AGEING plantations with low-yielding trees, sharply declining production, plunging prices and rising imports have seen the Indian natural rubber industry skidding over the past few years.

Natural rubber production in India has been falling sharply as many farmers are disinclined to take up tapping due to various factors including low prices, high labour costs and growing imports.

Rubber prices have plunged from Rs250/kg about two years ago to less than half today. And imported block rubber is available at prices as low as Rs90/kg.

According to the Rubber Board, production tumbled by 14pc in the first quarter of the current fiscal to 143,000 tonnes. In June, it fell by 21pc (as compared to the year-ago figures) to 50,000 tonnes.

Rajiv Budhraja, director-general, Automotive Tyre Manufacturers Association (ATMA), notes that this is the third consecutive year when natural rubber production has declined in India. Last year, it fell by 16pc and in 2013-14 by 15pc. This fall in production could impact the tyre industry, he warns.

Earlier this year, the government raised the import duty on natural rubber to 25pc (or Rs30/kg, whichever is lower) to protect the domestic sector. But it has obviously not had the desired effect, as imports continue to surge.

Last year, India — which is the world’s second-largest consumer of rubber with total demand adding up to more than a million tonnes — imported a record high of 415,000 tonnes of rubber, mainly from Thailand, Malaysia, Indonesia and Vietnam. Domestic production, meanwhile, dipped to a 12-year low of 655,000 tonnes.

Analysts expect imports to continue rising; this year, they are likely to grow by 18 per cent, touching a record high of half a million tonnes. But with India’s demand surging, global prices are also expected to pick up, attracting farmers back to the commodity.

One major issue of concern is the slowdown in the Chinese economy, which is also having its impact on the international rubber trade. Sharply lower demand for tyres in China has dampened global rubber prices.

According to Budhraja, consumption is expected to rise by 10pc this year to 1.1m tonnes. Demand for tyres will rise on the back of an expected surge in demand for two-wheelers (10-12pc in the current fiscal), passenger cars (5pc) and commercial vehicles (2-4pc).

Though India is a major consumer of natural rubber, it ranks fifth in terms of production. If international prices continue to rise, production could grow by 15pc to about 800,000 tonnes in the current fiscal.

But shortage of manpower on plantations — though where wages are way ahead of those paid on other farms — is adding to the shortfall in production.

MUCH of India’s rubber is produced in the southern state of Kerala, which enjoys one of the highest literacy levels in the country and is way ahead of many other states in terms of other social parameters. Kerala, which gets very good southeast monsoon rains during July and August, accounts for more than 90pc of the rubber produced in the country.

Total area under rubber cultivation in Kerala is about 550,000 hectares and about 1.2m farmers — most of who are small holders — depend on the commodity for their livelihood.

But the southern state, notorious for its militant trade unions, has seen small growers demand a minimum price of Rs150/kg for rubber. The bigger estates want a price of between Rs180-200/kg.

The state government recently announced a subsidy scheme and set aside about Rs3bn to help small rubber farmers — those with less than two hectares of land. But Kerala, like many other states, is unable to fund such subsidies and is demanding money from the centre.

The government promised to pay Rs150/kg for rubber mainly to small farmers, irrespective of domestic or international prices. Trade lobbies are also demanding a withdrawal of 5pc purchase tax.

A couple of distressed farmers — who had obviously borrowed heavily — had committed suicide over the past few months, triggering off concerns about the future of rubber production.

Consumers of rubber, including tyre manufacturers, are unhappy with the government’s decision to hike tariffs on imports. They point out that while imported natural rubber attracts a duty of 25pc, finished rubber products can be imported at a mere 10pc.

ATMA warns that this policy could result in the dumping of tyres in India. And Mohinder Gupta, president, All India Rubber Industries Association, warns that many of the smaller units have shut down their operations and are now dabbling in selling imported rubber goods.

But one of the major challenges confronting growers is the quality of rubber plantations. A recent ATMA study revealed that nearly half of India’s rubber plantations were in the low-yielding ‘aged’ category.

The percentage of trees in the maximum-yielding stage (age group of 11-20 years) has been falling over the past one decade. The percentage of trees in the maximum-yielding stage has more than halved over the past decade.

The percentage of aged trees (21-30 years old) went up from less than 15pc in 2000 to more than 33pc 12 years later. Productivity for natural rubber fell from 1,903kg/hectare in 2008 to 1,823kg in 2012.

Uncertainties about the prices fetched in the domestic market have deterred farmers from taking to replanting. The gestation period for natural rubber production is very long, deterring farmers from taking it up.

Published in Dawn, Economic & Business July 27th, 2015

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