There is at present no organized futures market in Bangladesh. The local mills which buy loose jute can not hedge themselves against price rises by buying futures. The only way they try to cover themselves is by storing a large stock of jute in their own warehouse which locks up their capital and raises cost.
While the value of trading in futures is fully admitted, its necessity in the case of jute is questioned by some on the ground that jute is a monopoly of Bangladesh and therefore the need for insurance against fluctuations in price does not arise. In the case of a commodity which is under effective monopoly control, the supplier is in a position to regulate prices himself and to give the trade the necessary advantage of contracts necessary for future delivery. But such sort of argument does not hold in regard to the jute trade in the post-independence circumstances. Because, for us, jute is now not strictly an economic monopoly owing to the ignorance and disorganized conditions of the cultivators who compete among themselves for the sale of their individual crops often at unreasonably low rates.
Besides, some countries, of which India is most prominent, are also producing and exporting jute and these are competing with our jute in the international market. This causes Bangladesh to lose absolute monopoly in jute production and jute marketing. In such circumstances a futures market would be considered valuable because it would widen the extent of the market and provide helpful information as to the trend of the world demand for jute. The need for a futures market in jute seems to be justified by the fact that fluctuations in the price of jute are no less violent than in the case of other staple commodities for which such markets have been established in different countries.
According to some shippers and balers of jute in Bangladesh, a properly organized and responsibly run future’s market in raw jute would be useful in the interests of their business as it would provide liquidity in the market as well as hedging facilities. While some others feel that a future’s market in jute is not desirable from the point of view of their business. They think that a future’s market would invite gamblers to operate therein, increase fluctuations in the price of jute and make it difficult for genuine buyers and sellers to operate, either inside or outside this market.
‘They opine that the insurance against price fluctuation is essential only in regard to a commodity having several competing sources of supply. In this country future’s market are considered with disfavor even in responsible quarters. The Bengal Jute Inquiry Committee (1939), doubted if in spite of the many imperfections in the futures market in jute in Calcutta the operations therein had in fact promoted greater instability of prices. The Committee concluded that the existence of a proper future’s market based on loose jute was in the interests of jute trade as a whole.
The Indian Central Jute Committee while admitting the value of a properly organized future’s market commented on the Calcutta future’s markets in jute as follows: Unfortunately, on frequent occasions these markets have been manipulated by deliberately creating artificial demand, organizing hurried sales on a large scale spreading false rumors and similar methods, which have nothing to do with genuine production, distribution and consumption of jute and goods.
Again, sometimes a particular situation has been exploited with the sole idea of causing violent fluctuations in the rates. Both on theological considerations as well as on the basis of the experience of the advanced countries, there is no doubt that a properly organized future’s market in jute in this country would reduce seasonal movements in price and by imparting greater stability would enable the intermediaries and the jute mills to operate on a lower margin.
The Commodity Exchange and Futures Market :
Organization of Jute Future Market Here we should note that there are certain conditions regarded as essential in the organization of jute futures market. The conditions are as follows’:
1. The statutory appointment of a representative jute trade organization.
2. All sales and purchases of jute should be the subject of written and stamped contracts in the prescribed form.
3. Dealers should have the right to demand delivery of the produce mentioned in the contracts within a reasonable period. 4. Fixation of minimum quantity of jute below which no transaction should be valid in law.