The jute industry in Bangladesh has been present since the 1950s, contributing to a major share of the manufacturing sector and employment in the 60s and 70s. In the 1970s, the sector contributed 89.9% of overall exports [2], thus earning the reputation for being the golden fiber of the country.
Today there is a weak demand for jute and related products in the local market of Bangladesh, though the industry has seen a positive growth in the global markets as more consumers seek environmentally friendly products and governments push for greener alternatives to plastics. Unfortunately, a lack of modern production facilities, scarcity of high yield jute seeds at the farmer’s level, and lack of penetration in the global markets have placed bottlenecks in the supply chain, hindering further growth of the industry. Given the instability due to labor strikes and steep losses in recent years for manufacturers, the industry is at a critical point as foreign firms show interest in undertaking joint ventures despite weak governance. If the jute industry isn’t able to capture the newfound opportunity and transform the industry it may continue seeing losses far into the future.
At the moment there are 22 jute mills in the public sector and around 200 in the private sector. In FY18, the country exported jute and related products worth $1.026 bn, up 6.56% from FY17 (Bangladesh Jute Mills Corporation)[1]. Currently 25 million people are dependent on jute and related activities in various levels of production. Despite the government banning polythene bags in 2002 through the Mandatory Jute Packaging Act 2010, polythene bags are still widely used in the local market. The government has been providing jute goods manufacturers a 10% corporate tax rate on export earnings until FY2020, down from 15% in the past and a 0.6% source tax on export proceeds until FY19 [5] the cash incentives have also been increased to 20% for exportable jute product diversification.
FIGURE: Total Export of Jute & Jute Goods / SOURCE: Export Promotion Bureau of Bangladesh
The Jute Fiber
Unlike other fibers, jute fiber is 100% biodegradable, recyclable and can be used for a variety of various textile applications. The fiber is insulating, has moderate moisture retention, high tensile strength and allows for aeration. Major manufactured products from jute fibers include: yarn and twine, sacking, hessian, carpet backing cloth and other textile blends. The fibers can also be woven into curtains, coverings, carpets and blended with other fibers or be used by itself. Byproducts of jute can also be used in other applications making the plant’s wastage near zero.
Bangladesh and India account for 30% and 60% of the world’s production of jute respectively [4]. It’s expected as the demand for natural fibers blends increases, demand for jute and other alternatives will also be on the rise. The EU is also set to ban single use plastic products this year, which is estimated to save $25.6 bn in environmental damage and cleanup costs by 2030[1] further adding to forecasted demand in the future for the commodity. The majority of jute exported is mainly sent to countries in Asia, with a limited penetration into North American, South American and African markets.
Domestic Industry at a Bottleneck
Md Ashikuzzam is a manufacturer of diversified jute products who started his business 6 years ago and had a turnover of over $190,000 in 2018, 99% of which was from domestic sales. And though he aims to become an exporter, associated costs of attending foreign expositions and lack of domestic shows to attract foreign buyers has been preventing him, like many other small entrepreneurs unable to reach foreign markets.
The country also has an opportunity to become a main supplier of jute for the global automotive industry. As of 2018, 12% of the total needs of the global car industry was supplied by Bangladesh, limited by a constantly changing jute export policy by the government and stagnant growth in the industry [10]. Bangladesh began supplying jute fibers for car interiors from the early 2000s, catering to brands like BMW, Mercedes-Benz, Toyota, Renault, Mitsubishi, Volvo, Audi, Daimler Chrysler and Ford. It’s estimated that the country has the potential to export fiber and goods worth $5-7 bn annually up to 2025 [10].
Despite the positive outlook in viewing exports overall, many jute mills face issues with mismanagement, modern facilities, and operational inefficiencies leading to internal strife in the sector. Recently state-owned jute mill workers have been staging protests blocking highways and railways despite the government’s allotment of $118.4 mn for payment of dues which were the main reason behind protests [9]. Last year the ministry was provided around $57 mn according to an insider to pay the wages of state-owned mills workers indicating a high level of irregularities in the public sector despite positive outlooks for exports.
To increase the value of exports, the industry must move towards exporting jute goods with greater value additions such as finished products, which currently makes up a low proportion of total exports. One of the ways it can do this is to set up local expositions showcasing products aimed towards attracting foreign buyers and opening up the market to small entrepreneurs, who at the moment are unable to market their offerings to the greater market abroad. Another step to take is to undertaking joint ventures with large foreign buyers and transferring more efficient production technology. The issues of weak governance of state-owned mills leading to 2 consecutive years of bailouts also need to be adequately addressed in moving forward. If the country is able to tap into its large network of small sized entrepreneurs, transform its state-owned businesses, and bring in a greater number of foreign buyers, particularly from the European market, the jute industry just may be able to reclaim a portion of its past reputation as the country’s golden fiber.
Mohammed Shehab, Junior Associate at LightCastle Partners, has prepared the write-up. For further clarifications, contact here: [email protected]
