RAW JUTE PRICE STABILISATION

MECHANISM IN INDIA

Fluctuation in Fluctuation in priceprice and and

availability of raw availability of raw jute is the single jute is the single important factor important factor affecting the jute affecting the jute

economy.economy.

FLUCTUATION IN PRICE OF RAW JUTE DURING THE LAST TEN JUTE SEASONS

Average Kolkata Landed Price for TD-5 Ex Other States

Year1998-99

1999-2000

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

Maximum 1135 1110 1780 1670 990 1050 1680 1570 1575 1510

Minimum 725 860 800 920 810 815 975 1200 1090 1130

(Fig in Rs. / Qtl)

0

500

1000

1500

2000

1998-99

1999-2000

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

Year

Pri

ce

s Maximum

Minimum

PRODUCTION OF RAW JUTE / MESTA (KENAF) FOR THE LAST TEN JUTE SEASONS

Figure in lakh bales of 180 kgs

Year 1998-99

1999 -2000

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

Production 83 78 90 105 110 90 75 85 100 97

0

20

40

60

80

100

120

1998-99

1999-2000

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

Year

Val

ue Production in lakh bales

ANALYSIS OF THE REASONS FOR FLUCTUATION IN RAW JUTE PRICES AND

PRODUCTION

Two major forces are responsible:

1) Price received by the farmers during last jute season

2) Weather Condition at the time of sowing

(-)Un-favourableDedicate less

area for cultivation

(+)Favourable

Dedicate more area for

cultivation

(-)Un-favourable

Dedicate less area for cultivation / Productivity per unit area decreases

(+)Favourable

Dedicate more area for cultivation / Productivity per unit area increases

Raw jute price / production fluctuation matrix

(Good / Favourable)

Bumper Crop

(Bad / Favourable)

Uncertain

(Bad / Favourable)

Uncertain

(Bad / Un-favourable)

Short Crop

Good Bad

Price received by the farmers during last jute season

Good Bad

Fav

oura

ble

Un-

favo

urab

leU

n-favourableF

avourableW

ea

the

r C

on

dit

ion

at

the

tim

e o

f s

ow

ing

fa

vo

ura

ble

Most jute season witness either one of the two scenarios

Scenario Resultant Effect

Bumper Crop Distress sale. Growers losing impetus to grow jute.

Short Crop Unduly high price (mostly at the later part of the season). Adversely affecting Manufacturer’s profitability and competitiveness of jute products.

Governmental Mechanism for raw

jute price stabilisation

Announcement and administration of Minimum Support Price

Announcement of Minimum Support Price is a three-step procedure :

1) Keeping in view all the relevant factors, the Commission for Agricultural Cost and Prices (CACP) recommends the Minimum Support Price of TD-5 grade of jute ex-Assam.

Variables Considered For Calculation of MSP

Cost of Cultivation Productivity per unit area Wage rate for agriculture labours Prices of farm inputs Annual Inflation Rate Price of Jute Goods Price parity with other crops Anticipated market price Emerging supply demand situation Views of different stakeholders regarding MSP Views of Govt. Agencies regarding MSP

2) Based on such recommendation of CACP, Govt. of India fixes the Minimum

Support Price for TD-5 grade of jute ex-Assam. (Reference Price)

Year 1999 -2000

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

TD-5 basis MSP ex-Assam (Rs,/Qtl)

750 785 810 850 860 890 910 1000 1055 1250

R

0

200

400

600

800

1000

1200

1400

1999 -2000

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

Year

Va

lue

Rs. / Qtl. On TD-5 basis

3) The corresponding Minimum Support Price for other varieties and grades of raw jute across locations are fixed by the Office of the Jute Commissioner, Kolkata.

States Districts Variety Grades

TD1 TD2 TD3 TD4 TD5 TD6 TD7 TD8

W1 W2 W3 W4 W5 W6 W7 W8

Northern TD2 + 70

TD3 + 70

TD4 + 140

TD5 +100

REF TD5 – 70

TD6 – 90

TD7 – 145

Others TD2 + 70

TD3 + 70

TD4 + 120

TD5 + 70

REF TD5 – 70

TD6 – 90

TD7 –145

Assam and Meghalaya

All Districts

Tossa 1630 1560 1490 1350 1250 1180 1090 945

White 1580 1510 1440 1300 1200 1130 1040 895

Rs. 685 per Qtl.

While calculating the Minimum Price for other varieties and grades incentive is given to the growers for producing grades 4 and above which are in short supply in the Country.

The derivative minimum price of raw jute for different varieties / grades in baled condition landed Kolkata are then

calculated

Minimum Support Price of raw jute (in loose condition) Rs. 1250.00 per Qtl.

+

+

+

+

+

+

Assortment / baling / handling cost

Insurance

Interest

Freight to KolkataRs. 393.00 per Qtl.

Other incidental charges

Taxes and levies

Derivative Minimum Support Price in baled condition landed Kolkata = Rs. 1643.00 per Qtl

(TD5 ex-Assamfor 2008-09)

Administering the Minimum Support Price

Jute Corporation of India (JCI) is acting as the Central Nodal Agency to undertake the Minimum Support Price operation.

JCI in association with its agent Corporative, siphon the marketable surplus for arresting the downward trend in raw jute price.

The jute / mesta procured by JCI / Corporative under MSP Operation is sold to the Mills in a staggered manner through out the jute season against B. Twill linked sale arrangement.

Thus the MSP Operation helps in stabilising raw jute prices and ensures safe guarding the interest of both the jute growers as also the end users.

Procurement by JCI / Cooperative during last 10 years

(Figure in ‘000 bales of 180 kgs)

Year1998-

991999-2000

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

Procurement underPrice support / (Commercial)Operation

54 107 463 246 1314 1118 352 140 483 755

0

200

400

600

800

1000

1200

1400

1998-99

1999-2000

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

Year

Va

lue

Procurement in '000bales

Creation of a Buffer Stock, both on intra-seasonal and inter-seasonal basis, may bring out stability in price of raw jute.

The successful operation of the scheme, on a long term, should even out seasonal fluctuation in price and supply of raw jute to the benefit of the growers of raw jute and its end users.

The Commission for Agriculture Cost and Prices (CACP) in their recommendation on price policy on Raw Jute has recommended utilisation of this means for stabilisation in raw jute prices.

Another means for stabilisation of raw jute price through Governmental effort

Extra governmental mechanism for stabilisation of

raw jute prices.

Farmer - End user Partnership Farmer - End user Partnership Approach in Raw Jute Approach in Raw Jute

Agriculture and MarketingAgriculture and Marketing

Creating a role for the Jute Mills in Agriculture Development / Extension

and Direct Marketing in Raw Jute

• Small and marginal growers with low bargaining Small and marginal growers with low bargaining power.power.• Reluctance to adopt new farming technologies.Reluctance to adopt new farming technologies.• Inadequate Institutional credit facility.Inadequate Institutional credit facility.• Gap between producers andGap between producers and consumersconsumers bridged by a chain of middlemen.bridged by a chain of middlemen.• Imperfection in marketing structure.Imperfection in marketing structure.

Some basic reasons why jute / kenaf farmers are deprived of a remunerative

price

Need to forge a direct linkage Need to forge a direct linkage between the End-user (Jute between the End-user (Jute Mills) and FarmersMills) and Farmers

Identify an appropriate System/ Model for Farmer End-user Partnership Approach

3 Models which met with 3 Models which met with remarkable successremarkable success

ESSENTIALLY :• Manufacturer's/end-users engage

the farmer to plant the crop on his land.

• Manufacturer / end-users supply farmer with selected inputs.

• Harvest and deliver to the Manufacturer / end-users .

• Delivery may be / may not be at a predetermined price.

Model 1: Hindustan Lever Limited (HLL), Rallis & ICICI Model of Wheat Farming in M. P.

AgencyAgency Service ProvidedService Provided Benefit accruedBenefit accrued

RallisRallis Agro- inputs and Agro- inputs and know howknow how

Assured Clientele of Assured Clientele of Products and Products and ServicesServices

ICICIICICI Financing farm Financing farm creditcredit

Assured Clientele of Assured Clientele of Products and Products and ServicesServices

Hindustan Hindustan Lever Limited Lever Limited (HLL)(HLL)

Buy back Buy back Arrangement for Arrangement for farm output.farm output.

Supply Chain Supply Chain efficiencyefficiency

The consortium is also planning to rope other specialist partners The consortium is also planning to rope other specialist partners including insurance, equipment and storage companies.including insurance, equipment and storage companies.

Model 2:PepsiCo Model for Tomato Model 2:PepsiCo Model for Tomato Farming in PunjabFarming in Punjab

• Focused on developing Region and Product Focused on developing Region and Product specific research and extension services specific research and extension services through Punjab Agricultural University (PAU) through Punjab Agricultural University (PAU) and Punjab Agro Industries Corporation and Punjab Agro Industries Corporation Limited (PAIC).Limited (PAIC).

• Encouraged by sweeping success in Tomato Encouraged by sweeping success in Tomato Farming (14- 52 tons / ha), emulated the Farming (14- 52 tons / ha), emulated the model in food grains (Basmati Rice), Spices model in food grains (Basmati Rice), Spices (Chillies), oil seeds (Groundnut) and Potato.(Chillies), oil seeds (Groundnut) and Potato.

Model 3: Integrated Cotton Model 3: Integrated Cotton Cultivation (ICC) Model of Appachi Cultivation (ICC) Model of Appachi

Cotton Company (ACC) Cotton Company (ACC) (Coimbatore Dist. of Tamil Nadu)(Coimbatore Dist. of Tamil Nadu)

• In• Formation of farmers’ Self Help Formation of farmers’ Self Help Groups Groups

• Crop loan.Crop loan.

• Easy availability of quality seeds, Easy availability of quality seeds, fertilizers fertilizers

and pesticides at discounted rate. and pesticides at discounted rate.

• Expert advise and field Expert advise and field supervision supervision

• Unique selling option (no prior Unique selling option (no prior price fixing).price fixing).

Key Learning ExperienceKey Learning Experience

• Extension service teamExtension service team– locally drawn locally drawn – user friendly.user friendly.– available at farmers’ callavailable at farmers’ call

• Never offer any commercially untested technology.

• Ensure availability of adequate and appropriate inputs.Ensure availability of adequate and appropriate inputs.

• Agriculture implements offered free to growersAgriculture implements offered free to growers– an investment that yields long term benefitan investment that yields long term benefit

• Preferably no pre fixed prices- no climate of uncertainty.Preferably no pre fixed prices- no climate of uncertainty.

• Timely payment to the farmer is a priorityTimely payment to the farmer is a priority

Formulation of a model for Farmer End-Formulation of a model for Farmer End-user partnership approach in Jute user partnership approach in Jute

Agriculture and MarketingAgriculture and Marketing

Key principlesKey principles:

• A nodal officer to implement and monitor. A nodal officer to implement and monitor. • The participating farmers to form SHGs.The participating farmers to form SHGs.• A MoU between the Mill Co and the SHG (s) A MoU between the Mill Co and the SHG (s) • Involvement of local agencies. Involvement of local agencies. • One village –one variety of jute seed.One village –one variety of jute seed.• Supply of timely and quality farm inputs on credit.Supply of timely and quality farm inputs on credit.• Synchronized sowing.Synchronized sowing.• Supply of agriculture implements free of cost Supply of agriculture implements free of cost • Integrated crop management Integrated crop management • Payment at a price acceptable to farmers’.Payment at a price acceptable to farmers’.

R & D Activities:

Evaluation of location specific varieties. Blue print for agriculture practices to suit local conditions, intellectual and finance means of the farmer Demonstration farming

Technology Transfer :

• Selection and training of extension service team• Farmer education programme• Field trial at farmer field - Multi locational crop timing

Commercialisation:

• Land preparation and Planting• Crop monitoring and Crop Management• Harvesting, procurement and transportation• Prompt farmer payment system

Building Steps for the Building Steps for the ModelModel

How the Model would benefit

FarmerFarmer End- user (Mill Company)End- user (Mill Company)

Seed money for farming.Seed money for farming.Exposure to mechanised Exposure to mechanised

agro technology. agro technology. Crop monitoring and Crop monitoring and

technical advice on a technical advice on a

regular basis - Free of Cost.regular basis - Free of Cost.Supply of farm inputs.Supply of farm inputs.Supply of free AgriculturalSupply of free Agricultural

ImplementsImplementsAssured market outlet of Assured market outlet of

produce.produce.

Uninterrupted andUninterrupted and

regular flow of rawregular flow of raw

material.material.

Long term planningLong term planning

made possible.made possible.

Dedicated supplier Dedicated supplier base.base.

Generates good will for Generates good will for the organization.the organization.

• Shift from prices to return per acre – Shift from prices to return per acre – Productivity increases.Productivity increases.

• Promote long term planning and Promote long term planning and investment.investment.

• Build up a long lasting relationship of Build up a long lasting relationship of trust and dependence between the jute trust and dependence between the jute farmers and the end-users. farmers and the end-users.

Ultimate goal

The Model can sustain in The Model can sustain in the long run only if the the long run only if the

initiative / empowerment initiative / empowerment comes from the farmers’ comes from the farmers’

rather than the rather than the participating Mill.participating Mill.

FARMER END USER PARTNERSHIP APROACH VERSUS PRICE SUPPORT MECHANISM

Farmer end-user partnership approach

Price Support Mechanism

Planting Material Supplies Technology Transfer Assured Price Assured Quantity Free Equipment Partnership Approach Builds Commitment Long Term

None None Minimum Guaranteed No Assured Quantity No Free Equipment Avail only when beneficial No Commitment Short Term

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