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Let the market determine ’fair’ price for jute
Recently a group of members of the Bangladesh Private Jute Mills Association met the Prime Minister. They appealed for government initiative to finance jute purchase from the growers.
Perhaps they had a softer hearing of their case from the Prime Minister than the Ministry of Finance. They met stubborn resls lance from the Ministry towards suggestion of any kind of subsidised finance or government Involvement In the matter. The Finance Ministry was tough with the fund seekers not because It did not want Jute purchase It was tough because the banks which offered loans earlier for the purchase of jute did not get their money back. Il did not want Io obligate them further with yet another directive for the same purpose.
In the past a lot of politics was done with Jute, mostly tn the name of fair' price to the growers II seems that the passion of the politicians for fair price of Jute has now re ceded and the Jute purchasers themselves have taken up that role
What Is a fair price after all? If It la under stood properly, 11 perhaps means the price which covers the coat of production Now who will ensure this price to the growers' Uws of economics say the demand in a market econ omy will automatically ensure this price (or even more), provided jute has the compensat Ing utility or can fetch commensuratlng return. If market conditions do not ensure such a fair price, it will mean an outright loss growers which the clamour — mongering jute pur chasers wanting to fill through government s help.
If the government yields to this type of appeal. It will mean conceding subsidy to the jute purchase. But this economy cannot afford fur ther subsidy to a sector which has already lost Its Inherent capacity at least In this form, to withstand competition from outside
Once jute fetched us a lot of money from abroad Now 11 can hardly cover the amount that is spent in Its purchase
The glory of Jute was lost for two reasons: first, cheaper alternative fabrics emerged in the world market and second, we could not manage our jute sector welt Cost of production of our jute rose along with uncertainty for the foreign buyers, who overtime turned to the substitutes.
Many of our jute mills are simply not viable Von strict economic sense. Loss incurred by the
public sector jute mills is understandable, but why the private Jute mills are also following the trend is incomprehensible.
If their mills cannot go by the laws of economics. then they should simply close down their units. Arguments that this will result In loss of employment or foreign exchange do not stand the test of economic reasoning
In economics, an enterprise to be commercially viable must atleast cover the variable cost, which comprises of wages to labour and staff and cost of raw materials The way Jute mills owners are approaching the government, it seems this economic criterion Is not being met by their Jute mills. If this is the case, then to keep them running would mean subsidising them. Both the owners and government should think twice before taking any decision to this effect.
The owners of the jute mills can benefit from subsidised funds at the government s directive. But the question Is what the nation wtll get out of this, excepting loss.
tn the past the government owned banks pumped hundreds of crores of taka for purchase of Jute mostly through government owned agencies like Bangladesh Jute Corporation (BJC) and Bangladesh Jute Mills Corporation (BJMC) A lion s share of that money remained unrecovered, and now has turned Into bad debt. The banks are to fill the gap either by borrowing from Bangladesh Bank or by showing reduced operational profit
The same banks can not be told again to finance Jute purr base They will, however, come forward if the central bank guarantees refinance of the amount they provide to the Jute purchasers It Bangladesh Bank does offer such a guarantee. It will simply break monetary dis clpllne of the economy
Another point to be taken into considers Uon while financing jute purchase by breaking the basic economic laws Is that the growers do not get the fair' price the government in tends to offer them, through the existing con trolled mechanism Bulk of the government money ends up In the pockets of corrupt off! clals and political touts
Nothing should be fixed up like minimum price. because It la neither economically feasi ble, nor does it work. If the demand for Jute is low. the actual market price at growers level will go below the fixed minimum price and the officials engaged in purchase will take advan tage of the situation