Growers hit by falling rubber prices

by Dr. A. Nugawela - Director, Rubber Research Institute of Sri Lanka

Rubber prices continued to decline at the Colombo Auctions last month. The crepe rubber (1X) price dropped to Rs. 125 per kilogram from Rs.208 per kg during the latter part of November. RSS 1 prices slumped to Rs.150 per kg from Rs. 180 per kg with little or no interest shown by the buyers.

Due to the declining trend in natural rubber prices at the auction rubber traders are uncertain of the price they should buy rubber.

The farm-gate prices are much lower than the auction prices and growers who are uncertain are unable to sell their produce.

In certain areas RSS is purchased at Rs. 80 per kg on the understanding that payments will be made later once the local traders are able to sell their rubber. According to brokers, the demand for natural rubber at the Colombo auctions is low due to global recession. The price trends at the Colombo auctions are similar to the world market trends.

The Singapore rubber prices dropped significantly during November.

The low rubber price scenario is more than a national issue and is evident in all rubber growing countries.

In the backdrop of the global situation strategies to protect the rubber growers and the industry have to be identified and implemented.

There should be strategies to enhance the demand for natural rubber while curtailing production to match the demand without an adverse effect on growers and workers.

Emerging economies such as China and India are less affected by the global economic recession. India and China are large consumers of natural rubber.

Government to government bi-lateral agreements could be used to create a market and enhance the demand for Sri Lanka's natural rubber. China and India consumed around 26 per cent and nine per cent of the world natural rubber while Sri Lanka's contribution to the global production was 1.2 per cent.

Sri Lanka imports natural rubber to cater to the needs of certain product manufacturing industries. If this trend continues we will need to stop imports to protect local growers. Local entrepreneurs could embark on value addition if raw materials are available at a relatively low cost. Items such as tyres could be manufactured locally.

The gap between the Colombo auction and farm-gate prices which is high should be narrowed to acceptable levels. Growers should be made aware of the Colombo auction prices through the media. Since there is no established system for State involvement in purchasing rubber to increase competition for raw material within the country the role of the government in this regard is minimal.

The Thurusaviya Fund was launched to help rubber smallholders to market their produce.

The quantity of RSS sold through the Colombo auctions is small. Local consumers and exporters buy RSS from other markets. The supply chain should be studied to identify how the price paid to growers could be enhanced up to auction price levels.

If the price stabilisation fund was in operation the government could have supported the growers during the poor trading period. The need for such a fund is important when rubber prices improve.

According to brokers the demand for natural rubber is declining. The cropping months will continue up to January. This situation will certainly result in an over supply in the country unless the demand for natural rubber increases drastically.

Growers should make a concerted effort to overcome this situation which could be done by curtailing recovery tapping. Supply could be controlled by not tapping a day per week in all new clearings though the required growth standards are achieved.

It should be emphasized that these measures to curtail production is aimed at improving the local market prices up to the Colombo auction prices by attempting to match the supply situation to the demand. These strategies will need to be adopted only until the objectives are met. Financial losses by curtailing production could be compensated by more favourable prices resulting from regulating the supply.

Rainguards will help to improve productivity and lower the cost of production in large plantations where the fixed costs are high. For smallholders the impact of rainguards on their cost of production will be less. But the use of it by either sector will increase the supply situation when the demand is less for the raw material.

The situation with regard to trading of natural rubber is changing rapidly. An advisory group representing the relevant sectors and meeting when the situation demands will help to generate and streamline strategies needed to guide all stakeholders in the natural rubber industry.

The cooperation of all stakeholders is vital to protect the natural rubber industry in the country.