Once upon a time, jute was the golden fibre of Bangladesh. The country used to earn the highest amount of foreign currency by exporting jute and jute goods. However, starting in the 1980s, due to lack of proper government policy and declining global demand, export earnings from jute fell significantly. Synthetic substitutes were one of the major threats. Presently, the situation is totally different because of serious concerns about environment pollution and demand for use of natural and less hazardous material in order to reduce carbon emission. Despite dipping export trend in the international market, jute (including jute goods) is still the second largest export product next to ready-made garments, and currently Bangladesh is the second largest exporter of jute after India.
In the FY 2015-16 (July-February) export of jute goods and raw jute was US$ 561 million of which jute goods fetched $470 million and raw jute $91.34 million. Export was to the tune of $ 868.53 million in FY 2014-15 of which jute goods earned $757 million, while raw jute export $ 111.53 million. On an average, export declined by 3.11 per cent in last two FYs. Though export of jute goods is increasing, a significant quantity of export comprises traditional items like hessian, sacking, raw jute and jute yarn which notably add less value. High value added jute goods have huge potential as diversified jute products can add value 10 times more than the traditional one.
Demand for diversified jute products (DJP) has been increasing all over the world. Small and medium-sized enterprises (SMEs) are the main suppliers of non-traditional jute goods in the international market. For that reason, competitiveness of SMEs needs to be improved. One of the policies of the government is to provide cash subsidies (10 per cent) against export of DJP by those who have their own jute mills. Some 100 per cent export-oriented DJP exporters, who do not have jute mills, can not enjoy the benefits of cash subsidy and remain uncompetitive.
Over the last decade, demand for jute products in the international market has risen owing to a change in the mindset of consumers who prefer eco-friendly products over synthetic counterparts. Favourable government policies encouraging eco-friendly product usage have further increased the demand for bio-degradable jute products. With availability of quality raw jute, Bangladesh is at an advantageous position to tap the growing market for DJPs.
According to a recent research conducted by the Jute Diversification Promotion Centre (JDPC), there are 133 diversified jute products and approximately 400 DJP producers in Bangladesh who are mainly operating on sub-contract basis for export market. There is no specific statistics to know how much diversified jute products are being exported from Bangladesh because there is no specific harmonised system code (HS code) for most of the jute goods. DJP producers make a wide array of products including shopping bags, hand bags, wine bags, handicrafts, rags and conference bags. Relatively new inclusions are espadrilles, fashion clothing, jewelleries etc. Despite growing demand for new product range, the largest export segment includes different types of jute bags. A study on DJP industry conducted by Katalyst (a five-year project jointly funded by DFID, SDC, Sida, and CIDA1, implemented by Swisscontact and GTZ International Services and works together with the Ministry of Commerce of Bangladesh) has found that majority of DJP producers are small 25 per cent (15-20 employees) and medium-sized 58 per cent (20-30 employees). Employment averages 43 DJP workers per enterprise. The industry also has a social dimension. The production of DJPs is becoming a significant source of income for women.
The DJP's value chain has several key players adding significant value to the end-products. Producers who have their own jute mills wield significant control over the market due to their size and financial power. Jute mill owners normally prefer exporting semi-processed jute for reaping benefits of export incentives rather than selling to local DJPs. Likewise, local DJPs are unable to secure competitive pricing which subsequently hampers their international standing. DJPs normally export to international markets either directly or through buying houses.
The demand for new types of diversified jute products like gardening products, shopping bags, geo-textile, pulp and paper, home textiles, household products, floor covering and non-woven textiles is very high at the consumers' level in the international market due to fast changing consumer behaviour. The international community is willing to import eco-friendly products at even 20-25 per cent higher price and eco-friendly recycling products with recycle logo at 10 per cent higher price. The European Union (EU) will totally ban use of polythene or plastic materials by 2017 because of their adverse impact on environment.
Global market size of jute-made shopping bags will be approximately 500 billion pieces which will require a huge quantity of jute. Considering the adverse impact of synthetics on environment, shopping bags will have tremendous demand. India takes the advantage of the demand for jute shopping bag and exported more than 70 million such bags in 2012-13 against around 1.0 million by Bangladesh. Bangladesh can grab this huge market if there is a proper policy.
Bangladesh has no proper preparation for tapping the market as there is no adequate infrastructure. High-tech jute goods have tremendous demand across the globe. Machineries of jute mills in Bangladesh are 50 years old and most of the plants have no facilities of dyeing and lamination which are essential for producing diversified products. In view of the above, we need to modernise the jute sector and require some policy changes to export more value-added non-traditional products.
As per policy of the government, all benefits are allowed for the deemed exporters as direct exporters, but in practice they are deprived of cash subsidy. Jute mill owners are mostly producing semi-finished products while small DJPs and SMEs are producing decent eye-catching products for international market but they are deprived of cash subsidy. More value-added non-traditional products can be produced if policies are favourable to DJPs and SMEs. Small entrepreneurs are struggling hard and so they need favourable cash subsidy policies. Demand for jute-based high-tech products has been increasing day by day and modernisation of the sector is a must to produce high-tech products.
Business Initiative Leading Development (BUILD) in a policy paper presented on May 03, 2016 at the Metropolitan Chamber of Commerce and Industry (MCCI) raised several points for expansion of DJP exports. Hi-tech jute products would need to be provided with proper incentives and policies. Modernisation of existing plants is one of the time-bound crash programmes that need to be initiated.
The Bangladesh Bank's FE Circular 08, dated July 13, 2015, for payment of cash subsidy on diversified jute products requires enterprises to get a certification from the Bangladesh Jute Mills Association (BJMA) and the Bangladesh Jute Spinners Association (BJSA). The central bank circular also said that the jute manufacturers have to use minimum 75 per cent of jute for their exportable products to be eligible for subsidy. SMEs suggested that membership certification procedures for qualifying exporting jute products should be simplified. The ratio of use of raw jute to avail the cash subsidy against exporting diversified jute products is presently 75 per cent, which should be 40 per cent to 50 per cent so that about 200 SME producers could be benefited.
If deemed export policies are clarified and simplified, backward-linkage SME industries will be benefited. Cash incentives should also be made available for the deemed exporters. There is no mandatory HS code for diversified jute products and for that reason, there is no specific export data of diversified jute products. Specific HS codes for each diversified jute product should be introduced to get export clear information.
There are international market opportunities of jute goods. In order to grab the opportunities, a technical institute for developing professional human resources in this sector is important. Professional design institute with R&D (research and development) facilities for product development is crucial. Hi-tech specialised jute mills for supplying varieties of fabrics to producers of non-traditional jute goods is required.
Jute is an important agricultural item of the country which has long been neglected. On March 06, 2016, Prime Minister Sheikh Hasina declared jute as an agro-based product to provide all related facilities to this sector. A circular/SRO can help formalise the jute sector as an agricultural sector and in the circular, terms and conditions should be clearly spelt out. Jute goods need to be defined clearly in the circular so that this potential sector does not suffer from any misinterpretation and is allowed to make unhindered expansion in exports.
The writer is CEO, Business Initiative Leading Development (BUILD).
© 2017 - All Rights with The Financial Express