring to exploit the technical competence and commercial potential of JGT esp. in soil management and rural road construction through a project likely to be funded by the Common Fund for Commodities (CFC).
3. OVERVIEW OF THE JUTE INDUSTRY OF BANGLADESH 3.1 Production Production trend of the jute manufacturing sector can be broadly categorized into four periods: first phase (1950-1970); second phase (1972-1981); third phase (1982-1990); and fourth phase (1991-onward) (Figure 1). During these four phases, jute manufacturing sector had experienced various changes in policies,
and also in the pattern of utilization of jute and jute goods. In the preindependence period, jute mills were owned by a small number of private entrepreneurs. During
this phase, average Hessian production was 155,586
metric ton (MT) per year, of which 87 per cent was exported; the comparable figures for sacking were 267,614 MT and 78 per cent respectively (Table 1). Production reached its peak in 1969, with an output of 5.74 lakh MT. Due to political instability and damages caused during the year of Liberation in 1971,
operations of jute mills were interrupted. Consequently, production declined in 1971 and 1972. Thereafter, production started to increase. In the second phase (1972-1981), government decided to nationalize the jute manufacturing sector, and took control of all the private sector jute mills. During the 1970s, average level of production of Hessian was about 165,000 MT, of which 94 per cent was exported, while comparable figures for sacking were 225,460 MT and 86 per cent respectively. Growth in the production of jute goods between 1960 and 1980 can be attributed to the growth in production of Hessian, sacking and carpet backing cloth (CBC) products. Production of yarn/twine accounted for a small share of total production during the 1970s. During the 1980s (third phase), the then government decided to denationalize a number of jute mills in line with the initiative of economic liberalization. A mixed trend is observed in the production of jute goods during this phase, which reached its
peak in 1990 with a production of 5.96 lakh MT. Production of yarn gradually increased in the 1980s. Most importantly, production of Hessian and sacking — two major traditional products gradually declined, especially since the late 1980s. Production of CBC declined as well. In the fourth phase (1990-onward), following the suggestions of the World Bank, government started to denationalize a number of other public sector jute mills which resulted in the shutdown of many jute mills as well. However, production of jute goods has not picked up even after adoption of various policy measures. Indeed, production of traditional products such as Hessian, sacking and CBC has continued to decline with the exception of growth in the production of yarn and twine. Yarn/twine now accounts for the major portion of jute goods and over time, its production has also been on a steady rise. During 2006, Bangladesh’s share in the global production of jute goods was approximately 18 per cent. Both public and private sector jute mills sell their products in either the domestic market or the international market (Figure 2). Although overseas export comprised major share of Bangladesh’s jute goods production, domestic sale has been posting a rise, which now accounts for 38 per cent of the total production. Bangladesh is the leading exporter of jute goods in the world and her share in the global market is gradually increasing—which accounted for 60 per cent of the global exports in 2006. If export of raw jute is taken into account, total export would reach more than 75 per cent. According to Bangladesh Jute Association (BJA), Bangladesh exports about 25 lakh bales of jute goods which accounted for about 56 per cent of the total raw jute grown in the country. It is worth noting here that Bangladesh and India currently meet more than 90 per cent of the global export demand for jute and jute goods; to compare, this share was 79 per cent in 1970.
3.2 Jute Mills, Production Capacity of Jute Mills A total of 72 jute mills were operated by the public sector in 1982, immediately before the initiative of denationalization. Since 1982-83, government started to denationalize the public sector jute mills â€” out of 72 public sector jute mills, the government denationalized 34 jute mills between 1982 and 1985 (Table 2). Out of these 34 privatized jute mills, 6 were composite, 21 were conventional and 7 were CBC jute mills. A total of another 22 jute mills were privatized during the last two decades. Besides, a number of new jute mills (mostly of spinning type) were established under the private sector initiative. Currently a total of 129 jute mills are in operation, of which 18 mills operated under the public sector and the remaining 111 mills operated under the private sector (Table 3). Of the 111 private mills, 61 mills were owned by the BJMA members while the remaining 50 mills were owned by the BJSA members.
A total of 25,792 looms were in operation in the 72 jute mills during 1981-82. In other words, average number of looms in a jute mill was 358. The number of operable looms increased to 26,033 by 1991-92, as a number of new mills was established during this period (Figure 3). In 2006-07, there were 22,944 looms in 129 mills, which mean an average of 178 operable looms in a mill. It shows that though the number of installed looms did not change by a significant quantity during this decade (1981-1991), operable looms declined by almost half on the average. It implies that capacity utilization of the mills has substantially declined
over time, from as high as 103 per cent during 1982-83 to 50 per cent in 200506 in BJMC mills and 94 per cent to 19 per cent in mills owned by the BJMA. It is important to note here that capacity utilization had substantially declined in cases of Hessian, sacking and CBC mills in mid 1990s, especially in the private sector jute mills. Capacity utilization in yarn/twine mills is found to be relatively better when compared against other mills.
3.3 Financial Position of Jute Mills Most of the jute mills have been experiencing poor financial conditions for a large part of the time since Bangladesh’s independence in 1971. According to the World Bank (1986), jute mills were profitably operated by the pre-independence regime, when financial profit per unit of manufacturing Hessian product was Tk. 4,977; however, when considering the other economic costs such as subsidy and fiscal incentives, overall economic profit can be considered to be negative (-Tk. 1,545) (Table 4). In the following years, both financial and economic profits of jute mills have continued to decrease. According to the BJMA, private jute mills suffered a loss of Tk. 7,420 for manufacturing one MT of Hessian in 1988, which marginally declined to Tk. 6,640 during 1996-97. Similarly, BJMC mills had a negative profit of Tk. 5,184 from manufacturing of one MT of Hessian product in 1988, while the loss further increased to reach Tk. 11,075 during 1994-95. In order to compensate losses, the government provided various kinds of support to jute mills. Between 1985 and 1988, the then government compensated losses incurred by the mills against difference in the exchange rate between Bangladesh and India in the form of ‘XPB.’ From 1989 to 1991 government paid ‘cash subsidy’ to all mills against their losses. Under the World Bank program (Jute Sector Adjustment Credit or JSAC), government compensated the mills through export
loss finance for BJMA mills between 1992 and 1995 and up to 1995-96 for BJMC mills. The loss of finance to BJMC mills ranged between 31 per cent and 67 per cent, i.e. on an average 50 per cent; on the contrary for the BJMA mills this was 16 per cent during 1992-93 and 20 per cent between 1993 and 1995. According to the BJMA, private sector mills are yet to receive the support in the form of export loss finance, which was Tk. 52 crore. It is also important to note here that when the mills were denationalized in 1982 some were given back to their former management, and some given to new management. In both these cases all the previous loans and liabilities were also transferred. Those debts and liabilities, according to private entrepreneurs, had come into surface because of inefficient management during the nationalized regime. However, a part of those liabilities also originated even before that period, in the 1960s.
4. FEATURES OF SMALL SCALE JUTE PRODUCERS
Small-scale jute mills as a class comprise of mills that have less than 250 looms. A total of 129 jute mills are in operation currently in Bangladesh. Of these, 18 are owned by government body BJMC, 60 belong to the private BJMA, and the rest 51 form up the BJSA. While 6 mills out of the 18 owned by BJMC fall under our classification of small-scale jute mills, no such data could be found for the mills owned by BJMA or BJSA. However, according to our key informant, almost all the mills that form the private organizations BJMA and BJSA are small-scale jute mills. These mills are located in more than 17 districts across Bangladesh. Most jute mills in Bangladesh were established in the pre-independence period. A large number of new mills were established long after Independence, mainly during 1996-2001. Most of these new mills were small-scale ones, and were established not by using new machinery, rather by using unused machinery sold by mills that were owned by the BJMC and BJMA. In a few private mills belonging to BJMA and BJSA, the government actually has some share, usually ranging from 25 to 50 percent. Presence of mills with foreign share in ownership is also not uncommon. Many mills also operate under lease from various government and private organizations.
4.1. Machinery Used in Different Factories In a research conducted by CPD among 45 mills of various ownership and scale of production, it was found that on the average there are 403 looms in operation in a BJMC mill, which is more than double the number that were in operation in a private sector jute mill (191 looms). Large scale BJMC mills are operated with 745 looms. Average market value of machineries in a BJMC mill in 2007 was Tk. 54.7 crore, while that of a BJMA mill was less than half the amount at Tk. 16.93 crore. Thus, it was to be expected that BJMC mills with their relatively large size of capital would be able to produce more goods compared to the mills under the private sector.
BJSA mills usually had relatively less number of machineries, mainly because operation of these mills ended in the mid-stage of the production chain (i.e. in the spinning stage). Hence, these mills used relatively lower number of workers compared to other mills. Nature of operation in a spinning mill is not significantly different from composite mills where hessian, sacking and CBC are produced. However, in order to ensure quality of output, use of raw materials and some other applied techniques are different in those composite mills. Table 1: Number of Looms and Market Value of Machinery in Small Scale Jute Mills Associatio n BJMC BJMA BJSA Total
Market Value of Machinery (in
Total no. of Looms in
Operation 8.09 15.88 11.15 35.12
50 133 45 228
Source: CPD Jute Survey 2007-08.
Both public and private sector jute mills are operating with machines that were installed during the 1960s and 1970s. Most of the mills established in the 1980s, 1990s and after 2000 have used machinery which were used earlier by BJMC and BJMA mills. A number of factories established after 2005 used machinery that were used in the Adamjee Jute Mills. This indicates that machineries which are not being used for various reasons in public and private sector jute mills can be easily made operational with a minimum cost for repairing. A large amount of investment is not required to serve this purpose. Some of the jute mills have started to use new machineries (but in a very small way) in order to enhance productivity and to produce acceptable output which meets the quality standards.
4.2. Production and Products Produced Although a large difference is observed between public and private sector jute mills in terms of total number of looms in operation, significant difference was not found in terms of their production levels. Even though production of BJMC mills ought to be higher because of the availability of large stock of machineries, in reality it was found to be rather low. According to data collected from a CPD research, average production in BJMC, BJMA and BJSA jute mills in 2007 were 6,085 MT, 5,761 MT and 6,823 MT respectively.
As a result of differences in the level of capacity utilization in BJMC, BJMA and BJSA mills, production also varied considerably between large, medium and small scale jute mills. Highest level of production was observed in medium sized BJMA mills (11,958 MT), while the lowest level was found in small sized BJMC mills (873 MT), where production per worker was 3.7 MT per year. Productivity in BJSA mills tops all other mills (7.2 MT), while it is the lowest in BJMC mills (2.5 MT). Productivity is also the lowest in large sized BJMC mills, which is 1.83 MT and highest in large BJSA mills. It is important to explore the possible reasons for the low level of productivity in BJMC mills compared against the BJMA and BJSA mills. Table 2: Average Production in Small Scale Jute Mills (in MT) Association BJMC BJMA BJSA Total
Average Production 873 3,378 3,261 2,504
Production per Worker 2.79 3.79 4.02 3.53
Source: CPD Jute Survey 2007-08.
4.3. Domestic Sales and Export All types of jute mills mostly targeted international market due to the prevailing higher price of jute goods, compared to the prices in the domestic market. Small scale BJSA mills sold 66 per cent of their products in 2007 in the international market. However, sales in the domestic market are not low; and small scale BJMA mills sold relatively larger share of their products in the domestic market compared to that of the BJMC mills. Table 3: Share of Product Sale in Domestic and International Market Association BJMC BJMA BJSA
International Market 47% 49% 34%
53% 51% 66%
Source: CPD Jute Survey 2007-08.
Jute mills, both small and large scale, exported their products in all the major regions of the world. About 38.7 per cent products that were produced by the sample mills were exported to Asian countries (mainly sacking and yarn/twin), while 25 per cent of the products were exported to the European market (mainly yarn/twine and hessian products). Large scale jute mills sold their major
products, hessian and sacking, mainly in the Asian and the African markets, while small scale jute mills target the Asian and the European markets. Another important product, yarn, was sold by the public sector jute mills in the Asian market (90 per cent of the product) and by the private sector jute mills in both the Asian and the European markets. Large scale jute mills sold their hessian and sacking products in markets where price was relatively low, such as Asia and Africa market. On the other hand, small scale private sector jute mills sold their products in relatively high priced markets such as Europe, and Asia in the case of hessian, sacking and CBC products. Yarn/Twine sold by the private sector mills in the low-priced markets of Asia was because of large scale demand of the product. It can be deduced that export income of BJMC mills would not be higher than that of BJMA mills, since they primarily targeted low-priced market. According to some private sector mill owners, price fixed by the BJMC mills for their products directly affects the overall market price. Under the circumstances of huge losses incurred by public sector jute mills, how far the price fixed by the public sector jute mills has any economic rationale, which in other way may distort the market price â€“ is a question the small scale jute mills entrepreneurs frequently wonder.
4.4. Merchandising It is important to inquire whether the marketing practice of BJMC mills would explain why these mills tended to target low price markets. CPD survey reveals that most of the BJMC mills sold their products either through local buying houses (54 per cent) or international buying houses (35.9 per cent). In contrast, small scale private jute mills, such as BJMA and BJSA mills, sold major part of their products through local buying houses and direct buyers. Direct selling to retailers has advantages of acquiring a better price compared to when it is sold to local and international buying houses, since agentsâ€™ commission is also added to the cost. Thus, BJMA and BJSA mills get better price not only for targeting high-priced market, but also because of using better merchandising techniques. BJMC mills sold most of their products through local buying houses, such as members of Bangladesh Jute Goods Association (BJGA). Without developing direct network with buyers and international buying houses, it would be difficult for BJMC mills to get a higher price for their products. However, development of network with international agents required fulfilling commitments in terms of delivering
products that meet a certain quality criterion, and thus reach the buyers in the agreed time, where BJMC mills suffer from significant weaknesses. Table 4: Sales under Different Associations through Different Agents Association BJMC BJMA BJSA
Local Buying Houses 54.09% 51.20% 32.80%
Buying Houses 35.85% 17.50% 18.38%
10.06% 31.30% 48.82%
Source: CPD Jute Survey 2007-08.
4.5. Features of Managers One of the critical factors that may explain the reason behind the better performance of jute mills is the efficiency of the management. Management team of a jute mill is comprised of the following important personnel: Project Head/General Manager, Manager (Operations), Manager (Human Resource), Manager (Finance and Accounting), and various types of other managers. Managersâ€™ year of experience in the jute sector, duration of working in their respective stations, and their decision making skills etc. have direct influence in the overall performance of the jute mill. It is seen that Project Head/General Managers (GM), the Chief Executive Officer (CEO) of public and private sector jute mills belonged to the middle-age group. However, their duration of work in their present and previous jute mills was found to vary between public and private sector jutes mills. Project heads of BJMC mills were found to work for a short duration in different mills, which was approximately 3 years. One of the reasons could be that their appointment in different mills was set for a creating Govt. ruling period. On the other hand, GM of private sector jute mills were found to work for a longer period of time (from 3 years to a maximum of 9 years), which provided them with a better understanding as regards to the operation of the mills and assist them to take appropriate decisions. Similarly, Managers (Operation) in the case of BJMC mills tended to work for relatively shorter period of time, which would provide them with relatively less knowledge to function in an effective way. Other management personnel, such as Human Resources Manager, Finance and Accounting Manager, were found to be experienced in all categories of jute mills; however, they have worked in their present jobs for a longer period of time in the case of private sector jute mills, compared to that of the public sector ones. Thus, public sector jute mills were found to be operated by management personnel who did not get
adequate opportunity and time for being able to take appropriate decisions. A lot was also found to be lacking in terms of accountability, reward and sanctions. It is important to examine the efficiency of management personnel of different types of jute mills. Table 5: Average Age and Experience of Managers in Small Scale Jute Mills Association BJMC BJMA BJSA
Average Age 54.67 58.92 51.50
Years of Experience 20.01 30.42 30.50
Source: CPD Jute Survey 2007-08.
4.6. Worker Profile Jute manufacturing is a labor intensive sector. Since the entire operation of a jute mill is carried out within an integrated system, a minimum number of workers are always required in every section of the mill. Survey found that there was a wide variation in the number of workers in different types of mills, which indicated that number of workers in some mills was higher than the usual standard level. Number of workers in a BJMC mill is more than double to a BJSA mill and about 75 per cent higher when compared to that of a BJMA mill. The range of excess workers in different sections of BJMC mills varied between 19 per cent and as high as 167 per cent. It may be inferred that because of a large part of inoperative machineries in the BJMC mills, many workers, who are employed as “permanent” workers in these mills, remain underutilized or unutilized. Not much variation was found between private and public sector jute mills in terms of distribution of workers with respect to their skill levels. About 80 percent workers in BJMC and BJMA mills were either skilled or unskilled. However, their types of contract with BJMC and BJMA mills were different. Because workers in BJMC mills were appointed as “permanent,” while workers in BJMA mills were appointed on a “contract” basis. Besides, the structure of wage is different between public and private sector jute mills, which would have direct impact on productivity, cost and overall earnings of the mill. It is important to note here that since majority of the workers were skilled to a certain degree, they can be utilized fully if the operation of all installed looms could be ensured. Number of workers who are not engaged directly in production was also very high in the
public sector jute mills. The excess of workers in the public sector jute mills is possibly because of recruitment of more than required number of workers during different regimes under political considerations or as a result of pressure from the trade unions. Since BJMC mills were unable to employ the workforce adequately, their overall production was relatively lower than others. Output per worker, which is a proxy variable of labor productivity, was found to be only half in a large BJMC mill compared to that in a small scale BJMA mill. On the other hand, labor productivity in a small scale BJSA mill was almost 3 times higher compared to that of a large scale BJMC jute mill. This indicates the low level of productivity of the workers in a public sector jute mill, which needs to be further investigated â€“ whether it is because of their technical inefficiency or due to the lack of use in productive purposes arising from the underutilization of machinery. Average age of jute workers was found to be 42 years and 32 years for male and female workers respectively. This indicates that young workers were not much eager to work in jute mills, because of better opportunity in other sectors (such as RMG for female workers, rickshaw pulling or other informal sector jobs); lack of assurance of regular payment, particularly in the BJMC mills; etc. It should be noted here, an intergenerational workforce is healthy for a traditional industry such as jute, which is gradually declined in this sector at present time.
Table 6: Average Age of Workers in Jute Mills Sector Public Private Total Source: CPD Jute Survey 2007-08.
Gender Male Female Male Female Male Female
Average Age 46.87 43.67 39.92 28.00 42.14 31/36
Published on Jan 6, 2014
Jute manufacturing sector is one of the oldest traditional manufacturing sectors of Bangladesh, which emerged in former East Pakistan in the...