Rubber prices appreciate on intervention

Finally, the prime minister has given his word that a "remunerative floor price will be fixed for natural rubber soon", during his recent visit to Kerala. To top it all, a slide in rupee to the Rs 41-mark against the greenback may prove a blessing in disguise by making imports unattractive and exports competitive.

But isthis a short-term rally or will the rally sustain?. According to Rubber Board estimates, the total production of natural rubber during the last fiscal was 5.94 lakh tonnes while the demand stood at 4.88 lakh tonnes leaving a surplus of 1.09 lakh tonnes.

According to the Board, the first and foremost reason behind the crisis was the slowdown in the tyre sector, especially in the truck and bus segment. According to ATMA figures, the production of truck and bus tyres declined by 14 per cent in 1997-98 to 65,35,000 (75,70,00 in 1996-97). This slump proved critical for rubber growers as the top end of the tyre sector accounts for more than 60 per cent of the total rubber consumption.

The Board also offers a solution to the problem, indeed short-term. The Board has advised growers to slash production by tapping alternate days or even once in three days. But growers do not seem to have relished the idea. According to them, the Board is responsible for the double digit growth in rubber production since 1970s byproviding various incentives. "They should have thought of this problem way back in the 70s," fumed a rubber grower in Kanjirappilly in Kottayam district.

Another grower also pointed to the double standards in the Board’s advice. "While the Board is still spending crores of rupees for expanding rubber cultivation to non-traditional areas, how can they advise us to reduce production, especially when the prices are down," he said.

According to another, the Board should stop promoting new plantations in the non-traditional areas and instead channelise this money to improve the rubber growers’ lot.

On the price front, the growers seem to have reconciled to the fact that the good old days are over. "We are not asking for the moon. What we need is a remunerative price," said one grower. He sees the remunerative price at Rs 35-40 per kg.

The litany of rubber growers’ woes does not end here. They have their point against the Board’s approach to price setting.

While the Board sees the entire problem from anindustrial angle, cutting production while demand is slack and vice versa it is not so easy from the growers point of view.

A major factor to be noted here is the spiralling cost of production. According to the Rubber Board’s estimates, in 1985 a grower had to invest Rs 15,000 per hectare for spread over seven years from planting to tapping. The total investment level in 1997, however, shoot up to Rs 72,000, an increase of more than 400 per cent. Similarly, the cost of other inputs like fertilisers, insecticides and labour too has increased considerably over the years.

However, at the same time, the nominal income of the rubber growers had declined by over 50 per cent in the last couple of years. Normally, of the 9.33 lakh farmers who depend on natural rubber to eke out a living only 254 were considered as big. Others have a farmland of 0.5 hectare where normally 200 trees were planted. The average yield from this land is estimated to be around 100 kg per annum.

Considering the fall in price from Rs 65per kg in 1995-96 to Rs 30 per kg in 1997-98 the total income of growers must have declined by over 50 per cent during the last couple of years. Caught between a spiralling cost and the plummeting price, growers will naturally tend only to hike production and not restrict it.

Similarly, the growers also have some grievances with the industry. Keeping the classical terms of trade debate apart, the rubber farmers have subsidised the tyre industry by over 50 per cent during the last couple of years as the price of the key raw material declined by the same level. But, instead of coming out and bail the growers out by improving consumption of domestic rubber through cutting down imports, the tyre industry is apparently using the import card as a threat to beat down prices further, point out growers.

The tyre industry, however, could not be blamed either. To be competitive in the international market, they have to keep their cost in check and it is natural for them to look for cheap source of rawmaterials.

Then where does the remedy lie?. Sources feel the current rally is aided purely by speculation and the ad hoc measures like the current procurement are no solution. They feel that the Government should reintroduce the buffer stock system along with the announcement of a new floor price. "This should ensure price stability," they add.