A price stabilisation model for Pakistan jute.

This study is divided into four main Chapters. In the opening Chapter the relevant background information regarding the Pakistan economy and fluctuations in jute output and prices are collected. The small individual peasants of East Pakistan who produce the bulk of total jute output are found to be highly responsive to changes in the relative prices of jute and rice (the substitute crop) with a lag of one year. This lag structure in the price-supply relationship results in cobweb type fluctuations of the relative prices of jute and rice and the production of jute. The statistical evidence is that year to year fluctuations in the total export proceeds from raw jute are more closely related to the fluctuations in the export volume than to those in the export price. On the basis of the statistical evidence of Chapter I, the jute policies of the government of Pakistan and some other general stabilisation schemes proposed by several economists are examined in the following two Chapters. It was found that the Pakistan government schemes for jute price stabilisation were ineffective mainly because the important relationship between the supply of jute in any season and the relative prices of jute and rice in the preceding season was ignored. For the same reason also the Bauer-Paish scheme was not found to be suitable for Pakistan jute. In the concluding Chapter, a Price Stabilisation Model for Pakistan jute is proposed and tested with empirical data. The object of the suggested scheme, by eliminating (or atleast reducing) the cobweb cycle in the relative price and production of raw jute, is to keep the country's net gains from jute production and export at the maximum level. The main mechanism relied upon in the proposed model is to project optimum production quantity and then by setting the appropriate producer price, attempt to induce the growers to produce this optimum quantity. The producer price is to be announced well before the sowing starts for both jute and rice for the period concerned so that the jute/rice growers can make the necessary allocation of land and other resources between the two alternative crops. Any unforeseen changes in demand and/or in the planned output of jute are to be met from a national buffer stock, the operation of which will be relatively easy in the proposed scheme. As the supply of jute is to be adjusted to changing demand conditions, year to year fluctuations in the export price of raw jute would be comparatively small