Jute industry to incur Rs 3 billion loss on major cut in bag prices

With this, govt agencies will buy sacking bags meant for food grains and sugar at 5-7% lower than industry average

The decision of the Tariff Commission to cut prices of jute bags by almost Rs 3,000 per tonne has dealt a blow to the jute industry. The beleaguered sector is estimated to lose Rs three billion each year due to downward revision of prices. After the correction, jute sacking bags meant for packing food grains and sugar would now be purchased by government agencies at a price five to seven per cent lower than the industry average.

As per the Tariff Commission, the current price of A and B type jute bags are Rs 72,345 per tonne and Rs 69,585 tonne respectively. The Commission report is based on one-year price data collected by the Jute Commissioner’s office between April 2016 and March 2017. The 2016 productivity norms of Indian Jute Industries Research Association (IJIRA), a central jute research body were also used. It was approved by the National Jute Board (NJB). 

The industry is likely to contest the Tariff Commission’s two-part report of March 2018. Tariff Commission is a body tasked with making recommendations under the Department of Industrial Policy and Promotion (DIPP).

“The findings are based on an 'aspiration type data’. By nature, it is normative and therefore perfunctory and superficial. It is based only on desk research and doesn’t reflect the true picture of the industry. It is hurriedly done and no real field work is undertaken. It will ruin the industry’’, said an industry source.

Interestingly, there are 70 odd operating jute mills in Bengal. However, the commission has worked out its report based on data collected from 16 jute mills for A- type bags and 20 jute mills for B type bags for 2016-17. Data provided by the units were certified by cost and chartered accountants. 

As per the executive summary of the report, the Commission used a step by step approach that was approved by the Cabinet in 2001 to fix prices for jute bags. Quite unconventionally, the Commission also converted and used the 'minutes’ of a meeting held in the Textile Ministry on April 11, 2016 as Terms of Reference (TOR) for the study on the price of jute bags. 

The industry had already challenged IJIRA norms in the court. According to industry observers, the Tariff Commission had hurriedly submitted its final report as it had given a written undertaking to the Calcutta High Court in September 2017 to submit this report once it receives the complete data of 580 gram B Twill jute bags of A and B Type for one year between April 2016 and March 2017 from the Jute Commissioner’s Office. 

As per the summary, the Commission received the financial data on November 30, 2017 and the workable data in its final form on February 15, 2018. The government introduced lightweight 580 gram bags from November 1, 2015 and the purchase started in December 2015. 

In the past 17 years, the Tariff Commission had continuously fumbled on fixing firm prices of jute bags as the government had either rejected their earlier reports of 2002, 2007, 2009 and 2013 or used the Commission’s suggestion only as 'interim measures’ to offer 'provisional or ad-hoc prices’ to jute bags manufactured by the industry. 

In the middle of 2017, the Commission yet again submitted its fifth report but it was vehemently opposed by the jute industry lobby Indian Jute Mills Association (IJMA) on 10 major issues. The Association demanded for an immediate correction of 'facts and observations’ made in report and dubbed it 'unacceptable’. The government was forced to backtrack. 

Meanwhile, unable to fix proper prices, the Jute Commissioner’s Office set up two pricing committees between 2015 and 2016. But, it failed to achieve the desired result. The government also changed jute bag specifications from 665 grams heavy bags to 580-gram light bags spelling trouble for the industry. 

The government was aware of the low availability of high-grade raw jute for production of light bags but stuck to its specifications. It created a huge crisis, especially for the raw jute sector. Almost 65 per cent of raw jute of West Bengal is of lower grades and are unsuitable for the manufacture of light weight bags of 580 grams.

Each year, the government purchase around 0.7 million tonnes of jute bags valued at around Rs 80 billion for packing food grains and sugar under the mandatory jute packaging act of 1987 and distribution through the public system. In comparison to jute bags plastic bags are cheaper but they are big pollutants and non-eco-friendly and therefore can only be used as a 'poor’ and 'second alternative’.