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Jute Packaging Industry in Doldrums
Market Insight
by
Commodity Inside
Commodity Inside Ltd
Market Insight
Jute Packaging Industry in Doldrums
In early December 2015, the Bangladeshi government banned the export of raw jute aiming
to curb the surging domestic jute prices as well as to ensure ample supply for its own jute
mills. One of the main reasons behind the price surge has been the severe shortage of jute in
the domestic market due to poor harvest. In addition, lower jute production in India has also
underpinned demand for imports, thus further driving the prices upward in the international
market. The price surge has also been suspected to be manipulated by traders, speculators and
mills through hoarding the product.
Meanwhile, raw jute prices in India have reached all time high of Rs 53,000/tonne
($782.5/tonne) in December 2015, almost twice the level seen a year ago. This has also
directly impacted jute goods’ prices. For instance, B-Twill (50kgs) bag prices are now at Rs
79,000/tonne ($1,166/tonne), whereas Hessian has reached over Rs 100,000/tonne ($1,476.3).
The price surge has led to closure of 14 mills in West Bengal, India.
Commodity Inside understands that the price rise and export ban would have both a short and
long term impact on the export market. It has directly impacted both Indian and Pakistani jute
mills which are major importers of raw Jute from Bangladesh. With the rise in raw jute
prices, cost of jute goods have also been on the rise which is expected to shrink demand in
the export market.
The current situation in the jute market has negatively impacted the jute packaging industry
which has already been facing competition from the plastic industry. The price of jute bags
has increased in both regional and international markets. Given the rising costs of jute bags
and uncertainty around its supply, soft commodities are moving toward using plastic bags.
However, in South Asia, governments have been trying to support the jute packaging industry
by providing subsidies and making jute sacks mandatory for packaging of various soft
commodities. Bangladesh has earlier issued an order for mandatory use of jute bags for
packaging six types of goods, including paddy, rice, wheat, maize, fertiliser and sugar, and
discouraged the use of plastic bags. Similar, provisions have also been in place in India and
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Price of B.Twill 50kgs
Pakistan, where the governments have made jute sacks as a mandatory packaging medium for
various products to support the labour-intensive jute industry.
However, the situation has been changing outside South Asia and consumption of jute sacks
has been diminishing in bulk packaging. Jute bags, which is used for two centuries as a
distinctive packing for Brazil's coffee exports, has been rapidly being edged out due to its
relatively high costs. The coffee industry has now started using large plastic sacks to
substitute the 60-kg jute bags, saving millions of dollars a year. The 60-kg jute bag has been a
standard unit of measurement for coffee trading since Brazil started commercial production
of the bean in the 18th century. Brazil, which is the world largest coffee producer, was
packing almost all of its exports in jute bags until recently. However, the situation has been
changing and it is expected that this year the country will export more than half of its green
coffee in 1-tonne polypropylene super sacks or 21.6-tonne polyethylene liners.
Brazil's biggest coffee cooperative Cooxupe has nearly eliminated jute while others have
progressively increasing the use of polypropylene super sacks. Brazil produces 50-60 million
bags of coffee a year. It is also quite economical to use super sacks and liners rather than jute
bags as it is estimated that one worker with a forklift can fill a container with super sacks in
25 minutes, while 9 men need nearly an hour with a jute bag. Loading a liner is even faster as
beans are dumped in loose.
Despite these challenges, Commodity Inside expects that as countries start banning the use of
plastic bags for shopping in supermarkets, there is certainly a quite huge scope for jute bags
to be used as ‘a bag for life’, which is quite durable and environmental friendly substitute
compared to plastics. This implies that jute bags would somehow make their way through
retails channels rather than bulk packaging.
Would you like more detailed information about this topic or any of our others, please
contact us at [email protected].