Lost in plantation
5 Feb 2015 11:15 PM GMT
IN 2005, when almost all other crops were in severe crisis, driving farmers to commit suicide in Kerala, rubber growers in the state were counting profits. They were witnessing a price boom after six years of distress. The price of the most preferred and traded variety in India called ribbed, smoked rubber sheet (RSS-4 grade) jumped from Rs 39 a kilogram in 2003 to Rs 66 in 2005. The growers did not expect the price to stay high for long. However, it not only stayed but started galloping, touching Rs 240 in April 2011. It was an unprecedented peak in the history of rubber.
“I had never thought I would be able to get such a high price for rubber in my life,” says 44-year-old Robin Augustine, a resident of Kadanad village in the Pala region of Kottayam district. Kottayam and some of the neighbouring areas in southern Kerala, known as Central Travancore, constitute the most fertile rubber belt in the country. Augustine’s family has been growing rubber for three generations. “During the boom, I used to get a profit of Rs 2-3 lakh a year,” says Augustine, who has two hectares (ha) of plantation.
Business in the Kottayam market, the biggest rubber trading centre in the country, was thriving. A spending spree was evident in Kottayam. New houses, luxury apartments, big shops, hotels and resorts mushroomed. Costly cars hit the road. Children were sent to expensive boarding schools. Land transactions went up even as land value skyrocketed.
Then came the crash. Since 2012 rubber prices started spiralling downwards. On December 18, 2014, the price of natural rubber (RSS-4 grade) in the Kottayam market was Rs 113, a five-year low. The global price of rubber (RSS-3 grade) at the Bangkok market stood at even lower, Rs 95.
Today, a cloud of uncertainty envelops Kottayam and other rubber-growing areas. A number of dealers have shut shop. Many small units making rubber-based products have closed down. “The cost of producing one kilogram of dry rubber comes to Rs 150-160. It is not profitable to produce rubber when price goes below this level,” says Binny Mathew, president of a rubber producers’ society in Kadanad, which has 300 small growers as its members.
Small growers and farm labourers, who constitute a large segment of the state’s plantation workforce, are the hardest hit by the downturn. Just like Augustine there are over one million rubber growers in Kerala, the country’s rubber capital. Barring about 320 large growers with more than 10 ha of plantations, all others are small cultivators with a landholding less than 0.55 ha, as per official data. These plantations employ about half a million skilled labourers for tapping the milky fluid, called latex, and processing it into rubber sheets.
During the boom, the cost of everything from inputs to labourers went up, says Mathew. Tappers, who extract latex, were paid Rs 26 for tapping 100 trees in 1999. Now they charge Rs 150-200 in Kottayam. To tap a tree in monsoon, rain guards are fixed on its bark to prevent water drops from falling into the coconut shell in which latex is collected. This costs about Rs 50 a tree. “I sent away all the four tappers I had for 25 years when rubber price fell below Rs 150 in January last year,” says Kurien Verghese, a rubber producer with 6.8 ha in Thodupuzha in the high ranges of Idukki district.
In many places rubber trees are left untapped. Nor is there any enthusiasm for replanting aged plantations whose productivity has declined. Verghese says he was wise enough to invest in other businesses but a majority of rubber growers in his village are marginal farmers, who, he says, are in deep distress.
While small growers are in panic, big producers watch the price trend in anxiety. “Rubber tree is a perennial crop with a reproductive period of 30 years,” points out Mathew Mathew K, physician and planter at Kanjirappuzha in Palakkad district. “Investing in rubber is just like investing in a 30-year business. If it is an annual crop you can switch over to something else. But in the case of rubber it is not possible,” he says. Small wonder, “For Sale” boards have appeared in front of some rubber farms in the land-starved state.
WHAT TRIGGERED THE CRASH
The immediate cause of this downturn was global economic recession. The transport sector alone accounts for about 70 per cent of the total rubber consumption in the world. With economic slowdown there is a corresponding decline in vehicles’ sales and, consequently, in demand for rubber.
“Along with this there was a fall in crude oil prices, weakening of the currencies of rubber-exporting Asian countries and speculation that Thailand would release half of the 220,000 tonnes of rubber it had procured at the start of the downswing,” points out Jom Jacob, deputy director (statistics and planning), Rubber Board, the only Central government agency entrusted with the responsibility of developing natural rubber. Thailand did release its stock, leading to excess supply in the market when consumption was low. This further depressed global prices.
Another major factor was China, a big rubber consumer, which was decreasing its imports. Between 2003 and 2011, China was focused on infrastructure development—a period that coincides with the boom in rubber prices. However, since 2011 China has reduced its imports of natural rubber and started investing on a large scale in natural rubber production to become self-sufficient.
Indiscriminate imports by domestic consumers made it worse. After economic reforms and trade liberalisation in 1991, the government relaxed restrictions on the import of natural rubber. Anybody can import rubber by paying the import duty of 20 per cent or Rs 30 per kg, whichever is lower.
Besides, under Advance Licensing Scheme duty-free import is allowed with a commitment to export finished goods within 18-24 months. Producers allege that imports by consumers, mainly tyre companies, were responsible for the sharp dip in domestic rubber price. “Whenever the global price goes below the domestic price, big tyre companies dump cheap, low-quality rubber in the Indian market,” points out VijayanRajes, president of the United Planters’ Association of Southern India (UPASI). “This is to pull down the prices in the domestic market.”
Of the total consumption of natural rubber in the country, tyre industry accounts for 65 per cent. Of this, about a half is consumed by a few big companies such as MRF, Apollo, CEAT, JK Tyres and Balkrishna, which are located outside Kerala.
The volume of imports registered a four-fold increase from 77,762 tonnes in 2008-09 to 360,273 tonnes in 2013-14. As C Vinayaraghavan, vice-president of the Association of Planters in Kerala, points out, imports are way beyond the shortfall in production. Where is the justification to import 0.22 million tonnes in 2012 when production was 0.91 million tonnes and consumption was 0.97 million tonnes, he asks. Considering the increasing volume of imports, the import duty should be raised to at least 40 per cent, demand producers’ associations.
Makers of rubber-based products give their own reasons for import. Rajiv Budhraja, secretary general of Automotive Tyre Manufacturers Association, New Delhi, says the supply is seasonal and depends on climate; small growers engage in poor processing practices and supply from them is inconsistent. Besides, according to him, the quality of sheet and block rubber produced in India does not match the requirement of the tyre sector, particularly for high-tech radial truck and bus tyres.
They also complain about lower import duties for finished rubber goods than that for natural rubber. For example, the import duty for finished tyres is 10 per cent, which is half of that for natural rubber. Import duty for other products is even lower.
The Kerala government responded to the crashing prices by offering to buy rubber at a slightly higher than market price and forgoing the purchase tax if the industry buys rubber at a minimum price of Rs 130 a kg. But both measures failed. Chief Minister Oommen Chandy and Minister of Finance K M Mani, are particularly worried because both hail from Kottayam and have large sections of rubber growers as their vote bank. They are leading jumbo teams of ministers to Delhi to urge the prime minister for urgent actions.
The crisis in the rubber sector is symptomatic of a bigger malaise afflicting Kerala’s farm economy. DOWN TO EARTH
“I had never thought I would be able to get such a high price for rubber in my life,” says 44-year-old Robin Augustine, a resident of Kadanad village in the Pala region of Kottayam district. Kottayam and some of the neighbouring areas in southern Kerala, known as Central Travancore, constitute the most fertile rubber belt in the country. Augustine’s family has been growing rubber for three generations. “During the boom, I used to get a profit of Rs 2-3 lakh a year,” says Augustine, who has two hectares (ha) of plantation.
Business in the Kottayam market, the biggest rubber trading centre in the country, was thriving. A spending spree was evident in Kottayam. New houses, luxury apartments, big shops, hotels and resorts mushroomed. Costly cars hit the road. Children were sent to expensive boarding schools. Land transactions went up even as land value skyrocketed.
Then came the crash. Since 2012 rubber prices started spiralling downwards. On December 18, 2014, the price of natural rubber (RSS-4 grade) in the Kottayam market was Rs 113, a five-year low. The global price of rubber (RSS-3 grade) at the Bangkok market stood at even lower, Rs 95.
Today, a cloud of uncertainty envelops Kottayam and other rubber-growing areas. A number of dealers have shut shop. Many small units making rubber-based products have closed down. “The cost of producing one kilogram of dry rubber comes to Rs 150-160. It is not profitable to produce rubber when price goes below this level,” says Binny Mathew, president of a rubber producers’ society in Kadanad, which has 300 small growers as its members.
Small growers and farm labourers, who constitute a large segment of the state’s plantation workforce, are the hardest hit by the downturn. Just like Augustine there are over one million rubber growers in Kerala, the country’s rubber capital. Barring about 320 large growers with more than 10 ha of plantations, all others are small cultivators with a landholding less than 0.55 ha, as per official data. These plantations employ about half a million skilled labourers for tapping the milky fluid, called latex, and processing it into rubber sheets.
During the boom, the cost of everything from inputs to labourers went up, says Mathew. Tappers, who extract latex, were paid Rs 26 for tapping 100 trees in 1999. Now they charge Rs 150-200 in Kottayam. To tap a tree in monsoon, rain guards are fixed on its bark to prevent water drops from falling into the coconut shell in which latex is collected. This costs about Rs 50 a tree. “I sent away all the four tappers I had for 25 years when rubber price fell below Rs 150 in January last year,” says Kurien Verghese, a rubber producer with 6.8 ha in Thodupuzha in the high ranges of Idukki district.
In many places rubber trees are left untapped. Nor is there any enthusiasm for replanting aged plantations whose productivity has declined. Verghese says he was wise enough to invest in other businesses but a majority of rubber growers in his village are marginal farmers, who, he says, are in deep distress.
While small growers are in panic, big producers watch the price trend in anxiety. “Rubber tree is a perennial crop with a reproductive period of 30 years,” points out Mathew Mathew K, physician and planter at Kanjirappuzha in Palakkad district. “Investing in rubber is just like investing in a 30-year business. If it is an annual crop you can switch over to something else. But in the case of rubber it is not possible,” he says. Small wonder, “For Sale” boards have appeared in front of some rubber farms in the land-starved state.
WHAT TRIGGERED THE CRASH
The immediate cause of this downturn was global economic recession. The transport sector alone accounts for about 70 per cent of the total rubber consumption in the world. With economic slowdown there is a corresponding decline in vehicles’ sales and, consequently, in demand for rubber.
“Along with this there was a fall in crude oil prices, weakening of the currencies of rubber-exporting Asian countries and speculation that Thailand would release half of the 220,000 tonnes of rubber it had procured at the start of the downswing,” points out Jom Jacob, deputy director (statistics and planning), Rubber Board, the only Central government agency entrusted with the responsibility of developing natural rubber. Thailand did release its stock, leading to excess supply in the market when consumption was low. This further depressed global prices.
Another major factor was China, a big rubber consumer, which was decreasing its imports. Between 2003 and 2011, China was focused on infrastructure development—a period that coincides with the boom in rubber prices. However, since 2011 China has reduced its imports of natural rubber and started investing on a large scale in natural rubber production to become self-sufficient.
Indiscriminate imports by domestic consumers made it worse. After economic reforms and trade liberalisation in 1991, the government relaxed restrictions on the import of natural rubber. Anybody can import rubber by paying the import duty of 20 per cent or Rs 30 per kg, whichever is lower.
Besides, under Advance Licensing Scheme duty-free import is allowed with a commitment to export finished goods within 18-24 months. Producers allege that imports by consumers, mainly tyre companies, were responsible for the sharp dip in domestic rubber price. “Whenever the global price goes below the domestic price, big tyre companies dump cheap, low-quality rubber in the Indian market,” points out VijayanRajes, president of the United Planters’ Association of Southern India (UPASI). “This is to pull down the prices in the domestic market.”
Of the total consumption of natural rubber in the country, tyre industry accounts for 65 per cent. Of this, about a half is consumed by a few big companies such as MRF, Apollo, CEAT, JK Tyres and Balkrishna, which are located outside Kerala.
The volume of imports registered a four-fold increase from 77,762 tonnes in 2008-09 to 360,273 tonnes in 2013-14. As C Vinayaraghavan, vice-president of the Association of Planters in Kerala, points out, imports are way beyond the shortfall in production. Where is the justification to import 0.22 million tonnes in 2012 when production was 0.91 million tonnes and consumption was 0.97 million tonnes, he asks. Considering the increasing volume of imports, the import duty should be raised to at least 40 per cent, demand producers’ associations.
Makers of rubber-based products give their own reasons for import. Rajiv Budhraja, secretary general of Automotive Tyre Manufacturers Association, New Delhi, says the supply is seasonal and depends on climate; small growers engage in poor processing practices and supply from them is inconsistent. Besides, according to him, the quality of sheet and block rubber produced in India does not match the requirement of the tyre sector, particularly for high-tech radial truck and bus tyres.
They also complain about lower import duties for finished rubber goods than that for natural rubber. For example, the import duty for finished tyres is 10 per cent, which is half of that for natural rubber. Import duty for other products is even lower.
The Kerala government responded to the crashing prices by offering to buy rubber at a slightly higher than market price and forgoing the purchase tax if the industry buys rubber at a minimum price of Rs 130 a kg. But both measures failed. Chief Minister Oommen Chandy and Minister of Finance K M Mani, are particularly worried because both hail from Kottayam and have large sections of rubber growers as their vote bank. They are leading jumbo teams of ministers to Delhi to urge the prime minister for urgent actions.
The crisis in the rubber sector is symptomatic of a bigger malaise afflicting Kerala’s farm economy. DOWN TO EARTH
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