Jute MSP set for massive rise

Labour wage drives up cost of production in West Bengal.

Just like what cotton crops are facing in parts of Maharashtra, a crisis is engulfing jute farming in the opposite part of the country. Growers in West Bengal have been facing the brunt of falling prices amid low demand for several months.

To compensate for the loss, the Union agriculture ministry has proposed to significantly increase the minimum support price (MSP) of raw jute in the 2012-13 crop season. It is for the Cabinet to take a final decision.

Officials say they expect a roughly 30 per cent rise in MSP. This, if finalised, will be one of the highest increases in jute MSP in the last five years. The average increase in these years has been 11 per cent. The highest rise, of almost 19 per cent, happened in 2008-09.

West Bengal chief minister Mamata Banerjee, who heads the Trinamool Congress, has been championing the cause of the state’s jute farmers.

Raw jute prices in that state, the country’s primary producer of the commodity, have plummeted by 23 per cent in the last one year to around Rs 2,300 per bale (1 bale is 180 kg). The prices dropped as farmers rushed to cash in on the high prices realised last year, without factoring in the probable demand. The rise in the production of raw jute has not been matched by a corresponding rise in demand, as the use of jute is limited to a few industries.

Ministry of agriculture data show a rise in raw jute production by around six per cent, at 10.58 million bales in 2011-2012. However, this relatively small rise has been big enough to cause a sharp decline in price.

Food Corporation of India (FCI) and sugar millers are among the biggest buyers of jute bags, as the law makes it mandatory for them to package all their produce in jute bags. “Jute farmers’ problem in West Bengal and also other states is similar to that of cotton — a sudden rise in production followed by a sharp decline in prices,” a senior agriculture ministry official explained.

The cost of production of jute has risen by 37 per cent in the last one year, largely because of labour cost. Jute is a very labour-intensive crop.

“However,” the official said, “it would not be possible to compensate for the entire increase in cost of production or else the user industries will suffer leading to a fall in demand.”

He said the hike, as proposed by the Commission for Agriculture Costs and Prices (the government’s nodal agency for fixing price of jute), would be substantial enough.

“We need to understand that MSP is not just cost plus profit. Instead, it depends on a host of factors like demand and supply, domestic price, international price trend, inter-crop parity and so on. If we hike the MSP by an unusual amount, then the entire production dynamics will change,” the official added.