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SCP-14
Prospects for the World Jute Industry WBG
M. Elton Thigpen and Takamasa Akiyama
WORLD BANK STAFF COMMODITY WORKING PAPERSNumber 14
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WORLD BANK STAFF COMMODITY WORKING PAPERS
1. The World Tin Economy: An Econometric Analysis (out of print)
2. International Cotton Market Prospects
3. An Econometric Model of the World Rubber Economy
4. Industrial Processing of Natural Resources
5. The World Sugar Economy: An Econometric Analysis of Long-term Developments
6. World Bank Commodity Models (2 volumes)
7. Analysis of the World Coffee Market
8. Analysis of the World Cocoa Market
9. The Outlook for Primary Commodities
10. World Rubber Market Structure and Stabilisation: An Econometric Study
11. The Outlook for Primary Commodities, 1984 to 1995
12. The Outlook for Thermal Coal
13. Jute Supply Response in Bangladesh
WORLD BANK STAFF COMMODITY WORKING PAPERSNumber 14
Prospects for the World Jute Industry
M. Elton Thigpen and Takamasa Akiyama
The World BankWashington, D.C., U.S.A.
Copyright CC 1986The International Bank for Reconstructionand Development / THE WORLD BANK
1818 H Street, N.W.Washington, D.C. 20433, U.S.A.
All rights reservedManufactured in the United States of AmericaFirst printing January 1986
This is a document published informally by the World Bank. In order that theinformation contained in it can be presented with the least possible delay, thetypescript has not been prepared in accordance with the procedures appropriate toformal printed texts, and the World Bank accepts no -, sponsibility for errors. Thepublication is supplied at a token charge to defray part of the cost of manufacture anddistribution.
The World Bank does not accept responsibility for the views expressed herein, whichare those of the author(s) and should not be attributed to the World Bank or to itsaffiliated organizations. The findings, interpretations, and conclusions are the resultsof research supported by the Bank; they do not necessarily represent official policy ofthe Bank. The designations employed, the presentation of material, and any maps usedin this document are solely for the convenience of the reader and do not imply theexpression of any opinion whatsoever on the part of the World Bank or its affiliatesconcerning the legal status of any country, territory, city, area, or of its authorities, orconcerning the delimitation of its boundaries or national affiliation.
The full range of World Bank publications, both free and for sale, is described in theCatalog of Publications; the continuing research program is outlined in Abstracts ofCurrent Studies. Both booklets are updated annually; the most recent edition of each isavailable without charge from the Publications Sales Unit, Department T, The WorldBank, 1818 H Street, N.W, Washington, D.C. 20433, U.S.A., or from the EuropeanOffice of the Bank, 66 avenue d'1lna, 75116 Paris, France.
M. Elton Thigpen and Takamasa Akiyama are economists in the Commodity Studiesand Projections Division of the World Bank.
Library of Congress Cataloging-in-Publication Data
Thigpen, M. Elton, 1932-Prospects for the world jute industry.
(World Bank staff commodity working paper,ISSN 0253-3537 ; no. 14)
Bibliography: p.1. Jute industry. I. Akiyama, T. (Takamasa),
1944- . II. Title. III. Series.HD9156.J7T45 1986 338.4'767713 85-31467ISBN 0-8213-0701-0
- iii -
ABSTRACT
Prospects for the world jute industry to the mid-1990s are analyzedto identify trends likely to follow the confusion in the jute market originat-ing from the 1984/85 fiber supply crisis. These prospects are derived fromanalysis of information obtained from surveys of jute demand in severalcountries and from simulation results from a recently built econometric modelof the world jute economy.
Jute fiber is used primarily as a textile raw material for makingpackaging products, carpets, industrial fabrics and twine. Its main demandbase is derived from the need to package agricultural inputs and produce incountries where storage and distribution to wholesale and retail markets is inpackaged form. Structural changes occurring in the world demand for jute areidentified. Prospects for the expansion of jute consumption for packaginguses in developing countries are fairly bright since the scope for earlychanges to bulk-handling and synthetic substitution are limited.
The rapid loss of markets for jute sacks and bags to bulk handling inthe industrial countries and grain-exporting developing countries during the1970s has about run its course. So have the losses of fabric markets wheresynthetic products held distinct advantages in technical performance or cost.The resulting structural shifts in the regional distribution of consumptionand changes in the product composition of final demand suggest that the growthin world demand for jute to the mid-1990s should be somewhat higher than wasattained during the 1970s and early 1980s.
The sharp output decline in India and Bangladesh in 1984 appears tohave started another price/supply cycle. On past performance it is likelythat the high prices of 1984/85 will lead to large output increases in the1985/86 and 1986/87 harvests causing prices to fall and leading to a period oflow prices and low output in the late 1980s.
- iv -
ACRONYMS AND ABBREVIATIONS
BWD - Bangladesh White Grade D Raw JuteCBC - Carpet Backing ClothCPEs - Centrally Planned Economies of Eastern Europe and USSREPDCS - Economic Analysis and Projections Department
Commodity Studies and Projections Divisionfob - Free On BoardFAO - Food and Agriculture OrganizationGNP - Gross National ProductMT - Metric Tonoz. - ounceP.A. - Per AnnumSq. Yds. - Square YardsUSSR - Union of Soviet Socialist Republic% - Percent$ - United States Dollar
CONVERSION FACTORS
I maund = 37.326 kg1 bale = 18t) kg = 4.822 maunds1 long ton = 1.016 metric ton
TABLE OF CONTENTS
ABSTRACT............................................................ iii
ACRONYMS AND ABBREVIATIONS........ ............. ........................... iv
LIST OF TABLES. ..................................................... vii
LIST OF FIGURES .................. ... viii
I. INTRODUCTION AND SUMMARY ........................ .................... I
II. ASSUMPTIONS IN KEY EXOGENOUS VARIABLES .............................. 6
III. JUTE PRODUCTION: RECENT TRENDS AND PROSPECTS... ..................... 8
Future Prospects for Jute Production........................... 11
IV. WORLD DEMAND FOR JUTE: RECENT TRENDS ............................... 17
V. ANALYSIS OF DEMAND FOR JUTE: BY COUNTRIES AND REGIONS.oO... NS...0..0 26
as B p ndlthesSSR.l a d e sh.. . .. . . . . . . o. . ... oo ... . 43be ondia 44c.ohi ln 45d.oai sa 46e Cia47f. Near Eat48g.ofrc 49h. Latin Amerca..... 50
Brazil ~~~~~~~~~~~~~~~51Cuba ~~~~~~~~~~~~~~~52
Eastern Europe and the USSSSRooo.oooosooooeee 52
Rest of the Worrld. 54
- vi -
TABLE OF CONTENTS
Annex I: AN ECONOMETRIC MODEL FOR THE WORLD JUTE ECONOMY ............... 57
The Demand Block ......... ...... ... 58The Supply Block ......... ...... ... ......... 62Stocks and Prices ................................... O ... 66
Price Linkages CFLTUIO IN ..E WORL .JUT MRE......... 70
Annex II: ANALYSIS OF PRICE FLUCTUATIONS IN THE WORLD JUTE MARKET. T.. 72
REFERENCES: ... ... 00000.0.. 79
- vii -
LIST OF TABLES
Table
Table 1: Average Historical and Projected Jute Consumption and GrowthRates in Major Countries and Regions......**................ 4
Table 2: Major Exogenous Variable Growth Assumptions 1983 to 1995 ..... 7
Table 3: Jute Production in Major Countries ....... . ...... .... 10
Table 4: Average Historical and Projected Jute Production andGrowth Rates in Major Producing Countries*r........ e..*.... 14
Table 5: Jute Fiber and Product Imports 1981-83 and Implied ImportRequirements to Meet Projected Demand in 1993-95.............. 16
Table 6: Jute Goods Production by Type of Products .................... 17
Table 7: Jute Goods Production and Shares by MajorProducing Countries.*.. .. e.......... 18
Table 8: Jute - Apparent Consumption and Shares by Major ConsumingCountries/Regions..o..o.. .......................... .... ..... 20
Table 9: Jute Goods Exports by Origin. ............................. 22
Table 10: Projected Average Jute Consumption 1993-95 Compared toActual Average 1981-83 and Growth Rates 1970-82 and1981-83 to 1993-95 ........ .................... 55
Table 1.1: Elasticities with Regard to the Agricultural ProductionIndex, GNP and Time Trend .... .. .... ....... ............. 60
Table I.2: Short and Long Term Own-Price Elasticitiesof Demand for Jute..................................... 61
Table I.3: Elasticity Relationships between Producer Prices, WorldJute Prices, and Domestic Jute Production........o..o..o.. 70
Table I.4: Elasticity Relationships between the BWD F.O.B. Raw JutePrice and Jute Goods Prices..r. *.*# ............. o. .o. .o.*oo 71
Table 11.1: Indices of Fluctuations in World Jute Productionand Demne...m.............ndooo.s 75
Table II.2: Indices of Supply Fluctuations in Major ProducingCountries and World: 1972-1982 .............................. 75
- viii -
LIST OF TABLES
Table
Table II.3: Deviations of Jute Stocks from their Averages forPeriod 1965/66-1982/83: World, India and Bangladesh......... 76
Table II.4: Correlation Coefficients of the Deviations in Jute Stocksfrom their Averages for the Period 1965/66-1982/83:World, India and Bangladesh. ............ . . . . . .............. . .. ...... 77
LIST OF FIGURES
Figure 1: Jute Production in Major Countries and the World............. 12
Figure I.l: Movements of Calculated World Stocks & the Sum of StocksHeld in India & Bangladesh. . . .. . . . . .. s... . . . . ... . . . . . . . . . . . . . . 68
Figure II.1: Movements of Implied World Stocks & the Real Jute ProducerPrice in Bangladesh ............................. .............. 73
- 1 -
I. INTRODUCTION AND SUMMARY
The world jute economy was severely shocked in 1984 when dry weather
during the sowing period, combined with very serious flooding during the
growing season, reduced jute production in Bangladesh and India to well below
growers' intended levels. The impact of the production shortfall on the jute
market was particularly strong because the stocks accumulated through 1979/80
had been liquidated during the next three years of relatively low prices and
output. As a result, with sharply reduced supplies faced with inelastic
short-term demand, raw jute prices climbed to record levels before export
sales by private traders were banned by the two largest fiber exporting
countries, Bangladesh and Thailand. In view of the ensuing disarray in the
jute market, an assessment of jute's medium and long-term outlook is of
particular importance at this time.
In this paper, prospects for the world jute industry to the mid-1990s
are presented in the light of information obtained from surveys of jute demand
in several countries and from simulation results of an econometric model
recently built at the World Bank. The regional and global prospects are
presented along with a description of the underlying assumptions and an
analysis of their implications. A description of the jute model is contained
in Annex I. Annex II contains an analysis aimed at identifying causes of
instability in the jute economy.
The key jute variables are projected to fluctuate rather widely in
response to the extremely tight supply position reached during 1984/85 and the
resulting record nominal prices. A sharp production decline in both India and
- 2 -
Bangladesh in 1984 thus appears to have started another price/supply cycle. 1/
Typically, the response to current price levels would carry through at least
to the next two crops in the major producing countries. The fiber
supply/demand imbalance in 1983/84 should result in attractive producer prices
for the 1985/86 crop, which should, in turn, encourage grower efforts to pro-
duce a second consecutive large crop in 1986/87. Barring disastrous weather,
large crops during those two years will exceed consumption requirements,
restore stocks and cause prices to fall to more moderate levels. On past per-
formance it would be most unusual, however, if the response of jute production
to the shock of current high prices did not lead to an overshooting of demand,
providing the conditions for another cycle of low prices and production in the
late 1980s. Based on historical levels of response, the simulations indicate
that the accumulation of excess stocks could cause real jute prices to decline
to around $250 per ton by 1988/89. Such a price level would again make jute
growing less attractive relative to rice and reduce jute production. Barring
further weather-induced shocks, the simulations indicate that the cyclical
movements should continue, with another real price peak of around $400 per ton
in 1991/92. The long-run average real prices necessary to stimulate production
to the level of projected demand appears to be around $300-$330 per ton, in
terms of 1984 US dollars, basis BWD, f.o.b. Bangladesh.
There are promising prospects that world demand for jute will grow
faster over the next decade than the rate achieved during 1970-82, due to
structural shifts in the regional distribution of consumption and changes in
1/ As discussed in detail in Annex II, world jute price fluctuations aremainly caused by supply fluctuations in Bangladesh and India.
- 3 -
the product composition of final demand in the industrial countries. Even so,
the direction of trends is expected to change in only a few countries/regions.
The expectation for improved growth in jute consumption derives from the
circumstances which resulted in jute's sharp losses during the 1970s having
about run their course. For example, the technical performance and cost
advantages of synthetic substitutes for jute primary carpet backing for tufted
carpets and for cotton bale covers under United States trading conditions have
reduced jute's share of these uses to only marginal proportions. On the other
hand, jute's outstanding performance in secondary carpet backing has increased
the share of this product in the total demand for jute in the industrial
countries and the expected future growth of secondary carpet backing should
offset some of the further decline expected in the use of other jute products-
-moderating the rate of decline in overall jute consumption in North America,
Western Europe and Japan.
The other major cause of erosion in jute demand in recent years was
the rapid adoption of bulk-handling methods for grains and materials formerly
packaged in jute bags. This transition is virtually complete in the industrial
countries and in the major grain-exporting developing countries. Growth in
demand for jute sacking and wrapping fabrics is still favorable in the jute-
producing countries and in the agricultural producing countries where storage
and distribution to wholesale and retail markets is in packaged form. Con-
sidering these changes in the geographical distribution and product
composition of jute consumption, world demand is projected to grow at an
average of 1.4% per year from 1981-83 to 1993-95 compared to 0.9% per year in
the 1970-82 period (Table 1).
- 4 -
Table 1: AVERAGE HISTORICAL AND PROJECTED JUTE CONSUMPTION ANDGROWTH RATES IN MAJOR COUNTRIES AND REGIONS
Countries/ ConsunpLtion Growth RatesRegions 1969-71 1981-83 1989-91 1993-95 1981-83 TO
1970-82 1993-95
---------('000 tons) --------- ---(% per annum)---
Source: Historical Data, FAO; Projections, Economic Analysis and ProjectionsDepartment, World Bank.
The projected increase in demand for jute is seen to be largely
generated by the need to package agricultural inputs and produce in the jute-
producing countries, as well as Pakistan and the USSR. India and China are
expected to account for most of the projected increase in demand for jute.
Increases in domestic production should be enough to meet their demand growth
leaving combined annual export supply at around 200-300,000 tons.
Simulation results from the jute model indicate that Bangladesh will
be next in importance to India in meeting the projected increase in world
demand for jute. A comparison of the jute production and consumption projec-
tions indicates that most of the increase in production in Bangladesh will be
available for export as fiber and manufactured products. Export supplies (both
fiber and manufactured products) from Bangladesh during the mid-1990s are
projected to rise to around one million tons per year.
World import requirements in the mid-1990s are expected to total
around 1.1 million tons of jute goods (fiber equivalent) and over 400,000 tons
of jute fiber. The estimated volumes of imports of hessian, sacking, carpet
backing and fiber required by each region are presented in Table 5. The
product break-down is based on past trends, expected further shifts in market
requirements and continuation of import policies that discriminate against
trade in manufactured products. In general, carpet backing is expected to
account for an increasing share of jute requirements in the industrial
countries. Many developing countries could meet their jute product require-
ments at lower cost by importing manufactured goods, but such a shift is being
discouraged by escalating tariff structures.
-6-
II. ASSUMPTIONS ON KEY EXOGENOUS VARIABLES
Some of the key variables that impact on the jute economy and assump-
tions regarding their growth prospects to the mid-1990s are presented in
Table 2.
Among these exogenous, variables the polypropylene resin price is the
most important one in terms of its impact on the jute market. Polyolefin
plastics, mainly polypropylene and polyethylene, challenge jute products for
market share in each major jute end-use. Polypropylene is the single most
important synthetic substitute for jute. It is a product of the petrochemical
industry, its resin form being derived by the polymerization of propylene. The
derivation of its feedstock from the petroleum and gas industries links its
prospects to the outlook for these industries. Polypropylene's potential com-
petitiveness is also greatly influenced by recent technical developments in
manufacturing processes and the third generation of catalysts. These cost-
efficient processes and materials are being rapidly adopted and will add to
the near-term weakness of feedstock costs to keep polypropylene substitute
products highly cost-competitive with jute goods. The assumption in the model
is that the real prices of the synthetic resin and products will remain at the
1984 level in the projection period. The impact of anticipated higher feed-
stock costs on real prices of resin and products in the first half of the
1990s is expected to be fully offset by the industry-wide adoption of the new
process technologies.
The model-generated projections of jute demand and real prices take
into account this competition from synthetic substitutes. The competition
between jute and polypropylene has been most severe in the industrial and
grain-exporting developing countries and jute consumption is projected to
continue declining in those regions, although at a slower rate than in the
-7 -
1970s. In most developing countries the demand base for jute products is the
production of packagable agricultural commodities. The jute consumption
projections for developing countries, except for India and Pakistan, reflect
growth rates slower than anticipated agricultural output, reflecting addi-
tional use of synthetic substitutes and modest increases in bulk handling
facilities. In India and Pakistan jute sacking is used for industrial as well
as agricultural packaging and the industrial area is where the greatest losses
to synthetic competition are anticipated. Although jute demand in those two
countries are projected to increase at about the same pace as agricultural
production, the loss of market share in industrial packaging will reduce jute
demand growth well below the rate achieved during the 1970s.
The nature of the competition from synthetics suggest that viable
marketing strategies for jute should place strong emphasis upon enhancing the
quality of jute goods, adapting jute products to meet specific end uses,
increasing the efficiency of jute manufacturing and marketing in order to
strengthen jute's price competitiveness and searching for new properties in
jute products that can be applied to new end-uses.
Table 2: MAJOR EXOGENOUS VARIABLE GROWTH ASSUMPTIONS 1983 TO 1995
Variable Percentage Change Per YearReal Prices:
Polypropylene Resin US and Western Europe 1983-95 0.00Polypropylene Fabrics which substitute 1983-95 0.00for Jute Hessian
Agricultural Production Indices 1983-1995Africa 2.00Bangladesh 3.20India 2.50Pakistan 3.25
Gross National ProductUnited States 1983-89 2.80
1990-95 3.00
Source: Economic Analysis and Projections Department, World Bank.
- 8 -
III. JUTE PRODUCTION: RECENT TRENDS AND PROSPECTS
Jute 1/ has been grown in Bengal and other areas for centuries. It is
an annual plant which grows best in hot, damp climates. It requires relatively
large amounts of agricultural labor for cultivation and industrial labor for
processing into a variety of products. The jute plant contains a bast fiber
that is separated from the stem and bark after retting in water. Although over
30 species are known, only two, Corchorus capsularis (white jute) and
Corchorus olitorius (tossa jute) are widely grown.
Jute production is centered in Asia, with the four major producing
countries--Bangladesh, China, India and Thailand--accounting for 92% of world
output during 1981-83. Another 2% of world output was in Latin America,
mostly in Brazil. In South Asia, jute is produced mainly by subsistence
farmers as a cash crop in competition for land with food crops, primarily rice
(paddy). The acreage devoted to jute cultivation is quite responsive to
changes in relative prices of jute and paddy at the farm level and, hence, to
each crop's expected contribution to net profitability of the farm operation.
In addition to relatively large shifts in jute acreage, year-to-year
variations in production are also caused by changes in yields due to seasonal
differences in growing conditions. Both flooding and, to a lesser extent,
drought are hazards to jute growing. The quality of jute fiber is also
strongly influenced by the availability and quality of retting water used to
prepare the plant for separation of the fiber from the stem and bark. Jute
I/ In this report, jute includes similar fibers such as kenaf (grownprincipally in Thailand), malva (grown in Brazil) and mesta (grown inBangladesh and India) which are used mainly in the manufacture of sacksand bags.
-9-
sticks--the wood stem from which the fiber is separated--are about twice the
weight of the fiber. Historically, jute sticks have been used for such
household purposes as firewood, fencing and roofing and were of substantially
lower value than the fiber. More recently, jute sticks have been a source of
wood fiber for making paper. This use, combined with the increasing scarcity
of firewood in producing areas, has raised the value of sticks relative to the
value of the fiber.
Although jute production is concentrated in a few countries, crop
developments in these countries have been diverse. Prior to the 1950s, more
than half of the world's supply was produced in the area now constituting
Bangladesh and nearly one-third was grown in India. At that time Indian mills,
concentrated in the Calcutta area, accounted for about one-half of world
consumption and mills in Western Europe accounted for about one-fifth of the
total. The expansion of jute production from the mid-1950s to the mid-1960s
centered on the efforts made by India to achieve self-sufficiency in produc-
tion and on the emergence of Thailand as an important exporter of fiber.
Average yields remained stagnant during that period and nearly aLl the
expansion in production resulted from increased jute acreage. World production
of jute grew very slowly (0.4X per annum) over the period 1961-82, despite a
surge in production in China (Table 3). I/
1/ Caution is indicated since Chinese production estimates are derived fromcombined production statistics for jute and ambry hemp.
/a Aggregate production in Bangladesh, Burma, India, Nepal, Pakistan andThailand.
/b Includes canvas, tarpaulin, carpet yarns, webbing, twine and the like.
Source: FAO, Intergovernmental Group on Jute, Kenaf and Allied Fibers, TheStatistical Situation, various issues, and FAO, Jute, Kenaf andAllied Fibers, Quarterly Statistics, March 1985.
- 18 -
Jute manufacturing is concentrated in the jute-producing countries
and their dominance has increased during the last two decades (Table 7). The
four largest producer-manufacturers of jute--Bangladesh, China, India and
Thailand--increased their share of world jute goods output from 60% in 1962-64
to 82% in 1981-83. Jute goods production in Bangladesh increased from an
average of 299,000 tons during 1962-64 to an average of 620,000 tons during
1981-83, raising its share of world output from 9% to 18%. At the same time,
Thailand's production of manufactured jute/kenaf products increased by over
seven-fold to 202,000 tons and its world market share increased from 1% to 6%.
Jute manufacturing capacity in Western Europe experienced severe erosion from
the early 1960s and their product output fell from 479,000 tons in 1962-64 to
78,000 tons in 1981-83. Consequently, Western Europe's share of the world jute
goods output fell from 15% in the early 1960s to 2% in the early 1980s.
Table 7: JUTE GOODS PRODUCTION AND SHARES BY MAJOR PRODUCING COUNTRIES
Source: FAO, Intergovernmental Group on Jute, Kenaf and Allied Fibers, TheStatistical Situation, various issues and FAO, Jute, Kenaf and AlliedFibers, Quarterly Statistics, September 1984.
- 19 -
World apparent consumption of jute increased at a reduced annual rate
of about 0.9% during the 1970s compared to a rate of 2.6% per annum in the
1960s. During the last two decades, the fastest growth in apparent consumption
of jute occurred in the two largest jute-producing countries--China and India-
-and in Pakistan, a jute-importing country. Developing countries in the Near
East 1/ and the Far East increased their share of world apparent consumption
of jute from 40% in 1964-66 to 65% in 1981-83 (Table 8). While jute consump-
tion in the Near East and Far East combined increased from an annual average
of nearly 1.4 million tons during 1964-66 to 2.3 million tons in 1981-83,
apparent consumption actually declined in the remainder of Africa and Latin
America. Jute consumption also declined in Eastern Europe, where the tendency
was to replace worn-out jute manufacturing facilities with plants producing
synthetic substitutes. Apparent consumption of jute in the USSR increased at
more than twice the global growth rate during the last two decades, raising
the USSR and Eastern Europe's combined share of world consumption by 2
percentage points to 8.9%. The major losses in jute markets were in the
industrial countries where the competition from synthetic materials, paper
bags, and other developments in packaging and transport systems reduced
average annual jute consumption from 1.3 million tons in 1964-66 to 580,000
tons in 1981-83.
1/ Near East includes Egypt, Libya and Sudan along with the countries in WestAsia.
- 20 -
Table 8: JUTE - APPARENT CONSUMPTION AND SHARES BY MAJOR CONSUMINGCOUNTRIES/REGIONS
Rest of North America - - -10.0**Western Europe - - -8.5**Japan _ _ -4.4**Australia 3.26** - -6.3Eastern Europe and USSR 0.32* /b - -------------------------------------------------------------------------- __--_
/a Trend expressed in terms of % per annum for the period 1977-1982.
/b Grain production index.
Note: ** = Significant at the 95% level.* = Significant at the 90% level.
Source: EPDCS.
Some caution is required in interpreting the estimated price elasti-
cities. Statistically, it was not possible to distinguish between long-term
price effects and secular trends (which was proxied by a time trend variable).
The long-term declining trends in consumption observed in many markets (see
Table I.2) could have well been due to long-term price responses. Thus, for
most markets, only the short-term price effects were identified. In some
markets, e.g., in North America, where data are considered to be more
reliable, significant short-term as well as long-term price effects were
- 61 -
captured by regression equations. Therefore, the long-term price elasticities
in markets other than in North American and Cuba could be higher than those
given in Table I.2. However, as projections have been made by combining price
and trend effects, this should not cause serious problems in projecting demand
in these markets.
Table I.2: Short and Long Term Own-Price Elasticities of Demand for Jute
ElasticitiesShort Term Long Term
India -0.34**Bangladesh -0.37**Thailand -0.83**Africa -0.24** -0.47**Japan -0.18** -0.35**Cuba -0.72** -2.05**United States
Rest of North America 0.00 -0.22Australia -0.34** -Eastern Europe and USSR -0.19*Pakistan -0.02 -0.32**Western Europe -0.11** -0.44**Near East -0.33**Rest-of-World -0.50** -
World -0.31 -0.44
Note: ** = Significant at the 95X level.* = Significant at the 90% level.
Source: EPDCS.
- 62 -
In addit:ion to the use of price and economic activity variables as
explanations of dlemand, a time trend was used as an explanatory variable to
proxy technological developments in several markets. Such developments were
prevalent in the markets of US primary carpet backing, hessian and sacking in
North America, Japan, Western Europe and to a lesser degree in Africa and
Australia. The major technological development in these markets in the past
two decades, which reduced jute demand sharply, was the bulk-handling of
commodities formerly packaged in jute sacks. However, we believe that this
technological development had run its course in the industrial countries by
the early 1980s and we doubt the past trend will continue. For example, jute
demand, which declined substantially in Japan and Western Europe up to the
late 1970s, has shown stability since. Thus, in the forecasting exercises with
the model, qualitative judgments have been used to reduce the rate of time-
trend decline in many of the demand equations.
Demand equations for China and Brazil are treated differently from
the others. In these countries, most of production is consumed domestically
and there is little trade. Thus, the main explanatory variable in the demand
equations for these countries is their jute production.
The Supply Block
Jute supply equations were estimated for Bangladesh, India, Thailand,
Nepal, Burma, China and the Rest-of-World. Detailed discussion of the supply
response in BangLadesh is given in the paper "Jute Supply Response in
Bangladesh". L/ The model uses equations (2) and (4) given in that paper for
1/ World Bank Commodity Staff Working Paper, No. 13, 1985.
- 63 -
the acreage and yield determination in Bangladesh, respectively. For India,
Table II.4: CORRELATION COEFFICIENTS OF THE DEVIATIONS IN JUTE STOCKS FROMTHEIR AVERAGES FOR THE PERIOD 1965/66-1982/83: WORLD, INDIA AND BANGLADESH
World India Bangladesh
World 1.00India 0.896 1.00Bangladesh 0.845 0.808 1.00
Source: EPDCS.
Tables II.3 and II.4 illustrate a few interesting characteristics of
jute market fluctuations: (i) periods of two to four years of over-supply are
followed by periods of three to four years of under-supply; (ii) the magnitude
of the world peak over-supply and under-supply is in the range of 450,000 -
680,000 mt; (iii) the fluctuations in stocks held in India are at least as
important as those of Bangladesh in their influence on fluctuations in world
stocks; and (iv) there is significant synchronization of over-supply and
under-supply between India and Bangladesh. These characteristics suggest that
if a buffer stock scheme were chosen as a price/supply stabilization measure,
a buffer stock of at least 450,000 mt would be required, and the average
holding time of stocks, that is from accumulation to release or vice versa, is
likely to be about 5 years.
Simulations were made using the world jute econometric model to
evaluate the impact of factors such as weather and rice prices on jute
price/supply fluctuations. The impact from these sources was rather small and
- 78 -
short-lived exciept in 1975, a time after Bangladesh had experienced three
consecutive years of flooding and a year of extremely high rice prices. I/
The analysis of jute price/supply fluctuations above suggests that
the main cause of world price/supply fluctuations are the production
fluctuations in India and Bangladesh; their impact is amplified by the strong
correlation between production in these two countries. The statistical
analysis indicates that if a buffer stock scheme were to be implemented to
stabilize prices it would have to have financial resources sufficient to
maintain stocks of at least 450,000 mt and to maintain that amount over a
period of 4 to 6 years. 2/
1/ The floods in the summer of 1984 would have had an important impactconsidering l:hat the damage was by far the biggest in the last 15 yearsand it occurred at a time when world stocks were at a very low level.
2/ This assumes no changes in stocking behavior by those who held stocks inthe past once a buffer stock scheme comes into operation. It is likelythat those who held stocks in the past would hold less stocks when thebuffer stock scheme is in operation. In this case the amount required tobe held by thie buffer stock scheme would be more than 450,000 mt.
- 79 -
REFERENCES
Sadiq Ahmed, "Should Bangladesh Participate in an International BufferStocking Arrangement for Raw Jute?" in The Bangladesh Development Studies,Vol. VI, No. 1, Winter 1978.
Takamasa Akiyama, "Jute Supply Response in Bangladesh," World Bank StaffCommodity Working Paper, No. 13, 1985.
Jock Anderson, Charles Blitzer, Tom Cauchois and Enzo R. Crilli, A DynamicSimulation Model of the World Jute Economy, World Bank Staff Working PaperNo. 391, Revised (Washington, December 1980).
Hossein Askari and John Thomas Cummings, Agricultural Supply Response: ASurvey of the Econometric Evidence (New York, Praeger, 1976), Chapter 6.
Ralph Clark, "The Economic Determinants of Jute Production," in FAO MonthlyBulletin of Agricultural Economics and Statistics, Vol. 3, September 1957.
John Thomas Cummings, "The Supply Responsiveness of Bangalee Rice and CashCrop Cultivation," in The Bangladesh Development Studies, Vol. II, No. 4,October 1974.
Enzo R. Grilli and Ralph H. Morrison, Jute and the Synthetics, World BankStaff Working Paper No. 171 (Washington, January 1974).
Sayeedul Haque, "Jute Price Stabilization and Resource Allocation between Juteand Rice in East Pakistan," in Pakistan Economic Journal, Vol. XIX,1968/69, No. 2.
Mustafa K. Mujeri "An Econometric Model Simulation of the World Jute Market,"in The Bangladesh Development Studies, Vol. VII, No. 4, Autumn 1979.
Sultan H. Rahman, "Economic Analysis of Public Stocks Policies in theBangladesh Jute Sector" Stanford University, 1982. Ph.D. Dissertation.
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