Falling prices hit rubber industry

Despite rubber being one of the key productive assets there is growing concern on the continuous decline in prices since 2012. Although there had been a boom for nearly a decade, Sri Lanka’s rubber prices have declined drastically in recent times.

Colombo Rubber Traders’ Association (CRTA) Chairman, M.S. Rahim said, “The price drop in the world reflects on us too. With lower prices and increase in cost of production we will be faced with losses. Smallholders too have to bear the price drop and drop in production due to bad weather that prevailed in 2013.”

“In 2010, prices (thick latex crepe) reached a high of Rs. 593. In 2011 prices reached record highs of over Rs.600 for a period of seven months. After a slow start in 2012, prices recovered and, thereafter, began to drop slowly to end the year at Rs. 385 per kilo,” he said.

“In 2013, the market recovered quickly at the beginning of the year to reach over Rs.400 in the first quarter after which there was slight drop in the second half but overall prices were stable at Rs. 400 till the end of the year.

From January 2014 there has been a sudden sharp drop in latex crepe prices to Rs.305,” Rahim said.

The recent Weekly Rubber Auction (April 1, 2014) recorded average prices for Latex Crepe between Rs. 300-230 and RSS remained unquoted.

Deputy Chairman Planters’ Association of Ceylon (PA) and CRTA Vice Chairman S. S. Poholiyadde said, “Over the last three years, the rubber price has fallen by over 50 percent. It is now around Rs. 300, whereas it was Rs. 600 in 2011.”“This is mainly due to the global economic situation. Especially in European countries, there has been an economic slowdown. This has had an impact on prices globally,” he said.Adding to the gloom in rubber’s bear market is the supply glut as stockpiles in China swell.

“There has been stockpiling in China. Most of the largest manufacturing facilities are in India and China, and this too has pushed their market up compared to us,” Poholiyadde said.

Director, Rubber, Forbes and Walkers Commodity Brokers, Damitha Perera said, “The price is stagnant now.

The reason is stockpiles in China amounting to 300,000 tonnes. They are not aggressive in the market, and it's not good for us.”

“Crepe and RSS is stagnant as this is the lean period and off season. A boom in prices is not expected for a few months,” he said.

The cost of production remains a key challenge affecting the performance of the country’s rubber industry. Compared to earlier years the cost of production (COP) continues to escalate and is expected to increase further.

“China the largest consumer in the past four years found their economy slowing down and due to the fact that they were over stocked, prices had to slow down. Besides countries such as Vietnam and all other producing countries had reached high levels of production” Rahim said.

The Plantation Workers’ Collective Agreement of April 2013 has exacerbated this.

“There has been an increase in the cost of production by about Rs.20-25 as a result of the wage increase, said Poholiyadde.

“Wages will obviously further increase.

We need to adopt strategies to lower cost of production,” said Professor of Plantation Management at Wayamba University, Prof. Asoka Nugawela.

A vital sector of the rubber industry is the smallholder who grows 60% of the rubber produced in the country.

“When production comes down, it is the smallholders who are mainly affected,” said Poholiyadde.

Because of low yields, smallholders will be compelled to sell their produce at depressed prices.

Smallholders, who receive insufficient revenue because of low yields and low prices, would be forced to convert land to other crops.

The CRTA Report 2012/2013 stated, “It is critical that these smallholder growers obtain the best possible prices for their rubber, in line with prices realised at the auction, to enable them to remain viable.”

Declining prices also affect the larger Regional Plantation Companies (RPCs). Not only are smallholders feeling the pinch, but the large RPCs are affected too.

According to Prof. Nugawela, a drop in the farm gate price of more than Rs.100 per kg will have a significant negative bearing on producers in both sectors.

For competitiveness and viability of the industry, key issues such as environmental and agriculture issues need to be addressed. Experiencing extreme weather patterns also contribute towards a decline in production.

“The limited land area we have for rubber and land acquisitions are causes for concern,” said Poholiyadde.

“In addition there is a shortage of tappers, especially with the younger generation not wanting to get into this line of employment,” he said.

With these difficulties affecting the industry, Prof. Nugawela called for a vision for the foreseeable future.

“We have to manage with a vision to achieve a substantial growth in productivity and performance to challenge the inevitable increases in COP,” he said.

With production and price declines affecting the industry, public sector support becomes imperative.

According to Poholiyadde a protectionist strategy is crucial.

“I would say it is vital, because over 60% of this industry production is by smallholders. So many people are dependent on rubber for survival.”

“We should ensure that value-addition factories continue to work uninterrupted. A lot of people have hope in the rubber industry,” he said.

Sri Lanka’s rubber industry needs to attract foreign investment to expand and diversify.

“We should promote more such industries to come in and set up manufacturing facilities here. I believe that is the way forward,” Poholiyadde said.