State's Economy down a Bumpy Ride as Rubber Prices Slump

Published: 29th November 2014 06:13 AM  |   Last Updated: 29th November 2014 06:13 AM   |  A+A-

Kerala economy

KOCHI: The falling rubber prices, which are ruling at a five-year low, have directly affected lives of 11 lakh rubber-growing families in the state.

With international prices trading lower than the domestic prices and Thailand, the world’s biggest rubber producer, readying to sell at least 100,000 tonnes or half of its stockpile, industry officials reckon that tough times are here to stay for farmers.

India is the world’s fifth largest producer of rubber, producing nearly 8.5 lakh tonnes last fiscal and the state accounts for nearly 90 per cent of the country’s rubber production.

Natural rubber prices, which hit a high of Rs 240 per kg in 2011, are down nearly 53 per cent to touch Rs 114 levels this year. From last year, the prices have shed 24 per cent.

“Considering that a family comprises at least four members or more, we are talking about a minimum of 44-50 lakh people, who are in distress due to the slump in rubber prices,” said Siby J Monippally, general secretary, Indian Rubber Growers Association. What worries people like Monippally is the complete lack of support from both the state and the union governments to support the farmers.

Other leading rubber-producing countries have announced big measures to support their farmers. Thailand last month said it would introduce steps worth $1.8 bn (Rs 1,080 crore) to support local farmers to deal with sharp price decline.

Thailand, Indonesia, Malaysia and Vietnam have also decided to refrain from selling natural rubber below current prices while Cambodia, the Philippines and Papua New Guinea pledged support to improve prices and prevent small holders from suffering further losses.

In India, the farmers’ plea for higher import duty on natural rubber is falling on deaf ears. At present the import duty for natural rubber is 20 per cent or Rs 30 a kg, whichever is lower. The import duty on natural rubber should be raised to 30-35 per cent, according to C R Muralidharan, president of the Bharatiya Rubber Karshaka Morcha.

More importantly, the duties should be more if tyre manufacturers import more than what is available within the country, said Monippally. 

Last year, for instance, the local production stood at 8.44 lakh tonnes as against the local demand of 9.77 lakh tonnes. Though the shortfall was only 1.33 lakh tonnes, the imports were to the tune of 3.24 lakh tonnes - nearly 2 lakh tonnes more than the requirement. “This should not have happened,” said Muralidharan.

According to Rubber Board, rubber production has declined 32 per cent a year to 58,000 tonnes in October, which is usually the start of the peak production period, a clear indication that farmers have halted tapping. Making matters worse for the farmers is the low duty structure for finished rubber products, allowing cheap imports, mostly from China, of several rubber-based products such as cycle tubes, gloves, floor covering mats, hoses, pipes and bands.

“The import duty on finished rubber-based non-tyre products is as low at 0-5 per cent,” said a Rubber Board official.

According to data, total import of rubber products into India has doubled from Rs  3,810 crore in 2009-10 to Rs 7,608 crore in 2012-13. “There are hundreds of small-scale units across the country in rubber-based products. What needs to be done is to remove this inverted duty structure, besides giving these units various sops, export incentives and subsidies to stand up to competition from China,” said the Rubber Board official.

By promoting local small-scale industries involved in rubber-based products, India can also create more demand for natural rubber within the country. Though the state government announced that it would start using rubberised bitumen for laying new roads and repairing old roads in October, there was no follow up action on this front.

“If the Public Works Department (PWD) decides to use rubberised bitumen for even 10 per cent of its roads every year it would create demand for 60 lakh kg of rubber per year,” reckoned Muralidharan.

The state government has decided to procure natural rubber at Rs 5 more than the per kg market price, but given the subdued price, it is unlikely that farmers would use this option. “Most farmers have stopped tapping. Only those farmers who could afford to tap the rubber themselves can survive at current prices,” said Johny, a farmer in Idukki district. There have also been no takers for saplings at rubber nurseries.  The fall in crude prices, which touched near $70 a barrel, the lowest in four years, have resulted in lower prices for synthetic rubber, a competitor for natural rubber, further dampening natural rubber demand. Synthetic rubber is made from petroleum products.  According to Rubber Board, the share of natural rubber in the overall rubber demand has come down to 66 per cent from 75 per cent in the last decade mostly due to increasing use of synthetic rubber in passenger cars. As far as imports are concerned, the farmers have an unlikely ally in tyre manufacturers.

In a statement early this month, Raghupati Singhania, Chairman, Automotive Tyre Manufacturers’ Association (ATMA), said the tyre industry was hit by lower capacity utilisation and low capital productivity due to surging imports of undervalued and dumped tyres from China.  Singhania said imported tyres have come to account for an estimated 20 per cent of the total domestic market. “The Chinese government continues to provide multiple, direct and indirect, subsidies to push exports. The export prices from China are lower than that of such tyres in Chinese domestic market and also prices of similar exports originating from Thailand, South Korea. This clearly indicates dumping of tyres into Indian markets,” he said.

Muralidharan hoped all the anomalies in the rubber policies are rectified in the new National Rubber Policy, which is in the works with an eye on farmers’ uplift.

Spice Farmers Stare at Bland Future

The problems faced by farmers in other plantation crops viz., pepper and cardamom are different though the net result is the same - bad times for farmers. Low-quality imports of pepper from Vietnam and cardamom from Gautemala, have spoiled global reputation of Kerala spices, known for its distinct taste and flavour. The cardamom from Gautemala is available at half the price of Indian cardamom, ruling around Rs 700 a kg. Farmers said spice-products manufacturers are mixing the high-quality Indian spices with imported variety for exports, lowering the value of Indian spices in the global market. With rising temperatures in Wayanad and Idukki, where vast majority of pepper and cardamom are grown, farmers said it was unsustainable to produce the spices the same amount of pepper and cardamom in coming years. According to the Spices Board, the area of cultivation of spices in Kerala has come down by 70,793 hectares from 2008-09 to 2012-13. Tea farmers are also facing the brunt on fall in prices, which have come down by 17 per cent to Rs 85 per kg from an year-ago period. 

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