Price stabilization for raw jute in Bangladesh

Fluctuating prices for raw jute have been viewed as contributing to economic problems in the jute subsector. Price fluctuations were thought to reduce the jute farmers'welfare and there has been concern about the costs of parastatals'stocking operations in attempts to stabilize jute prices and incomes. The authors examine these fluctuations and analyze policies that might reduce them. They find that price fluctuations for raw jute reduce farmers'welfare only slightly because farmers'activities are typically diversified and jute's share in total income is small. Although stocking operations by the parastatals contribute to stability in prices and real income, they have been extremely costly and have crowded out private stocking. The authors contend that if the parastatals had refrained from ad hoc stocking and if the private sector had stocked efficiently, jute prices and incomes would have been just as stable - and at no cost. They argue that the Bangladeshi jute market should be free of government intervention and that a a market-based credit system that allows efficient stockholding behavior by the private sector should be established. They also found that improving the flow of market information to farmers and greater price responsiveness by jute mills to raw jute purchases would significantly improve the stability of raw jute prices and incomes. Having more information available would also make private stocking operations more efficient.