RESTRICTED Report No. SA-26a This report is for official use only by the Bank Group and specifically authorized orpanizations or persons. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or ceompleteness of the report. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION Z W 0 , C 0 z _ C a, - (in two volumes) l --I EXPORT PROSPECTS OF PRIMARY AND QUASI-PRIMA > I CONTAINING: W A. SA-17a - Exports of Jute Goods '-. 0 B. SA- 18a - Exports of Marine Products C. SA-19a - Exports of Leather & Leather Produ _ __ D. SA-20a - Exports of Iron Ore E. SA-21a - Exports of Cashew Kernels May 27, 1971 South Asia Department CURRDCY B=JAtIV 1 lndian Rupee * US$0.13 1 US Dollar Rs 7.5 Rs 1,000,000 a US$133, 333 The Indian GoVW,unt fInanoial yea runs from april 1 1Org March 31. This report is bae on the findinp of two wdasons which visited India No York and BaPeniolies In 1970. The firwt mission (une/July 19705 which revied the upwt prospets of pizmay and quasi-primary product was cmpose of X nwo. Albwrto di Cepitand (econamst, South Asia Department); Cbistia Ladome, (hief of nd.aian, South AdsA Departmt). lbs second mission (Octobm/Decenbr 190) which reviewed the exort prospeta of Incbastrial prodhcts was composed of Mesrs. Earl COfll: (arketng specialist consultant); Jack Derick (production consultant); Jue FuRma (economist, South Asa Departast); Christian Ladoner, (chief of idsido, South Adia Departmnt) and klexandr Novicki (deputy chief and Industrl econoamst, Economics Department). For two weeks, the missio was joined In lndia by Mr. Timothy Lunkestw, economist, of the Resident Mission in New Delhi. RESTRICTED Report No. SA - 17a INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVEIMMENT ASSOCIATION EXPORTS OF JUTE GOODS INDIA May 27, 1971 South Asia Department INDrA EXPORTS OF JUTE-GOODS TAELE OF CONTENTS Page No. SUMMARY ............. ...................... . . ii I. RAW MATERIAL PROLEMS . . ...... . 1 II. COMPETITION FROM PAKISTAN . . . . . . . . . . .. 2 III. WORLD DEMAND PROSPECTS: AN ASSESSMENT . . . . . 6 IV. COMPETITION FROM SYNTHETIC CARPET BACKING . . . . 8 The Consumers' Reaction ........... 9 Dealers' Reaction . . .. . .. ........ 10 Synthetic Manufacturers' Strategy . . . . . . . 10 Carpet Manufacturers' Motivations . . . . . . 11 Jute Producers' Possible Strategy . . . . . . 12 V. CONCLUSIONS. . . . . . . . . . . . . . . . . . . . 13 ANNEXES Tables: I - Production of Jute and Mesta in India II - Export of Sacking from India and Pakistan III - Export of Hessian from India and Pakistan IV - Export of Carpet Backing from India and Pakistan V - Export of Jute Goods from India and Pakistan VI - Apparent World Consumption of Jute by Major Countries, 1963/67 VII - Apparent World Consumption of Jute Goods by Area: 1937-1967 VIII - World Imports and Exports of Jute Goods IX - Consumption of Carpet Backing - Percentage-wise of Backing X - Production of Jute Goods in India XI - Export of Jute Goods from India by Countries This report is based on the findings of a mission which visited India and European cities in June/July, 1970, composed of Messrs. Christian Ladonne and Alberto de Capitani. INDIA EXPORTS OF JUTE GOODS 2/ SUMMiARY 1. It is impossible to dissociate the problems faced by the Indian jute industry from those faced by the Pakistani jute industry. In both countries production of raw jute has remained more or less stagnant during the last decade, and this factor has certainly pushed the importing oountries to try to lessen their reliance on a commodity for which there is a growing need (especially for carpet manufacture) and to look for substitute materials. 2. Thanks to the bonus schemes granted to its exporters, Pakistan has been able gradually to price India out of the world market for sacking, so that India has virtually become a residual exporter. Except for some shipments to U.S.S.R. and U.A.R., India exports no more sacking. Followiing the building up in Pakistan of capacities for production of hessian goods, Indian exports of hessian in 1969 dropped to half the level reached five years before. In carpet backing, Indian exports have still continued to grow, at least up to 1969, but here also Pakistan has ambitious plans to develop this line of production with a threefold increase in capacity so that in the coming twro years Palkistan's production capacity could reach about half India's capacity. 3. Nevertheless, up to now Pakistan's competition has not been a crucial factor in India's overall export performance, since India shifted to the production of jute carpet backing. If India's exports declined gradually from their peak level of 930,000 tons in 1964 to 570,000 tons in 1969, it is because the industry suffered from a shortage of rawi jute and also because domestic consumption of sacking increased very rapidly from 137,000 tons in 1957 to 330,000 tons in 1968 and 280,000 tons in 1969. 4. World demand for sacking is decreasing rapidly; wJorld demand for hessian has remained stagnant for the last 15 years. The only product for which demand is increasing rapidly is jute carpet backing. But now jute carpet backing is subject to steady inroads by synthetic backing promoted and marketed by petrochemical complexes. Five years ago, jute enjoyed a near monopoly in the U.S. primary carpet backing market; today, nearly 40 percent of the market has been lost to synthetic and other materials. In secondary backing, displacement of jute by man-made materials has also been quick, if less dramatic. Displacement of jute by synthetics materialized mostly during 1969 and the first half of 1970 at a time when there was a tremendous over-supply situation in the U.S. market for both jute and synthetic carpet backing. 1/ Problems and prospects of Indian exports of jute manufactures have been studied in depth by Mr. Bension Varon from the Economics Department (Report No. EC.168; January 1969). The purpose of this paper is therefore limited to the study of the most recent problems facing the Industry. (ii) 5. Demand prospects for carpets in developed countries are such that carpet manufacturers are becoming increasingly reluctant to rely on uncertain sources of supply: lasting, ensions between India and Pakistan, disturbances in Bengal and East PakistarA strikes in the Indian jute industry and dock strikes, etc., undoubtedly affect the regularity of supply to carpet manufacturers. Moreover, by relying on domestic supply, they can also by-pass another adverse factor: dock strikes in their own country. There is a clear evidence that the U.S. dock strikes in the fall of 1968 provided a big impetus to the manufacturers of synthetic backing. Furthermore, the closure of the Suez Canal and the large price fluctuations of jute goods did not help the jute industry. 6. Nei,! end uses of jute goods might of course be found, and there wsill always be a market for jute goods. However the jute world market is becoming increasingly uncertain. In the case of India - a residual supplier - prospects appear therefore rather dim. 1/ This report has been written before the events of March 1971 took place. I. RAW MATERIAL PROBLE14S 1. Until Partition, undivided India was practically the world's sole producer of raw jute. At Partition, 75 percent of the jute-growing area x-rent to Pakistan, while the bulk of the jute manufacturing industry remained in India. India had, therefore, to import a large quantity of jute from Pakistan under special trade agreements,but at the same time embarked on a vigorous drive to attain self sufficiency. This move has been largely succe ful and production of rawJ jute and mesta increased from 2 million bales- (360,000 tons) during the two years folloing Partition to over five million bales (900,000 tons) in 1952-5332. Thereafter production remained more or less stagnant at an average of 6 to 7 million bales a year. In spite of this increase, India has not become completely self sufficient and on an average the self sufficiency ratio of the industry varies from 80 to 90 percent depending on the local crop, uhich fluctuates widely2/with the vagaries of the -!eather and jute/rice price ratio in the previous season. Therefore, the industry has to rely on imported raw materials, but these imports are inadequate so that the industry has very often to work under voluntary production curtailment programs. 2. Since the 1965 conflict, there has been no official import of rawr jute from Fakistan. India has therefore to rely on imports of fibers from Thailand&, part of which are in fact Pakistani raw jute, and probably on smuggled fibers from Pakistan. On the average, India has to import half a million bales a year, but when the local crop is bad, imports are much higher: 1.3 million bales in 1966, 0.8 million in 1967, etc. 3. Roughly, 30 percent of Indian raTi jute output consists of mesta, wqhich is generally inferior to true jute. The raw-r material deficiency of India is mostly in superior quality true jute which is needed for the production of special products such as carpet backing, and there is a definite trend in Pakistan to withhold supplies of such quality of fibers to the benefit of its own manufacturers. 4. W^hile Pakistan jute continues to be grown in traditional areas, jute production in India has spread outside the traditional areas of West Bengal to marginal lands, which explains the comparatively poor quality of the Indian fiber. Increase in production in India is entirely the result of the extension of the cultivated area. In Pakistan the area cultivated and production of raw fiber has remained relatively static. Yield per hectare is higher in Pakistan (1.5 kg.) than in India (1.2 kg.), but in both countries there has been no increase in productivity for the last 20 years - if there is a trend, it is a downward one. There are, of course, plans to increase the yield by using fertilizers and improved seeds and also to improve the quality of the fiber, through better retting facilities and better training. 1/ One jute bale equals 400 lbs., or roughly 181 kgs. net. 2/ Source: Indian Jute Mills Association - Department of Statistics. 3/ See Table I in Annex. I/ Thailand produces mostly kenaf. - 2 - 5. Unfortunately, the real economics of jute growing militates against such plans. Traditionally, when the industry has been able to pay a high price for the fiber, the growers sow more jute, and vice versa. The resulting price fluctation is further aggravated by the speculative tendency of trade in raw jute, in which some jute mill owners are reported to be associated. The actual growers benefit only partially when the price is high, but are the major losers wThen the price is low. Sometimes, as in 1967/68, many cultivators were unable to obtain a price which covered the cost incurred in producing the fiber. Under these circumstances, it is most unlikely that the farmers, who are generally poor and in debt will invest to improve their cultivating practices. Even now for minimum investments in jute cultivation, they are obliged to rely on the rawJ jute traders uho readily offer advances on high payment price and dictated terms. Apparently, the situation in Pakistan is similar. 6. As it is, it is improbable that India and Pakistan will increase their output of raw! jute in the near future. It might even happen, if the "miracle" paddy seeds could be successfully introduced in jute growJing areas, that farmers partly turn to rice growing on a long term basis. 7. Pakistan and India have a near world monopoly in the production of jute. If we now consider the total production of jute and allied fibers (mesta, kenaf, sisal, etc.), India and Pakistan account each for a third of world production, wThile Thailand with 1 percent and the U.S.S.R. and mainland China wlith 15 percent account for most of the remaining output. II. CO1PETITION FROM PAKISTAN 8. Since 1940, the number of looms in India has practically remained unchanged at about 75,000; in recent years however, the proportion of broad looms to the total has increased. For carpet backing, India has about 6,000 looms. In contrast, the Pakistani industry has developed rapidly: from about 4,000 looms in 1955 to about 22,000 at present. As of June 1969, the broad looms position for carpet backing in Pakistani mills was as follows: 900 installed, 600 ordered and 1,500 sanctioned but not ordered. In one year ahead from now, installed capacity could therefore be 3,000, i.e. half the Indian capacity, if the program is implemented. 9. On the world market, Pakistani exporters have definite advantages over their Indian counterparts: the availability of higher quality raw jute, preferential freight rates, tax rebates and chiefly the incentives offered through the bonus voucher scheme. Under this scheme, a variable percentage of the f.o.b. value _is received in the form of a bonus voucher which can then be sold in the open market for as much as 170 percent of its face value. 1/ Recently increased from 30.to 35 percent. Raw jute export has also received a bonus voucher of 10 percent. -3- 10. In contrast, the effect of India's 57.5 percent devaluation on the price of jute goods was partly offset by heavy export duties levied by the government. The purpose of these duties was to raise export prices in terms of rupees, thus preventing a sharp fall in the dollar value of exports, and reaping part of the pro- fit which might accrue to exporters. At the same rime, the tax credit certificates which had been given to exporters were abolished K Moreover, devaluation raised the prices of imported raw jute by roughly 58 percent; the Government granted subsidies on imports, which were, nevertheless, far below the increased cost on imported raw jute. The effective exchange rate for jute goods increased from Rs 4.76-5.24 (dq- pending on the product) to only Rs 5.30 compared to the new par rate of Rs 7.5 & 11. Estimated costs of production per metric ton by major products are as follows: 21 India 1969 Unit: in US$ (US$ - 7.5 Indian Rupee) Batch Conversion Total Adjust- Selling Cost Cost Cost ment v' Margin Price Hessian 180 121 301 + 26 + 19 346 Sacking 144 77 221 - + 13 234 Carpet Backing 275 156 431 + 80 +123 63k Pakistan 1969 Unit: in US$ (uS$ - 4.8 Pakistan Rupee) Hessian 170 194 364 -124 + 97 337 Sacking 126 137 263 - 89 + 50 224 Carpet Backing Data not available but estimated to be below India's selling price This table shows that not only can Pakistani exporters quote systematically lower prices than Indian exporters for goods of comparable quality, but at the same time work with a much higher margin. This systematic pricing policy of Pakistan has reduced India to the position of a residual supplier, which can sell only when Pakistan has no more goods to supply. Moreover, in India itself, jute manufacturers of sacking and hessian are not allowed to export at prices lower than those prevailing in the domestic market: this policy may prevent underinvoicing, but is, undoubtedly inimical to exports. This limitation does not apply to carpet backing, since the domestic market for this commodity is insignificant, 12. Except in the case of sacking, where there is stiff competition among the Pakistani exporters themselves, with the result that prices have sometimes been 20 to 30 percent lower than Indian quotations, Pakistani manu- 1/, In February 1965, the Government began granting tax credit certificates equal to 2% of the value of jute goods exported. In October 1965 the rate of tax credit on export of carpet backing was raised to 5%. These certificates were roughly worth twice their nominal rate. See B. Varon in Indian Export of Jute Manufactures, page 26, IBRD. Ec 168. 3/ Source: Survey of India's export potential of jute and jute products. Administrative Staff College of India, Hyderabad (January 1970). Adjustment includes export duty or bonus voucher where applicable. - 4 - facturers consistently match India's quotation minue a reduction by 2i)o 5 percent. Moreover, Pakistan's goods are of fully acceptable quality. !f There is also a more direct contact with importers and end-users. Pakistan has a faster system then India f?r dealing with claims: 1 month instead of up to one year in case of India.-' 13. In the case of sacking, price differentials have been the follow- ing:3/ F. 0. B. Prices Prevailing in Export Market for India and Pakistan Unit = (U.K. shilling) B. Twills per 100 Bags Heavy lees per 100 Bags India Pakistan India Pakistan January 1968 227 193 227 193 April 1968 211 182 215 182 August 1968 2h7 175 247 175 December 1968 261 189 261 185 February 1969 281h 178 284 178 As a result, India scarcely exports any more sacking. In 1957, India exported 430,000 tons, and in 1969 less than 50,000 tons. Except for a few specialized items like wool bagging to Australia, India exports sacking only to countries with which she has bilateral agreements, like USSR, UAR etc. All other markets have been practically lost. On the other hand, Pakistani exports increased from 60,000 tons in 1957 to 250,000 in 1969. 14. As we shall see later on, world demand for sacking is decreasing and this has led to overcapacity in Pakistan and in India. Indian capacities alone would be sufficient to take care of both the world consumption and the domestic consumption, which has increased steadily since 1956 from 150,000 to 330,000 tons in 1968. On the other hand, in planning the development of its sacking industry, Pakistan made an over-optimistic assessment of world demand, and over-invested heavily. For instance,in 1967, overproduction was such that competition between Pakistani exporters brought down the price of sacking to the price level of the raw jute. Since then Pakistan has been actively reorienting part of its sacking production capacities into produc- tion of hessian. 1/ Pakistani goods are on an average of the same quality as India goods. Pakistan has two main advantages over India: availability of raw jute of better quality and more modern equipment. On the other hand, India which has been engaged for a long time in manufacturing jute goods, has better expertise in managing the manufacturing process. 2/ Claims applied to less than one percentage point of total shipment. 3/ Source: Market information, Louis Dreyfus and Co. Jute Goods Market Report. - 5 - 15. This new emphasis on production of hessian accordingly cut down the Indian export market for hessian. The following table will show how Pakistan systematically prices India out of the world market: 1 (Unit: U.K. shillings) Hessian per 100 yards Hessian per 100 yards 40" 10 ounces 40" 7.5 ounces India Pakistan India Palkistan January 1968 85/5 83/6 64 62 April 1968 9/8 76/6 54/8 57/6 August 1968 94/6 92 73/3 71/3 December 1968 108 109 82 82 February 1969 110 101 82/6 76 16. In 1957, India exported 400,000 tons of hessian and Pakistan 30,000 tons. In 1967, when Pakistan started investing heavily in hessian production, India was still exporting 380,000 tons, while Pakistan exported about 100,000 tons. Two years after, in 1969, Pakistan exported nearly 200,000 tons and Indian exports came down to about 250,000 tons. Pakistan has at present plans to increase its loom capacitysubstantially. Therefore, in a few years time, when Pakistan production would be enough to satisfy the entire world demand, India will be completely ousted from the world market except for a few specia- lized products and in the markets of centrally planned countries. The impli- cation for the Indian industry will be much worse than in the case of sacking, because the rapidly growing home demand which increased from 22,000 tons in 1956 to 60,000 in 1968, is still very modest. 17. Perhaps the same story will oce-ar in the case of jute carpet backings. In two years time, Pakistan o.pacity might be half Indian capacity and again India will become a residual supplier, who will export only after Pakistan has sold its entire production. Probably, the growth of world carpet backing requirements could have very easily accommodated production of both countries; unfortunately, the size of the carpet backing market is such and looks so promising that corporations in developed countries have tried and succeeded in developing synthetic substitutes. We will refer to this problern later on. 18. Under these circumstances the competition between India and Pakistan could become a very unhealthy one.!/ Jute and jute products account for 50 percent of total Pakistan exports and it is understandable that Pakistan wants to maximize its export earnings by selling processed products instead of raw 1/ Source: Market information, Louis Dreyfus and C. Jute Goods Market Report. 2/ We would like to stress again that up to now, competition from Pakistan has not prevented India exporting available jute goods. Exports have been limited only by the shortage of raw fibers. -6- jute, which increase at the same time income and job opportunities. To achieve this goal, Pakistan has devised an efficient scheme; however, the success of this scheme could be achieved in the near future at 'the cost of an equally poor country: India, whose jute exports account now for less than 16 percent of exports after having accounted for 32 percent in 1951. Against Pakistan's strategy, India is defenseless. 19. The G.O.I. has often been criticized for levying export duties on jute products; maybe the removal of these duties might have improved the profitability of the industry which has shown a steady decline for the last few years, but it must be realized that this would probably not have helped very much the export performance of sacking and hessian. For India to enter into a price war with Pakistan would be detrimental to her own interest. Except in sacking, India is, and will continue to be the price leader in the field of jute manufactures, as Pakistan quotes according to Indian prices. India's pricing policy should, therefore, be structured to meet the threat of synthetic and other substitutes rather than to attempt to win a higher market share from Pakistan through across-the-board price reductions. III. WORLD DEMAND PROSPECTS: Al ASSESSMENT 20. As seen from tables VI, VII and VIII, world consumption of jute goods increased by 75 percent between 3937 and 1967, but international trade of jute goods scarely increased. Therefore, most of the increase in consumption took place in producing countries, mainly in India and Mainland China, while consump- tion declined in non-producing Asian countries. Consurnption in Latin America had increased from 1937 until 1965; rising most rapidly in the late 1950s. From a peak level of 220,000 tons in 1965, consumption had declined to a level of only 165,000 tons by 1967. This major decline has been due primarily to the bulk handling of wheat and sugar; furthermore, import requirements of those countries declined even more rapidly due to extensive usage of locally grown hard fibers for packaging. On the other hand, African countries increased their consumption from a level of 115,000 tons in 1937 to 180,000 tons by 1967. 21. Jute consunption in centrally planned countries of Europe was low in the 1950s but has doubled between 1955 and 1965. The growth in consumption in the U.S.S.R. has been extremely fast; from 103,000 tons in 1961 to 214,000 in 1967. The wide base of agricultural production in the U.S.S.R., together with the past relatively low consumption of jute goods, indicates a possibility of some increase, even a very large increase, if competition from synthetic materials comes slowly. (The latter is far from sure since that country is interested in developing its petro-chemical industry.) 22. The centrally planned countries, both of Asia and Europe, have continued to contribute significantly to the total world consumption pattern. From a level of about 4 percent of world consumption in 1937, it has risen to a level of about 25 percent by 1967. The large consurmption in the Peoples Republic of China is significant primarily in the global picture of world consumption as almost all of its production of fibers is consumaed internally and is of 7ittle importance to world trade. 23. As far as the western developed countries are concerned, it should be noted that while they accounted for over 60 percent of world consumption in 1937 this percentage had declined to 39 percent by 1967. 24. Jute is a versatile fiber with many end-uses. However, its greatest use is concentrated in the realm of packaging and floor covering. World demand for sacking is decreasing, especially during the last few years: 1/ combined exports of Pakistan and India fell from 500,000 tons in 1957 to less than 300,000 tons in 1969. For the past 15 years, combined exports of hessian goods from Pakistan and India have remained even at around 500,000 tons per year.2/ The reasons behind the overall decline of demand for jute packaging material are well known:- i) bulk-handling in the U.S.A., Europe and Latin American countries; ii) tendency in certain countries, mainly in Africa and to a certain extent in Latin America, where it is possible to grow indigenous fiber1 to meet requirements of packaging through indigenous production, even if it is not always economic to do so; iii) major inroads into the jute trade have been made in the developed countries both in paper and polyethylene. The movement towards smaller sized packages, the reluctance of laborers to handle heavy containers and consumer preference for attractive packag- ing have inhibited the use of jute as packaging in all but heavy duty items; iv) the long line of supply from Asia, the past indifference to normal trade procedures, erratic prices of jute and the relative cost of jute and other substitutes have encouraged this switch by end-users. 25. On the whole, it appears that world consumptionof jute packaging materials will probably not change much in the coming few years, but exports are most likely to decrease. Decrease in demand from developed countries and Latin America will probably be offset by increased demand in Asia, chiefly in India and Mainland China, and to a lesser extent from the U.S.S.R. 26. India started exporting jute carpet backing in 1956 and the world demand for this commodity especially after .1965, increased in such a way, that India now exports 220,000 tons. 3/ Combined exports of India and 1/ See Table II in Annex. 2/ See Table III in Annex. 3/ We refer mostly to backing for tufted carpets. The status of jute in woven carpet backing is up to now apparently secure. But the importance of woven carpets is rapidly declining, because woven carpets are more than twice as expensive as tufted carpets. The present share of the carpet market is 5% for woven carpets and 95 for tufted carpets in quan- tity; in value the share is respectively 12 and 88%. Even in absolute terms, the production of woven carpets is expected to decline during the next few years. Pakistan now amount to 250,000 tons. From 1965 to 1969 average yearly increase of exports has been 20 percent. The carpet backing market is expected to continue to grow at a rate of 15 to 20 percent a year in the developed countries. Unfortunately, for the jute producing countries, competition from synthetic backing is threatening their markets. IV. COMPETITION FROM SYNTHETIC CARPET BACKING!' 27. About five years ago, a U.S. firm started the production of man- made carpet backing; now about 10 firms have entered this line of production. Five years ago, jute had a near monopoly in the primary carpet backing market; in 1968 jute lost 16 percent of the market and now has lost a third of the market2/, at a time when the supply of jute backing is plentiful. Over the years the quality of the man-made material has regularly improved so as to compare favorably with jute; competitiveness has also improved and now synthetic backing is less expensive than jute backing: 17 - 18 cents per square yard against 18.75 cents of jute. Five years ago, jute supplied 80 percent of the secondary backing market; now it accounts for 63 percent and most of the displacement took place during the first half of 1970. The reason behind this quick displacement is that rubber backing is becoming popular because it adheres well to the floor. Given the high cost of labor involved in fixing carpet with jute backing, the "do it yourself" rubber backing appeals to customers. 28. Because of its restrictive import policy, Europe is not a good market for jute goods. Except for a few quotes, the European industry mostly imports its raw jute from Pakistan and Thailand and processes its own end products. However for the last two years, raw jute requirements of the industry have been decreasing; in the UK, for instance, imports of raw jute averaged 40,000 tons a year during most of the 60s; in 1969, imports decreased to 34,000 and are not expected to be more than 27,000 tons in 1970. These decreasing requirements are due to two factors: demand for jute packaging materials continues to decline, while jute is rapidly losing its market to synthetic materials in carpet backing. 29. Jute manufacturers in Dundee have either partly or entirely shifted to the production of synthetic carpet backing3/ In Germany, where demand for carpeting has increased from 15 million square meters in 1966 to 40 million square meters 1969 and in the Netherlands where the demand is now about 15 million square meters, the additional requirements for backing have not at all 1/ We refer mostly to backing for tufted carpets. The status of jute in woven carpet backing is up to now apparently secure. But the importance of woven carpets is rapidly declining, because woven carpets are more than twice as expensive as tufted carpets. The present share of the carpet market is 5 percent for woven carpets and 95 percent for tufted carpets in quantity; in value the share is respectively 12 and 88 percent. Even in absolute terms, the production of woven carpets is expected to decline during the next few years. 2/ See Table V in Annex. 3/ Demand for carpets in the U.K. is now about 65 million square meters a year benefited jute; even in absolute terms, jute carpet backing production has decreased and according to the European Trade is bound to decrease further in the coming years. German and Dutch markets have grown sufficiently and are expected to continue to grow at such a rate (about 25 percent a year) that petrochemical corporations have inevitably beep attracted. For instance, one big corporation has built up huge capacities- located near the Dutch-German border, to take care of the growing requirements of these two markets. In France, demand for carpets remains small (about 25 million square meters a year) and is not expected to increase in the next few years, due to the specific expenditure pattern prevailing in this country. 30. By and large, these developments in Europe will only partly affect exports from India, since this country sells only comparatively small quanti- tius of jute goods (about 45,000 tons in 1968)Z/, but it will certainly affect exports of raw jute from Pakistan. 31. In the U.S. demand for carpet backing is expected to continue to rise at 12 to 15 percent per annum. The slowdown in the economy, and especially in the housing sector, may temporarily affect this growth in demand, but on an average this increase is expected to be sustained in the long run. More- over the extreme mobility of U.S. citizens increases the rate of replacement and there is a huge reservoir of potential demand (schools, commercial establish- ments, churches etc.). At present, the carpet backing market is valued 3t about U.S. $,250 million a year and by 1975 this amount may have doubled 3. 32. To assess the likely share of jute in the carpet backing market in the U.S. is a difficult task. There are obviously three possibilities: i) synthetic carpet backing will come in addition to jute backing, and both will grow more or less simultaneously; ii) synthetic carpet backing will grow rapidly but will leave some market to jute, which will have to be shared between Pakistan and India; iii) synthetics will gradually take over most of the carpet backing market. Consumer Reaction. 33. A carpet with a synthetic backing is much lighter and may have a different fep; from a jute backed carpet,especially if there is no secondary jute backingY . Until recently, it was thought that the lack of consumer accep- tance might confine the use of synthetic to primary backing; however, the recent 1/ For the production of polyester carpet backing. 2/ See Table XI. 3/ The tufted carpet industry now ranks 10th in the U.S. 4/ 90 percent of carpets manufactured in the U.S. have double-backing. - 10 - introduction of high density rubber in secondary backing, which allows the private gustomer hirself to fix the carpet on the floor has beceme popular. Moreover, it is quite possible that synthetic producers will improve their product to market competitively with jute in terms of performance in secondary carpet backing. There is no reason to believe that consumer reluctance will restrict the use of synthetic backing, if the price is attractive and the per- formance comparable with jute. Dealer Reaction. 34. Dealers have obviously no specific preference. They will behave according to consumer reaction and they will obviously have to sell what the carpet manufacturers produce, which in turn would be determined by consumer preferences. Nevertheless, the marketing conditions prevailing in the U.S. market make it possible to a certain extent for manufacturers to influence the taste of consumers and overcome reluctance on their part. Synthetics I'Ianufacturers' Strategy. 35. Nothing precise is known about the past or future investment plans of the petro-chemical complexes regarding production of polypropylene. It is even more difficult to isolate in a plant what part of the production is utilized for the manufacture of carpet backing and for other purposes. It is nevertheless thought that capacity utilization of equipment for carpet back- ing production is far from complete. It is estimated by the trade that only 30 to 35 percent of U.S. capacity is utilized. There are at present about five major and seven medium sized producers: total capacity is probably around 1 billion square yards of carpet backing, out of which about one half can only be utilized for the production of carpet backing, while the other half can be diverted for the production of other goods. Despite his low utiliza- tion of carpet backing capacities, one major producer is contemplating substan- tial additional investments for production of carpet backing, which clearly indicates the optimistic assessment made by polypropylene producers regarding the development of the demand for synthetic carpet backing. 36. The price of synthetic backing is now slightly lower than that of jute backing. It is likely that with better capacity utilization and technical improvement, prices will onntinue to decline. 37. Generally speaking, the costs of the woven polyolefin tape product tend to be lower than those of other woven fabrics due to four factors: a) raw material costs are low and tend to decline over the longer term due to processing experience, technical innovation and economies of large-scale production; b) the tape is produced by extrusion, and therefore eliminates the need for all the extensive pre-spinning and spinning operations which are required for jute; c) being a tape, its area of coverage in a woven fabric is greater than that of a fiber. As well as technical advantages in parti- cular end-uses this means that less raw material is needed to produce the woven fabric, with consequent savings in raw material costs, d) the tape has considerably greater tensile strength than jute and can therefore be woven on higher speed looms, so that the output of woven cloth in any given period is greater than for jute. 38. Synthetics manufacturers built part of their capacities to fulfill contracts with the U.S. Administration regarding the supply of sandbags for U.S. forces in Vietnam. WJith the de-escalation policy, these capacities have been freed for other production, like carpet backing, at the end of 1968. Fortunately for the manufacturers, the longshoremen's extended strike in the fall of 1968 on the eastern seaboard of the U.S. completely disrupted the supply from Pakistan and India: within three months, polypropylene fabrics in the use of primary backing increased from 16 to 30 percent. 39. If the recent strikes of jute workers and dockers in Calcutta have not led to more substantial inroads by synthetics, it is only because there was a slowdown in the market and a resultant oversupply situation in both synthetic and jute backing. However one can be sure that if the market had been booming, one would have witnessed a very substantial increase in the share of the synthetics in the market. Nevertheless, it is alarming for the jute producers, that during the first half of 1970, at a time when supply of jute backing was plentiful, the market share of jute declined from 69 percent to 61 percent in primary backing and from over 76 percent to 63.0 percent in secondary backing.1/ 40. It is obvious that the strategy of U.S. business is to take over a $250 million or so market, which is moreover expected to double every five years. Synthetics manufacturers are systematically hiring people from the jute business ir. the U.S. or elsewhere when they have extended connections in the carpet backing business; above all, they have huge resources at their disposal to achieve their goals. The apparent U.S. business strategy is to take advantage of every favorable situation (strikes in India, in Pakistan or in the U.S.) and especially of any "faux pas" of their jute competitors. Carpet Manufacturers' motivations. 41. A carpet manufacturer is faced with stiff competition within the U.S. market, therefore he tends to try to minimize inventory costs and to rely on regular supply at regular prices. The long supply lines aggravated by the closure of the Suez Canal between Asia and the U.S. market have caused a problem 1/ See Table IX. - 12 - in disruption of supply, arising both from jute crop patterns in Asia, the fluctu- ations in the price of jute and labor unrest in producing countries. Moreover, the carpet manufacturer sees that production of raw jute is stagnant and is not likely to increase in the future: in the long run, jute carpet backing will cease to be able to take care of the growing requirements of the carpet narket. Above all, the carpet manufacturer is told of the growing political uncertainty in both West Bengal and East Pakistan with recurrent strikes by the workers and/or the dockers, capital flight out of Calcutta, etc. AU these factors threaten his sources of supply and he is naturally inclined to look elsewhere for alternative supplies of suitable carpet backing materials, most notably, products offered by synthetic companies. Moreover, this line of supply is next door, thus by-passing another hazard - dock strikes in the U.S., which the carpet manufacturers had to face in the fall of 1968. Jute Producer's Possible Strategy 42. To remove the legitimate fears of the carpet manufacturers, jute pro- ducing countries have to devise a price policy, which will prevent the price of the commodity from fluctuating too widely; similarly they should build sufficient inventories in the U.S. in order to prevent any disruption of supplies. To counteract the synthetics manufacturers' strategy, jute producing countries must avoid any "faux pas". An example is the Indian export duty on jute carpet backing. These duties bring a significant amount to the exchequer and probably do not increase very much the price of the final carpet. But the psychological impact is more power- ful than is usually thought: carpet manufacturers consider such export duties as an arbitrary "monopoly tax", and resent it as such, even if the reasons for them are completely different in nature. Bureaucratic procedures must also be simplified 1 Some quarters also have advocated some drastic cut in the price of jute carpet backing in order to prevent any further building of capacity by the propylene manu- facturers, by making new investments in synthetics unprofitable g Such a step would be extremely difficult to implement and might lead to retaliation by manu- facturers of synthetics. 43. Stabilization of prices, and building up of inventories in the U.S. market for )ute backing would preferably require a common policy of both Pakistan and India 2 But given the present relations between the two countries, it will not be an easy task. Moreover, to be effective, this kind of arrangement has to come about quickly. Nevertheless, India who is by far the largest producer of jute backing could go along with such a scheme. Its implementation would of course imply a complete change in the structure of the economy of the jute industry. Examples of bureaucratic red tape: i) for some reasons, since January 1970, Indian manufacturers have not been able to pay their membership dues to the "U.S. Jute Carpet Backing Association%, which is a powerful organization trying to resist inroads by synthetic. ii) Detroit produces ten million cars a year and each car requires five yards of burlap; for four months in 1969, shipments of this commodity have been held up by the customs in Calcutta, after discovering that jute exporters have tried to by-pass the spirit of the law and sent the first shipments of these goods without paying export duties. This was obviously an internal matter to be solved internally and importers were not at all concerned. This experience has not been for- gotten by the automobile industry or by the synthetics manufacturers. The F.A.0. in its Commodity Bulletin Series, "Impact of Synthetics on Jute and Allied Fibers" (Rome 1969) advocated a price reduction of the order of 40 percent. At this stage it is impossible to determine the possible impact on the jute industry of the events which started in March 1971 in East Pakistan. - 11 - c) being a tape, its area of coverage in a woven fabric is greater than that of a fiber. As well as technical advantages in parti- cular end-uses this means that less raw material is needed to produce the woven fabric, with consequent savings in raw material costs: d) the tape has considerably greater tensile strength than jute and can therefore be woven on higher speed looms, so that the output of woven cloth in any given period is greater than for jute. 38. Synthetics manufacturers built part of their capacities to fulfill contracts with the U.S. Administration regarding the supply of sandbags for U.S. forces in Vietnam. With the de-escalation policy, these capacities have been freed for other production, like carpet backing, at the end of 1968. Fortunately for the manufacturers, the longshoremen's extended strike in the fall of 1968 on the eastern seaboard of the U.S. completely disrupted the supply from Pakistan and India: within three months, polypropylene fabrics in the use of primary backing increased from 16 to 30 percent. 39. If the recent strikes of jute workers and dockers in Calcutta have not led to more'substantial inroads by synthetics, it is only because there was a slowdown in the market and a resultant oversupply situation in both synthetic and jute backing. However one can be sure that if the market had been booming, one would have witnessed a very substantial increase in the share of the synthetics in the market. Nevertheless, it is alarming for the jute producers, that during the first half of 1970, at a time when supply of jute backing was plentiful, the market share of jute declined from 69 percent to 61 percent in primaxy backing and from over 76 percent to 63.0 percent in secondary backing. 17 4o. It is obvious that the strategy of U.S. business is to take over a $250 million or so market, which is moreover expected to double every five years. Synthetics manufacturers are systematically hiring people from the jute business in the U.S. or elsewhere when they have extended connections in the carpet backing business; above all, they have huge resources at their disposal to achieve their goals. The apparent U.S. business strategy is to take advantage of every favorable situation (strikes in India, in Pakistan or in the U.S.) and especially of any "faux pas" of their jute competitors. Carpet Manufacturers' motivations. 41. A carpet manufacturer is faced with stiff competition within the U.S. market, therefore he tends to try to minimize inventory costs and to rely on regular supply at regular prices. The long supply lines aggravated by the closure of the Suez Canal between Asia and the U.S. market have caused a problem 1/ See Table IX. - 12 - in disruption of supply, arising both from jute crop patterns in Asia, the fluctu- ations in the price of jute and labor unrest in producing countries. Moreover, the carpet manufacturer sees that production of raw jute is stagnant and is not likely to increase in the future: in the long run, jute carpet backing will cease to be able to take care of the growing requirements of the carpet market. Above all, the carpet manufacturer is told of the growing political uncertainty in both West Bengal and East Pakistan with recurrent strikes by the workers and/or the dockers, capital flight out of Calcutta, etc. AUl these factors threaten his sources of supply and he is naturally inclined to look elsewhere for alternative supplies of suitable carpet backing materials, most notably, products offered by synthetic companies. Moreover, this line of supply is next door, thus by-passing another hazard - dock strikes in the U.S., which the carpet manufacturers had to face in the fall of 1968. Jute Producerts Possible Strategy 42. To remove the legitimate fears of the carpet manufacturers, jute pro- ducing countries have to devise a price policy, which will prevent the price of the commodity from fluctuating too widely; similarly they should build sufficient inventories in the U.S. in order to prevent any disruption of supplies. To counteract the synthetics manufacturers' strategy, jute producing countries must avoid any "faux pas". An example is the Indian export duty on jute carpet backing. These duties bring a significant amount to the exchequer and probably do not increase very much the price of the final carpet. But the psychological impact is more power- ful than is usually thought: carpet manufacturers consider such export duties as an arbitrary "monopoly tax", and resent it as such, even if the reasons for them are completely different in nature. Bureaucratic procedures must also be simplified M Some quarters also have advocated some drastic cut in the price of jute carpet backing in order to prevent any further building of capacity by the propylene manu- facturers, by making new investments in synthetics unprofitable , Such a step would be extremely difficult to implement and might lead to retaliation by manu- facturers of synthetics. 43. Stabilization of prices, and building up of inventories in the U.S. market for jute backing would preferably require a common policy of both Pakistan and India 2. But given the present relations between the two countries, it will not be an easy task. Moreover, to be effective, this kind of arrangement has to come about quickly. Nevertheless, India who is by far the largest producer of jute backing could go along with such a scheme. Its implementation would of course imply a complete change in the structure of the economy of the jute industry. Examples of bureaucratic red tape: i) for some reasons, since January 1970, Indian manufacturers have not been able to pay their membership dues to the "U.S. Jute Carpet Backing Association", which is a powerful organization trying to resist inroads by synthetic. ii) Detroit produces ten million cars a year and each car requires five yards of burlap; for four months in 1969, shipments of this commodity have been held up by the customs in Calcutta, after discovering that Jute exporters have tried to by-pass the spirit of the law and sent the first shipments of these goods without paying export duties. This was obviously an internal matter to be solved internilTy and importers were not at all concerned. This experience has not been for- gotten by the automobile industry or by the synthetics manufacturers. The F.A.0. in its Commodity Bulletin Series, "Impact of Synthetics on Jute and Allied Fibers" (Rome 1969), advocated a price reduction of the order of 40 percent. At this stage it is impossible to determine the possible impact on the jute industry of the events which started in March 1971 in East Pakistan. - 13 - 44. We have no absolute evidence that if nothing is done, jute would be more or less completely displaced from the carpet backing market: it is, nevertheless, our conviction based on the numerous contacts we had with the trade in India, in the U.S. and in Europe. 45. New end-uses for jute can of course be found, but at present they have little prospects. Indian exporters are for instance investigating the way jute could share a small part of the $4 billion curtain and wall-covering U.S. market. Technical problems have been solved; ten mills in India have been set up or are being set up to talce care of this market, but the marketing policy has not yet been decided. If successful, India exporters hope to catch one percent of the market, i.e. $40 million at the retail level, which could mean an additional export of $15 million for India. Some other uses could certainly be found, but on the whole these additional exports would not offset the decrease in exports of jute backing, if synthetics displace jute in the backing market. V. CONCLUSIONS 146. The 1969-70 offtake of jute goods from India was U.S. $288 million in 1969-70. The long-term position of jute is dismal. It is losing rapidly in sacking to woven polypropylene, paper and bulk handling: moreover India has been priced out of the external markets by Pakistan, except in the markets with which India has bilateral arrangements. 47. Packing materials are becoming more and more sophisticated to compete with hessian and here again India is going gradually to lose her external markets to Pakistan. 48. The growth in the industry has been in yarn and carpet backing cloth sustained by the U.S. tufted carpet boom and housing demand. Here again, Pakistani competition may be felt very soon; the most dangerous threat is how- ever the growing and successful competition of woven polypropylene backing in primary backing and of other materials in secondary backing. 49. To retain a substantial share of the market, jute producing countries must cut their prices and fix them on a long term basis, because a fluctuating commodity will never be able to compete lastingly with a commodity whose prices are stable and might-even decrease. Ioreover, exporting countries must build up an adequate buffer stock in the U.S. so as to prevent any disruption of supply. 50. To implement such as scheme would be extremely difficult and costly; moreover it has to be implemented urgently before it is too late. 51. In developed countries and in Latin America demand for jute goods is bound to decrease; in Africa, the setting up of factories for processing local fibers will accordingly reduce requirements for imports; most of the increase in consumption will take place in Asia, chiefly in India. The U.S.S.R. is an unknown market but there is now no reason to believe that its import requirements would not increase. - 14 - 52. By and large the situation is uncertain. In quantity, Indian exports have decreased considerably for the last five years; in terms of value, however, exports remained at a yearly average of $300 million, because of the exports of more valuable commodities. Unfortunately, present developments lead one to believe that Indian exports, in value and quantity, are likely to decrease and might do so very sharply, if necessary steps are not taken in an urgent manner. 53. Even if adequate measures are successfully implemented by Asian produc- ing countries it nevertheless appears that Indian and Pakistani programs regard- ing the future development of jute production and jute industry must probably be reviewed in the light of these new developments in the world market. If no adjustments are made to take them into account, there is a real danger of seeing scarce investment resources misdirected. November 3, 1970 TABLE I PRODUCTION OF JUTE AND MESTA IN INDIA (in Million bales) 1949/50 1955/56 1960/61 1961/62 1962/63 Jute 3.30 4.48 4.13 6.36 5.44 Mesta 0.67 1.17 1.13 1.88 1.74 Total 3.97 5.65 5.26 8.24 7.18 1963/64 1964/65 1965/66 1966/67 1967/68 1968/69 1969/7ci/ Jute 6.08 6.01 4.47 5.36 6.32 3.05 5.61 Mesta 1.90 1.60 1.29 1.22 1.27 0.91 1.14 Total 7.98 7.61 5.76 6.58 7.59 3.96 6.75 Source: Economic Survey 1969-70. Note: These figures differ slightly from those published by IJMA, because the coverage and the period are different. 1/ Source: Official estimates of the Ministry of Food and Agriculture. TABLE II EXPORT OF SACKING FROM INDIA AND PAKISTAN (000 tons) Indian Year India Pakistan Total (1)+(2) share (1)/(3) (1) (2) (3) (4) in % 1957 429.7 6o.4 490.1 87 1958 345.8 78.5 424.3 81 1959 354.6 135.7 490.3 72 1960 312.9 123.8 436.7 71 1961 283.7 140.2 423.9 67 1962 292.2 164.5 456.7 64 1963 242.6 157.5 400.1 60 1964 234.9 157.6 392.5 60 1965 283.5 181.1 464.6 61 1966 173.3 234.6 407.9 42 1967 185.5 232.9 418.4 43 1968 93.6 242.7 336.3 28 1969 48.2 248.2 296.4 16 Sources: DCI& - Calcutta Pakistan Jute Mills Association TABLE III EXPORT OF HESSIAN FROM IDNVA AND PAKISTAN (000 tons) Indian Year India Pakistan Total (1)+(2) Share (M)1(3) (1) (2) (3) (4) in % i957 399.1 29.7 428.8 93 1958 399.4 36.9 436.3 91 1959 430.5 50.7 481.2 89 1960 391.h 61.9 453.3 86 1961 357.9 61.4 419.3 85 1962 457.4 65.7 523.1 87 1963 463.8 71.4 535.2 86 1964 487.8 66.8 554.6 88 1965 448.1 79.5 527.6 85 1966 372.8 95.9 468.7 79 1967 382.3 103.0 485.3 78 1968 338.2 155.2 493.4 68 1969 251.7 195.2 446.9 56 Sources: DCI&S - Calcutta Pakistan Jute Mills Association TABLE IV EXPORTS OF CARPET BACKINGS FROM TTNDIA AND PAKISTAN (000 tons) Indian Year India Pakis an.n Total (1)+(2) Share (1)/(3) (1 (2) (3) (4) in % 1957 8.0 neg 8.0 100 1958 19.2 19.2 100 1959 30.1 30.1 100 1960 35.3 35.3 100 1961 41.6 41.6 100 1962 57.7 57.7 100 1963 88.3 88.3 100 1964 106-.6 1.2 107.8 99 1965 100.0 6.5 106.5 94 1966 131.5 13.2 144.7 90 1967 141.6 19. 161.0 87 1968 179.8 25.0 204.8 87 1969 219.3 29.2 248.5 88 1/ Except for 1969, refers to the jute year (July-June) Sources: DCI&S - Calcutta Pakistan Jute Mills Association TABLE V EXPORTS OF JUTE GOODS FROM INDIA AND PAKISTAN (000 tons) Indian Year inila Pakistan Total (1)+(2) Share (1)/(3) (1) (2) (3) (4) in % 1957 873.5 90.4 963.9 90 1958 806.2 115.8 922.0 87 1959 874.0 188.4 1062.4 82 1960 810.4 190.7 1001.1 81 1961 759.8 204.9 964.7 79 1962 874.4 233.1 1107.5 79 1963 874.6 234.2 1108.8 79 1964 931.2 234.2 1165.4 80 1965 929.2 282.4 1211.6 77 1966 746.1 361.8 1107.9 67 1967 768.5 370.7 1139.2 67 1968 671.4 454.0 1125.4 59 1969 569.9 484.9 1054.8 54 Sources: DCI&S - Calcutta Pakistan Jute Mills Association TABLE VI Apparent World Consumption of Jute by Major Countries 1963 - 1967 (000 metric tons) 1963 1964 1965 1966 1967 1. Developed EEC 802 270 278 204 284 Goods only UK 172 174 170 162 161 Other Europe 139 118 120 129 119 Goods only USA 464 497 470 460 425 Includes Raw Jute Canada 48 47 45 50 51 Japan 74 62 80 81 113 Oceana 125 127 133 105 116 Total Developed 1,324 1,295 1,296 1,271 1,269 2. Developing: A. Other Latin America 233 234 220 178 165 Near East 37 34 28 34 44 Africa 273 295 347 285 283 Other Asia 145 152 158 127 129 Total 688 715 753 624 621 B. Asian Producing: India 429 358 512 505 424 Includes village consumption Pakistan 114 90 140 137 108 Thailand 46 70 54 60 70 Nepal 2 3 3 3 3 Total 591 521 709 705 605 Total Developing 1,279 1,236 1,462 1,329 1,226 3. Centrally Planned: USSR/EE 223 330 299 323 315 Asian 394 463 508 530 558 Total Centrally Planned 607 792 807 853 873 Uncorr. Total Cons. 3,210 3,323 3,565 3,453 3,368 4. Adjustments Raw Jute EEC + 28 + 45 + 34 + 41 + 50 Raw Jute:Other & Eur.+ 10 + 10 + 10 + 10 + 10 Waste (3%) + 95 +100 +105 +105 +100 Total Corrected Cons. 3,343 3,478 3,714 3,609 3,528 Source: Derived from FAO and country statistics including Industrial Fibres and European Jute Industries Statistics. TABLE VII Apparent World Consumption of Jute Goods by Areas: 1937 - 1967 (000 metric tons) Average Average 1937 % 1948-53 1954-59 63 % 64 65 66 % 67 % 1. Developed 1253 (60) 926 1,138 1,324 (43) 1,295 1,296 1,271 (40) 1,269 (39) 2. Centrally Planned 85 (4) 230 384 607 (18) 792 807 853 (23) 873 (25) 3. Developing, as 678 (36) 722 900 1,279 (39) 1,236 1,462 1,329 (37) 1,226 (36) subdivided below: 61-63 Avg. 64-66 Avg Asia/Near East 360 (21) 387 518 704 (2o 819 (24) 778 (23) Africa 115 ( 5) 131 150 197 (7) 244 ( 7) 283 (8) Latin America 203 (10) 204 232 228 ( 8) 211 ( 6) 165 ( 5) World Total 2,016 1,878 2,422 3,210 3,323 3,565 3,453 3,368 Corrected Consumption 3,343 3,478 3,714 3,609 3,528 Source: Derived from FAO and country statistics: data from year to year are not strictly comparable as there are often omissions in reporting wastage, stock holdings and raw jute consumed other than goods. The corrected consumption from 1963-1967 includes most of these factors and is comparable. TABLE VIII World Imports and Exports of Jute Goods (000 metric tons) 1948-53 1954-59 1961-63 1964-66 1937 Average Average Average Average 1967 IMPORTS % % % % % % Developed 689 (59) 500 (56) 579 (56) 758 (62) 848 (60) 864 (65) Countries Developing 474 (40) 379 (42) 417 (L1) 404 (33) 419 (29) 297 (23) Countries 1/ Centrally Planned 8 (1) 15 (2) 30 (3) 56 (5) 162 (11) 171 (12) Total Trade 1,171 894 1,026 1,218 1,429 1,332 EXPORTS India 1,029 815 859 865 928 769 Pakistan - - 78 227 289 383 Belgium 30 44 57 59 69 71 France 11 18 25 18 18 17 Portugal - - 1 5 15 14 UK 55 26 25 22 17 12 Other Europe 29 30 29 20 25 26 Rest of World 49 24 41 34 48 38 Total Trade 1,203 957 1,115 1,250 1,409 1,330 1/ Primarily USSR/EE until 1960s. Asian Centrally Planned trade insignificant. Source: FAO 1969 TABLE IX Consumption of Carpet Backing (in millions of square yards) First Second Third Fourth First Second Quarter Quarter Quarter Quarter Quarter Quarter 1969 1969 1969 1969 1970 1970 Primary 109 117 109 126 110 112 Jute 73 77 72 87 73 68 Secondary 91 107 101 115 98 101 Jute 70 82 77 87 66 63 TOTAL 200 294 210 241 208 213 Jute 143 169 149 174 139 131 Percentage-wise Use of Backing, in 1968, 1969 and the First 'TO Quarters of 1970 First Second Third Fourth First Second Quarter Quarter Quarter Quarter Quarter Quarter 1968 1969. 1969 1969 1969 1970 1970 Primary Jute 80.4 67.4 65.8 65.7 69.0 65.0 61.1 Cotton 1.9 1.4 1.6 1.6 n.a. n.a. n.a. Manmade 16.0 28.6 30.7 30.3 29.9 30.5 32.8 Others 1.7 2.6 1.9 2.4 n.a. n.a. n.a. Secondary Jute 72.4 77.0 76.4 76.4 76.4 66.2 63.0 Foam H.D.R. 15.1 15.5 16.2 16.0 16.8 23.8 25.6 Other Foam Cushion - (Vinyl, etc.) 2.8 0.7 0.8 0.8 1.0 3.1 3.6 Other 9.7 6.8 6.6 6.8 5.8 7.0 7.8 Source: Current Industrial Reports - U.S.Department of Commerce - Bureau of the Census. TABLE X PRODUCTION OF JUTE GOODS IN INDIA (000 metric tons) (Calendar Year) Equivalent Jute Consumption Carpet Cotton 100,000 Year Hessian Sacking Backing Bagging Others Total bales 1957 420.9 557.5 68.0 1,046.4 61.52 1958 413.6 591.7 5.1* 12.3 56.o 1,078.7 61.45 1959 465.2 511.9 16.3 25.1 50.0 1,068.5 61.27 1960 429.0 549.5 23.1 35.8 46.8 1,08h.2 62.36 196b 355.7 483.7 27.3 41.6 62.0 970.3 54.58 1962 h82.7 551.8 44.6 39.5 68.2 1,186.8 67.35 1963 528.6 507.1 87.5 42.9 70.1 1,236.2 71.01 1964 536.6 514.6 94.6 48.8 76.8 1,271.4 73.81 1965 529.4 590.5 96.9 51.2 67.3 1,335.3 76.31 1966 427.0 503.2 107.3 20.5 61.6 1,119.6 64.19 1967 463.6 481.3 1u4.1 16.1 71.3 1,156.4 66.09 1968 398.0 427.2 170.6 18.5 70.6 1,064.9 62.75 1969, 287.1 306.9 228.7 22.6 48.3 893.6 51.4- Source: Annual summary of Jute and Gunny Statistics - Indian Jute Mills * 9 months TABLE XI EXPORT OF JUTE GOODS FRO'i INDIA BY COUNTRIES (000 metric tons) (calendar year) B1SSLU- 1956 1957 1958 1959 1960 1961 1962 1963 U.K. 47.9 25.2 41.1 38.1 39.0 23.6 34.6 28.2 Rest of Europe 4.9 17.3 33.9 43.4 48.4 61.0 70.9 ) Near East - 4.8 3.0 4.5 5.5 5.0 11.6 ) 101.0 Far East 4.7 8.7 8.5 12.8 17.4 5.3 5.7 7.6 Africa 9.8 23.4 13.7 19.1 21.9 23.2 25.1 22.4 U.S.A. 193.6 186.3 183.0 208.5 182.5 192.1 229.3 248.4 Canada 35.9 33.1 37.0 40.1 39.7 36.3 47.7 51.6 Argentina 36.4 65.3 62.7 52.3 35.5 13.0 45.6 42.9 Rest of America 11.5 15.6 11.8 15.5 10.2 14.5 15.8 17.2 Australia 13.9 16.6 15.1 15.8 16.6 14.7 16.5 19.7 New Zealand 3.0 6.2 6.1 4.4 4.5 3.8 4.1 4.4 Others 47.5 4.6 2.7 6.1 5.5 7.0 8.2 8.7 TOTAL HESSIAN 409.1 407.1 418.6 460.6 426.7 399.5 515.1 552.1 SACKING U.K. 13.5 10.9 13.6 13.0 11.0 8.8 6.9 8.1 Rest of Europe 10.2 8.0 13.3 15.1 17.2 17.2 22.6 ) Near East 5.8 3.0 2.0 7.2 4.2 0.8 8.3 ) 29.9 Far East 78.7 92.3 58.1 119.9 79.1 47.2 53.9 30.1 Africa 81.9 113.9 85.8 64.2 60.9 84.6 91.1 54.5 U.S.A. 1.9 9.7 5.5 7.9 7.5 7.0 8.4 5.3 Canada - 0.2 0.1 0.2 0.1 - - 0.1 Argentina - 2.3 1.9 2.0 2.3 1.2 1.0 0.5 Rest of America 68.3 80.2 64.3 45.3 52.8 57.2 41.4 46.5 Australia 93.6 82.7 67.5 57.4 57.4 36.6 38.7 33.4 New Zealand 10.3 10.9 13.5 10.9 12.5 11.7 9.2 10.1 Others 51.3 15.6 20.2 11.5 7.9 11.4 10.7 24.1 TOTAL SACKING 415.5 429.7 345.8 354.6 312.9 283.7 292.2 242.6 ALL JUTE MMIUFACTURES 876.8 873.5 806.2 874.0 810.4 759.8 874.4 874.6 EXPORT OF JUTE GOODS FROM 3IDIA BY COUNTRIES TABLE XI (continued) (000 metric tons) (calendar year) HESSIAN 1963 1964 1965 1966 1967 1968 U.K. 28.2 37.0 27.6 19.2 29.0 18.8 Rest of W. Europe 45.9 18.7 19.0 10.2 18.5 23.4 U.S.S.R. 41.9 76.2 73.1 57.8 54.6 58.5 Rest of E. Europe 13.2 17.4 19.2 19.1 20.3 18.0 Far East 7.6 12.4 9.6 3.1 5.4 6.5 Africa 22.4 28.7 39.6 18.9 20.0 16.4 U.S.A. 248.4 256.0 242.8 154.0 149.6 123.0 Canada 51.6 44.9 45.8 37.7 36.7 32.1 Argentina 42.9 62.1 20.9 4.5 2.4 1.6 Rest of America 17.2 16.0 15.8 13.6 8.4 7.2 Australia 19.7 18.9 21.2 17.3 22.9 21.2 New Zealand 4.4 3.7 5.5 3.8 4.4 3.9 Others 8.7 2.4 8.0 13.6 10.1 7.6 TOTAL HESSIAN 552.1 594.h 5h8.1 372.8 382.3 338.2 CARPET BACKING SACKING ' 1966 1967 1968 U.K. 8.1 9.7 5.6 2.8 4.4 0.9 ' 0.5 1.1 0.2 Rest of W. Eurcpe 21.8 8.5 8.5 4.0 7.5 1.2 ' 1.8 5.7 6.9 U.S.S.R. 2.3 28.5 39.5 58.4 67.2 45.1 ' 0.1 - - Rest of E. Europe 5.8 6.9 11.6 11.8 14.9 2.6 ' 0.3 0.6 1.1 Far East 30.1 41.4 30.0 7.2 12.3 6.2 ' - 0.2 3.0 Africa 54.5 55.5 95.0 47.0 35.8 13.4 0 0.3 0.6 0.2 U.S.A. 5.3 2.9 6.0 4.9 3.4 3.1 1 117.7 121.6 152.0 Canada 0.1 0.1 - - - - ' 7.4 7.4 10.6 Argentina 0.5 1.2 0.8 0.1 0.1 - I - - - Rest of America 46.5 17.4 25.6 7.1 3.6 1.3 ' 0.2 0.3 0.7 Australia 33.4 36.6 37.0 16.4 21.0 12.9 ' 2.1 3.1 3.6 New Zealand 10.1 9.0 14.2 6.6 5.7 1.0 I 1.0 1.0 1.4 Others 24.1 17.2 9.7 7.0 9.6 5.9 ' 0.1 _ TOTAL SACKING 242.6 234.9 283.5 173.3 185.5 93.6 ' 131.5 141.6 179.8 ALL JUTE MANUFACTURES 874.6 931.2 929.2 746.1 768.5 671.4 Source: I.J.M.A., Calcutta RESTRICTED Report No. SA - 18a INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION EXPORTS OF MARINE PRODUCTS INDIA May 27, 1971 South Asia Department IDIA E2PORTS OF MARINE PRODUCTS TABLE OF CONTENTS Page SUMMARY . . . . . . . . . . . * * * * ....*.*...*.0... I. INDIAN FISHERIES . . . . . .*.*.*.*. . .. . . . 1 II. INDIANSHIMP f INDUSTRY ............... . 3 III. PRODUCTIONPRO BLEMS ................. . 4 IV* EXPORTS . . . . . . . . . . . * * * * * * * * * * * * 9 V. CONCLUSIONS ... . . ..* . . * . *.*.*...*.*.*......... 12 ANNEXES Tables I - Growth of Marine Products Exports II - Export Pattern of Marine Products III - Major Markets for Indian Frozen Prawns IV - Region-wise Exports of Marine Products V - Monthly Average Wholesale Price for Indian Shrimps in the United States Market VI - MainShrimp Producing Countries VII - Imports of Shrimps into U.S.A. This report is based on the findings of a missioncomposed of Messrs. Christian Ladonne and Alberto de Capitani wAhich visited India and European cities in June/July, 1970. INDIA EXPORTS OF! MARINE. PRODUCTS SUi[MARY 1. India's fisheries, the eighth largest in the world, are charac- terized by small coastal fishing vessels and traditional fishing practices. Development is under way, however, and India's fishing industry faces in the long run both a challenging and a promising future. 2. One of the most significant developments in Indian fisheries has been the unquestionable success of India's shrimp industry in moving dyna- micaIly into major world markets. In 1951 the first freezing plant was opened in Cochin;, commercial shipments began in 1953, with 13 tons of ex- ports; by 1965, India had become the second'largest exporter of shrimp to the United States, and it has since maintained the position. In 1969, exports of shrimps amounted to about 2h,000 tons. From US$5 million in 1951, export earnings of marine products rose to US$44 million in 1969. This spectacular development took place mostly thanks to the initiative of small entrepreneurs. 3. The shrimp market is a seller's market and the imbalance-between supply and demand is expected to worsen in the coming decade to the benefit of producing countries. For the time being, India exploits only a fringe of her tremendous natural resources potential. In the coming five years, increase in production will come mostly through more intensive exploitation of the eastern coastal waters, as the southwestern coast is now fully exploited and probably overfished. However, off-shore fishing development, as contemplated by the Fourth Five Year Plan, will probably not materialize because it requires different sets of measures, like the building of infra- structure, availability of adequate financing for purchase of trawlers, training of crews, the choice of an adapted import policy, etc., 7which have to be defined in a comprehensive way. Nevertheless, it is expected that at least 30 big trawlers (up to 86 feet in length) operated by Indian and US Corporations dill be commissioned during the Fourth Plan period. I. INDIAN FISHERIES 1. From time immemorial, but in. a very limited manner, India has been engaged in fishing along its 3500 mile-long coast. The world's oceans have an estimated fishery potential of 118 million tons against which the total marine catch in 1968 stood at 6h.0 million tons. The average yield per square kilometer of.the Atlantic, Pacific and Indian oceans has been placed at 0.17, 0.14 and 0.03 tons, respectively, during 1966/68.1/ The major reason for the low yield of the Indian Ocean has been ascribed to inadequatX exploitation and fishing restricted to the inshore areas up to ten fathoms, 2/instead of offshore and deep sea fishing beyond 10 fathoms and.40 fathoms, respectively. 2. With a labor force of over one million, India currently exploits only a small portion of the fishery potential of the Indian seas. Out of the present marine fish landings, estimated at over 1.5 million tons in 1968, about three-quarters are landed on the west coast of India, although investigations and studies have indicated vast potential on the east coast. Various exploratory surveys have revealed that a potential of 8 to 12 million tons exists in the Indian Ocean, including offshore and deep sea resources. 3. Whereas marine fish landings of the world have increased from 33.2 million tons in 1958 to 64.0 million tons in 1968 2/ i.e. at a yearly growth rate of 6.9 percent, those of India increased at an annuaL, rate of only 3.5 percent from 1.06 million tons to over 1.5 million tons. - As mentioned earlier, the major factor responsible for the slower rate of increase has been under exploitation of the rich potential of the Indian seas and especially the offshore and deep sea regions of the Arabian sea and the Bay of Bengal, owing, among others, to meagre infrastructural arrangements, such as fishing harbors and landing and berthing facilities, non-availability of large fishing vessels for deep sea and high sea operations and lack of storage and processing capacity. The result of these poor environmental conditions is that not only are catches low, but the prices are extremely high, which limits the local demand to higrh- income groups and prices India out of the world market except for a few products like shrimps. For instance, there is a good world demand for canned tuna, which is already processed in India, but she cannot export this product because its price is three times the world market price. This is all the more unfortunate since the Indian Ocean is one of the few areas where tuna fishing could still be increased. Another inhibiting factor is the high price of canning materials. 1/ Source: Survey of India's export potential of Marine Products. Indian Institute of Foreign Trade (1970). 2/ A fathom is a unit of length equal to 6 feet used for measuring the depth of water. 3/ Source: Yearbook of Fishery Statistics - 1968 - FAO 4/ Source: Yearbook of Fishery Statistics - 1968 - FAO - 2 - 4. An idea of the structure of the marine products industry in India as of 1968 can be had from the following estimates: 1/ Fishing Fleet Nos. Indigenous craft 94,000 Small mechanized boats (6m. to 12 m.) 7,600 Large vessesl (13.Om to 27m) 49 Of these a large number of indigenous craft operate off the coast of Tamil Nadu (30,000), Andhra Pradesh (21,000), Kerala (22,600), and Maharashtra (8,300). The major concentration of small mechanized boats is, however, to be found on the coasts of Maharashtra (2,400), Gujarat (1,700), Kerala (1,700) and Tamil Nadu (1,000). Processing Sector Annual installed Units capacity Freezing 48 59,000 Canning 42 11,4h0 Of the total freezing and canning capacity as much as 83 percent and 85 percent, respectively, is concentrated in Kerala. Of the 168 exporters, as many as 114 are also situated in Kerala. Ninety export firms in Kerala are responsible for 89 percent of the total seafood exports. Other centers of importance in respect of freezing, canning and exports are Bombay, Mangalore and Madras. 5. A rational exploitation of the huge potential of marine resources will undoubtedly take a very long time to materialize. Some limited progress has already taken place and in the few areas where the fishing industry has been properly organized, the economy of fishing villages has been drastically changed. However, the problems are of such a magnitude that an answer to them cannot be expected overnight. Gradual mechanization of the fleet, proper financing channels, construction of harbors,-of storage and processing facilities and chiefly the training of a skilled manpower will certainly take quite a long time. It is all the more regrettable, because if the market was properly organized, demand for fish in India from a protein-hungry population could be tremendous, and the export potentials could be important. 1/ Survey of Indiats export potential of Marine Products IIFT. -3- 6. Except for a very small part of the population which refuses to eat meat, and even eggs, there is absolutely no inhibition against fish eating. Marine fish are at present consumed in coastal areas, in urban centers and in "traditional" areas like Bengal. Nevertheless, fish is not an unknown product for people'living in inland areas. Apart from rivers, there are 1.0 million hectares of cultivable water areas (village tanks and ponds), of which only 60 percent is utilized. At existing average yields, if the entire fresh water area was cultivated, the annual production wTould be of the order of 600,000 tons. If the reclaimable water areas (about 650,000 hectares) -were also used, production could well exceed 1 million tons. With improved cultural practices, total yield could be over 5 million tons. 1/ Some panchayats in Andhra Pradesh, in Madhya Pradesh, and in Uttar Pradesh already derive most of their income from pisciculture. 2/ Under these circumstances it would not be difficult to create demand for marine fishes nearly everywhere in India, provided that a good market organization were to be set up and that the products were low-priced. 7. In addition,-an organized fishing industry could greatly improve the economy of the fishermen who generally are extremely poor and indebted, and could provide job opportunities in a big way. But in India, resources are scarce and priorities numerous, so that the Fourth Plan, wqhich is well aware of the huge potential benefits of the development of marine fisheries, could not allocate more than Rs 830 million as outlay on fisheries for the five year period. 8. If the general performance of the fishing industry appears to be poor and if its medium-term prospects are not too bright, there is however a success story, par excellence, to be told: that of the shrimp industry. II. INDIAN SHRIMP INDUSTRY 9. Until the early 1950s India's surplus of shrimp was dried, salted or pickled and sold in nearby countries. It wqas in 1951 that the first freezing plant was opened in Cochin: it was a joint venture with a U.S. firm, which provided marketing facilities, but the capital was Indian. Commercial shipments began in 1953. Initial conditions were poor for the export trade; catches were spread over iwide areas of coast, transport facilities to plants were poor, no electricity was available (refrigeration equipment was run with diesel engines), no trained employees were available, no suitable packaging material was available, and steamers with frozen food storage were few in number. Gradually plate freezers were installed, flake ice plants constructed, packaging improved and other problems overcome. In 1956 the big expansion occurred and several freezers began operations in the business. 1/ Source: Fisheries Development - FAQ - Rome 1969. 2/ Source: International Conference on Investment in Fisheries - FAQ 10. Fifteen years ago, India was not on the map in the international shrimp trade. Now India is the world's third largest producer of shrimps, exceeded only by the United States and Mexico. In 1967, India's catch represented over 12 percent of the world's shrimp catches. 1/ By 1965, India had become the second largest exporter of shrimp to the United States, after Mexico. In 1961, India provided 2.6 percent of the total United States im- port requirements; in 1969, despite the fact that United States requirements increased by over 50 percent, India supplied 18 percent of U.S imports. The most remarkable feature of this development is that it took place in a spontan- eous manner with ecarcely any concerted plans; still more remarkable, the Indian shrimp processing industry is still characterized by small independent firms. 11. The shrimp industry in India has thus been primarily a development operated by private capital and private initiative, without much government interference. However, the government has assisted the industry by waiving duties on essential import items needed to develop it. It also introduced quality control in the industry: preshipment inspection and approval by a government authority of all goods for export has been compulsory since early 1965, and this was a major step in the way to improve export performance. Moreover, in cooperation with the industry, the government fomed the Marine Export Promotion Council, located in Ernakulam, Kerala. This organization promotes new markets, new products, and new processes for its members and re- presents the industry in its contacts with federal agencies III. PRODUCTION PROBLEMS 12. Shrimping is done along all of India's coast. However, the lack of ports is a limiting factor in the growth of the industry in many areas. The major producing area is the southwestern coast. Cochin is the center of the industry. Other important areas on the west coast are Bombay and the Gulf of Kutch. The east coast shrimp industry, centered in the Visakhapatnam area, is not yet as important as the west coast fishery but has equal potential and is developing rapidly. 13. According to the central Marine Fisheries Research Institute, shrimp catches have increased very slowly since 1962. FAO statistics show a similar trend. However, as shown in the following table, export figures differ somewhat: 1/ Bureau of Commercial Fisheries - United States Department of Interior. -5- Shrimp landings Exports of Shrimps 3/ (in'tons of life weiLjh) (in tons of meat weight) 1/ 2/ 1960 70,600 -- 4,200 (1958,FAO) 1961 62,800 --- --- 1962 83,200 84,200 6,100 1963 81,600 83,600 8,000 1964 94,900 99,300 9,800 1965 77,300 82,000 9,800 1966 90,900 94,500 13,300 1967 91,600 99,400 14,800 1968 99,800 105,800 18,000 1969 n.a. n.a. 2h,000 14. It is probably difficult to accept the figures pertaining to shrimp landings at their face value, but one probably can more or less accept the trend they showv. In 1962, figures of catches and exports strongly suggest that collection of shrimps for processing purposes was extremely poor and this situation prevailed up to 1966. HowTever, the incentives provided by the devaluation of the rupee in June 1966 4/ brought a definite change. With the prospects of substantial profits on their export sales, processors did their best to improve the rate of collection by promoting better marketing facilities and by offering higher prices to fishermen. The result was that in 1965, exports represented scarcely one-fourth of total catches 5/ as recorded in the official statistics, and accounted for more than one-third in 1968. In 1969, this proportion has probably stepped up considerably (between 40 to 50 percent). How this rate of collection could be increased in the future is difficult to say. About a third of the shrimp catch has no commercial value; being very small crustaceans they are consumed in production centers. A part of the catch with commercial value is also either consumed on the spot for lack of processing units in the region, lack of coastal feeder roads and freeze trucks or is sent to urban centers where marketing facilities exist. However, in Kerala, where 80 to 85 percent of the industry is concentrated, the rate of collection cannot possibly be increased, except in a very marginal way. 1/ FAO Catch andLanding Statistics 2/ Central Marine Fisheries, Research Institute. 3/ D.G.C.I. and S - Calcutta. 4/ The Indian Rupee was devaluated by 57.5 percent, in terms of $. 5/ The rate of conversion of life weight to processed shrimps is about 2 to 1. -6- 15. There is, indeed, definite evidence that the upper limit of production from southwestern coastal waters - the main production center - has been reached. A downward trend in individual shrimp catches has been noticeable in Cochin since 1963, and this has created a steadily ggro in-> problem for processors and exporters. Mlany of the processing plants in Cochin are working at only 25 percent of capacity because of shortage of raw materials and processors are compelled to ccmpete for the raw material by offering higher prices to the small fishermenl'. This has led to an unhealthy multiplication of small boats. As a result, since 1963 the total catch has increased, but the catch per boat is falling. Moreover the size of shrimps caught is also decreasing, a sign that overfishing is probably leading operators to net them before they are fully grown. The cost of netting one kilogram of shrimp is rising to the point where the margin of profit for fishermen using traditional methods /could become very small. 16. In the Gulf of Kutch and Bombay coastal waters, shrimp catches and the rate of collection by the industry can be increased provided that enough processing plants are installed. Coastal waters centered around Visakhapatnam are becoming gradually more intensively exploited; processors are also starting to invest -around Bhubaneswar. According to the trade, Andhra Pradesh and Orissa coastal waters have a potential equal to the Kerala waters. It is therefore likely that,in the coming few years, increases in production will come mostly from eastern coast. Again, the development which is taking place is a spontaneous one, resulting from the initiative of small private entrepreneurs. 17. Another source of supply, which is likely to slightly decrease in the future due to land reclamation, is shrimp fishing in the rice paddies. Pond shrimping and rice-paddy shrimp fishing are well developed in Kerala State, producing around 4,000 tons per year. About 11,000 acres are used for shrimping. Fields adjacent to the sea are the most productive, with an average shrimp yield of 460 kg per acre. Fields connected indirectly to the sea by the ponds are the least productive, 160 kg per acre. Rice paddy fields are filled with brackish water at high tides, the water containing a large number of shrimp eggs and larvae. These thrive in warm water and the rotting vegetation makes for good feeding. Upon reaching commercial size, usually in a few months, the sluice gates are opened and the shrimp netted in fine-meshed nets, as the water filters out. 1 Most of the processing plants have their ot-m fleet (generally a few mechan- ized boats, 32 feet long) which is, however, too small to meet their raw material requirements. They have therefore, also to rely on the catches of the small fishermen. In spite of the advance of mechanization in the last ten years (there are more than 1,200 motor-driven fishing boats operating from Cochin today against two or three in 1958 and the demand for more is ahead of supply), most of the 5,000 boats engaged in fishing at this center are dugout canoes or consist of three logs lashed together with rope, which cannot be mechanized. The rest are sailboats, some of which could take engines. -7- 18. The shrimp belt now commonly fished is between 5 and 15 fathoms deep, but research carried out by the Indo-Norw'egian fisheries development project has revealed large new grounds with seven different varieties, including rich resources of cold water or pink shrimp, which fetches a high price in the world market. But these grounds are beyond the reach of most of the vessels belonging to the Cochin fleet and ocean-going trawlers have, therefore, become an urgent necessity to keep the industry expanding. At present there are only 12 trawlers which operate both in deep waters and offshore. These trawlers belong to New India Fisheries, Ltd., an Indo-Japanese venture started in 1955. This firm in which the Taiyo Fishery Company of Japan has a 49 percent interest, is Cochin based. These trawlers, of Japanese make, can remain at sea up to 20 days at a time. Daily average shrimp catch is three-quarters of a ton but during the monsoon this goes up to two or three tons. 19. In the Fourth Five Year Plan, "it is proposed to introduce 300 fishing trawlers to be operated by private companies, cooperatives and State fisheries corporations. To assist this program, the Indian Development Bank of India has agreed to provide deferred payment facilities for the indigenous trawilers. Assistance will be available from Plan funds by way of subsidy towards the cost of such trawilers so that these are able to compete with imported trawlers" (Page 203, para. 8.h1). Unfortunately, these dispositions do not generally please the prospective buyers for reasons explained hereafter. 20. Mechanized boats are locally produced, but building of trawlers, especially those of 72 feet of length, is a new activity for the Indian shipyards. Therefore, after lengthy discussions with the trade, the govern- ment has agreed to the import of trawlers, provided that for every three trawlers, one at least has to be Indian-made. Price of an imported trawller is about 800,o00 rupees, but no special arrangements are now available to help the financing of imported trawlers and, being generally small entre- preneurs, prospective buyers find difficulties in securing loans from commercial banks, because they cannot offer enough collateral. Moreover, buyers would like to receive subsidies of no less than 25 percent of the price of imported trawlers. If there is no obvious reason why buyers should be subsidized, it is nevertheless true that financing facilities must be provided for the purchase of imported trawlers. 1/ 21. On-the other hand, locally made trawlers-/!are costlier (1 million rupees than the imported one, but government subsidies will equalize the prices of both local and imported. However, despite adequate financing facilities, buyers are reluctant to pass orders to Indian shipyards, being afraid of delivery delays, inadequate plate freezers and, chiefly, of in- efficent engines. Perhaps, most of the buyers' reluctance could be overcome by allowing, at least, imports of engines. The government assisted in the formation of two consortia: Western India Shipbuilders Consortium and Eastern India Shipbuilders Consortium. 22. Quality problems of locally made trawlers and financing problems for the imported boats are not the only ones which stand in the way of the Fourth Plan Program. At present, there is scarcely any skilled labor to operate a trawler and the training of such a labor force is time consuming. With the help of two vessels, a gift from Sweden, and under the supervision of a master fisherman from Iceland, whose services have been obtained from FAO, a training programme has been already underway for the last eighteen months. Nevertheless, at least at the start, most of the skippers and other technicians would have to be hired from abroad to train Indian skippers, mates, engine drivers, gear technicians, marine engineers, shore mechanics, wireless operators, etc. The idea is to "import" the crew along with the boat for at least a one year's training period. Up to now, nothing is known about the financing of such expensive schemes. 23. Another problem is the infrastructural environment. One of the major handicaps is undoubtedly the absence of ports and port facilities, ranging from repair shops and slipways to proper landing jetties, processing facilities and mark:eting arrangements. The need for fisheries harbors, with all their various ancillary services, was recognized at a very early stage of the modernization process in Intia's fisheries. The main problem is the early and efficient implementation of plans. The net results of partly internationally aided 1/ efforts in this field is that up to the end of 1968, eight fisheries harbors had been corpleted, 38 were under construction and an equal number had been selected for pre-investment surveys. It must be pointed out, however, that even for the existing fleet of mainly smal]. mechanized boats, harbor and shore arrangements are still inadequate. Even in the few harbors where engineering work has been completed, repair facilities, supply of water and ice and also plants for handling and processing are either insufficient or dramatically lacking. In some cases where such facilities are available, there is insufficient coordination. 2k. It therefore appears that the current development policies regard- ing the introduction of 300 trawlers are unlikely to materialize during the Fourth Plan period: inadequate financing, lack} of trained manpower and poor infrastructure are not insurmountable problems, but it will take quite a time to overcome them. Existing facilities and work now in progress might nevertheless make possible the operation and the seiricing of a small Cochin or Madras based fleet of trawflers during the Fourth Plan period. For the time being, since an individual buyer must at least order three trawlers (two imported plus one Indian-made) only big Corporations like Union Carbide India, Tata, etc.,... have shown interest in purchasing such trawzlers. The GOI has already granted import licenses for 20 trawlers. Union Carbide India has already launched two U.S.-made trawzlers (86 feet in length). It is there- fore well possible that within the coming two years, 30 big trawlers might be in operation: this could mean an increase in exports of about 25% over the present level. 1/ Norway, Sweden, FAO, etc. -9- IV. EXPORTS 25. Shrimps are by far the leading fishery export for India, accounting for about 24,000 tons in 1969 or 80 percent of total fish exports in value. Total fish exports were value) at U.S. $44 million in 1969, of whicy over U.S. $38 million was shrimp.Y The principal item is frozen shrimp,Jamounting to 21,500 tons in 1969. Shipments to the United States took 71 percent of that total, but only 60 percent on the basis of value. Generally every U.S. importer has an agent in Cochin, whose main task is to assess the reliability of the firm in terms of financial soundness, quality of the end products, etc..., before the importer enters into a business relationship with it, but orders are passed directly by the importer to the processor. Shrimps are sold on a consignment basis and the exporter receives 80% of the value at the time of the shipment..3/ The U.S. market is a very interesting and convenient market since it can absorb all kinds of shrimp, including those of small size. On the contrary, Japan, which is taking an increasingly larger share of exports, purchases mostly jumbo shrimps; as a result India sold on the basis of quantity, 25 percent of her total exports to Japan, but 35 percent in terms of value. For the time being, the industry is not interested in developing new markets for frozen shrimp (except in Australia), because it cannot now fill the orders it gets through its foreign agents in the United States and Japan. 26. The trade in U.S. rates the quality of frozen shrimps from India as good and the quality is found to be improving over the years. Neverthe- less a few Indian firms are still exporting products of uneven quality, which are partly responsible for the lesser price Indian shrimps of comparable category and grade are fetching in the U.S. market compared with say Mexican shrimps. The main reason is, however, that it takes a long time to build a reputa,tion, and this applies also to countries like Thailand, Pakistan, Brazil etc.... There is no apparent reason to believe, as some Indian exporters do, that prices of Indian shrimps are artificially depressed by U.S. importers, which would take advantage of the-fact that exports are made on consignment basis. We, at least, found no evidence of this. See in Annex Table I and Table II. See in Annex Table III. / then for one reason or another, the price at which the U.S. importer sells shrimp falls below 80% of the price at the time of the order, the importer experiences difficulty in obtaining reimbursement of the difference from the exporter: this is at least the contention of one importer in the U.S. We have been told, that it took about 2 years of sustained effort for an outstanding Brazilian firm, processing lobster tails, to see the price offered for its products moving from the 13r,' .ilian average to the Mexican average. - 10 - 27. U. S. importers would like to see exports of shrimps from India undertaken in a more regular and even manner, which implies the building up of inventories during the peak season for sale during the off-season. Under the present circumstance, the arrival of Indian shrimps in huge quantities in the U.S. at certain periods of the year is depressing the whole market. 28. There is also room for improvement in the packaging of Indian shrimps, in terms of quality and attractiveness. However, this problem is rather complex. If for instance, one Indian exporter is spendirg 3 more cents per package, he will not receive one more cent for its product, the price of which will be as quoted in the "green sheet" 1/; it may eventually take two or three years, before the consumers would be ready to pay a premium in addition to the "Indian" price, to get shrimp with this particular package. 29. Canned shrimp (U.S. $3 million) are exported mostly to the U.K., the U.S. and France. Frozen lobster tails (U.S. $1.5 million) are entirely exported to the U.S. Another relatively important export item is frozen froglegs. India started developing this industry about ten years ago and has now become the world's largest producer. A dozen or so of highly modern small plants have been set up around Cochin, Mangalore, Goa and Bombay, which process frogs caught during the previous night with the help of torches in surrounding marshlands. Exports of froglegs amounted over 850 tons in 1969 and were valued at U.S. $1.5 million: major markets are the U.S., France and Belgium. India is also exporting a traditional item: dried fish, to Ceylon valued at from U.S. $1.5 to $2 million a year; following foreign exchange difficulties, Burma, another traditional importer of dried fish, stopped importing in 1962, 2/ 30. The international shrimp market is a seller's market and will remain so in the future, as the catch rate is expected to remain behind the fast growing demand in high-income countries, especially in Japan and Western Europe, whose incomes have reached a level where the income elasti- city of demand is probably the highest.3/ Between 1958 and 1968, consumption in the U.S. nearly doubled: i.e. a yearly increase of about 7 percent. With the present reservoir of unfilled demand especially from medium income groups there is no reason to expect that the rate of consumption increase in the U.S. should slow, dotn. There is also a distinct possibility that consumers 1/ Daily sheet published by the trade reflecting the market trend for shrimps, lobsters, etc..., originating from different countries. 2/ See in Annex Table IV. 3/ Between 1958 and 1968 total world consumption increased by 10 percent, while U.S. consumption increased by only 7 percent per year. In other words, developed countries other than U.S., increased their consumption by 26 percent per year during the past decade. Nevertheless, U.S. con- sumption during the first half of 1970 conpared with the same period in 1969 increased by no less than 15 percent; supply was abundant and prices slightly lower. demand might shift to higher quality products (i.e. large-size shrimps). The U.S. trade thinks that the prices of shrimps will continue to fluctuate sharply in the 'short run, but ir the long run they will continue, as in the past, to show an upward trend)i 31. Between 1958 and 1968,2/world production of crustaceans increased from 150,000 tons to 380,000 tons, i.e. by nearly 10 percent a year; during the same period, exports increased from 66,ooo tons to 118,000 tons, i.e. by 6 percent a year, which implies that prqduction increased faster in consuming countries than in exporting countries.3J In terms of value, exports increased from U.S. $87 to $236 million, an increase of over 10.5
Группа Всемирного банка · Pre-2003 Economic or Sector Report
India - Export prospects (Vol. 2 of 3) : Export prosects of primary and quasi-primary products
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