19 Jul 2016 19:33 IST

When pots turn dry and barks gather moss

Life in the rubber industry is tough, as high costs, sluggish demand and cheap crude dampen prices

Tomy Elamthottam has seen better days. His six-acre rubber plantation in Manimala, in Kerala’s Kottayam district, used to reap him enough to afford a comfortable lifestyle. Not anymore. Rising production costs and a matching slide in prices of natural rubber have forced him to stop tapping the trees in his plantation.

“It is now unaffordable as the wages have increased to ₹600 per day. I am not even entitled to any freebies or an incentive announced by the government as only those with less than five acres are eligible for the sop,” he laments.

The Kerala Government had announced a support price of ₹150 per kg for growers who own less than five acres of plantation.

Though the tapping charges have come down to ₹1.5 from ₹2 per tree, the production cost of ₹150 per kg is still above that current market price, which hovers around the ₹130 per-kg-mark.

The story plays out among other rubber farmers in Manimala and the rest of the Central Travancore districts, including in Pathanamthitta and Idukki, where the plantation crop is grown extensively.

The present circumstance is a far cry from the days of boom, when till 2011 price for the ribbed smoked variety of natural rubber (the most preferred one by customers) rose to ₹240 a kg, and the region cashed on in the prosperity. Even the smaller farmers with up to two acres of plantation reaped profits of nearly ₹2 lakh a year. The farmers built houses, bought cars and admitted their children to ‘good’ schools. As prices of other commodities plummeted, the high rubber prices prompted scores of other farmers to switch to the cash crop, from traditional crops such as coconut and cashew. The state’s considerable Diaspora joined the party, buying acres of rubber farms.

However, those glory days didn’t last for long as prices started to crash from 2012. Natural rubber prices fell to a low of ₹90 a kg in December 2015. At present, Kerala has around 12 lakh rubber farmers with holdings of not more than 10 hectares and they account for 90 per cent of the 7.35 lakh hectares under rubber. The average size of holding is 0.55 hectares (1.4 acres).

The state has been badly hit by the industry’s woes. Kerala, which produces about 80 per cent of the natural rubber produced in the country, saw its revenues from the sector fall to ₹7,900 crore in 2014-15, from ₹14,643 crore in 2011-12. Sales of white goods during this month Id-Ul-Fitr and last year’s Onam, the harvest festival that is also the unofficial shopping season for Malayalees, were down by 30 per cent.

 

Tomy Elamthottam knows this too well. Apart from the rubber trees, he has a shop in Manimala selling white goods. But the diversity in his business hasn’t helped as the local economy is dependent on rubber income.

Tapping has become infrequent and many of the plantations are in disarray. Many of the farmers opted for intercropping of rubber trees with cocoa and coffee to tide over the crisis. Still, many of them have put off re-plantation, important to ensure newer trees keep growing as latex dries out in the older ones.

Like Tomy, Babu Joseph also stopped tapping the trees in his five-acre farm, despite the high EMI of the education loan he had taken for his son. Fortunately for the farmer in Ponkunnam, close to Manimala, his son has landed a well-paying job, taking care of the EMI payments.

Kerala’s woes have brought a cloud over the rest of the industry in India, which is the sixth largest rubber producer in the world. In the 2016 fiscal, the production was down to 5.62 lakh tonnes from 6.45 lakh tonnes a year ago. Consumption too dropped, from 10.2 lakh tonnes to 9.94 lakh tonnes

Much of the dismal situation is because of the turbulence in the international markets. The market in China, the world’s biggest producer, continues to be sluggish and Thailand’s move to release half of its production in the market has further dampened prices.

But the biggest factor, especially impacting the demand of natural rubber, has been the fall in crude prices, which have helped the cause of the synthetic variant. The price of synthetic rubber, which is made from petrochemical feedstock, is at present 20 per cent lower than its natural cousin, making it the preferred variant for industries.

At present 64 per cent of the rubber used by the tyre industry is natural, down from 69 per cent in 2010. Shift to the synthetic variant has been more drastic in other rubber consuming industries including bicycle tyre and tube, footwear, belts and hoses.

Banking woes

Local branches of banks in Central Travancore have been hit by lower loan disbursal and rising NPAs. “Education loan is one segment where we witness significant NPA level. Presently it is hovering at 8 per cent in the Kottayam region, from 5.6 per cent a year ago; we have a GNPA level of 3 per cent as on March 31,” says VG Mathew, Managing Director and CEO of South Indian Bank.

The NPA in the rubber industry, according to him, has gone up from 0.19 per cent as on March 31, 2015 to 0.42 per cent as on March 31, this year.

A leading public sector bank in Kottayam has registered a decline of ₹50-70 crore in disbursal of educational loan in the last quarter.

Federal Bank’s advances to the small and medium enterprises in Kottayam declined by more than 25 per cent in the 2016 fiscal, after a 30 per cent jump the previous year. A senior bank official, on conditions of anonymity, added that the CASA (ratio of deposits in current and savings accounts to total deposits) portfolio declined 10 per cent in a year.

A troubled legacy

Till 1991, India’s vibrant rubber industry, including the producers and consumers, was nurtured by a protectionist policy regime ensuring stable and remunerative prices.

Even as the markets were opened, the equation changed dramatically in 2001, after the trade policy reforms, which removed quantitative restrictions on import of natural rubber.

Now aligned with the international rates, domestic prices of natural rubber mirrored the international trend.

This impacted many of the industry practices. It didn’t help that the stakeholders were not ready for the consequences. The responses to uncertain prices have been rigid, and conflicting interests of producers and consumers hindered in evolving a comprehensive policy for the industry. Even farm practices have suffered.

A major causality of the fluctuating farm income has been the staggered replanting, leading to a steady growth in the share of senile trees in the tapped area, says K Tharian George, former Joint Director of Rubber Research Institute of India. Today, large areas of rubber plantations have been abandoned, with neither tapping nor replanting done. The Rubber Board’s decision to stop paying subsidies for re-plantation activities has orsened the situation.

The impact is even visible in rubber nurseries, which supply planting materials, as majority have closed operations.  Experts like George and George Valy, former President of the Indian Rubber Dealers Federation suggest several ways to overcome the situation. Creation of reliable database, government support for replanting and promotion of stocking to make use of price hikes, are a few of the recommendations.

There have also been calls to improve quality of natural rubber. Many of the tyre manufacturers complain of dust contamination in the natural rubber in the local market. Little wonder that the Indian tyre industry, the largest consumer of natural rubber, imports 60 per cent of its annual requirement.

But is anyone listening?

Òne of the happier stories is coming from the North-East, where the Rubber Board is batting for measures to increase production of natural rubber. The production in the region was 50,000 tonnes and the productivity of 1,270 kg per hectare is much lower than the national average, which was 1,443 kg in 2014-15.

“We have developed a location-specific variety of rubber, which is suited for the North East. This is likely to be available shortly”, says Rubber Board Chairman A Ajith Kumar.

Besides, the Board is conducting awareness and training programmes for the quality improvement of the produce in association with National Institute of Agricultural Marketing.

But given the international slump, outlook for the domestic industry is not very rosy. The revised outlook of the Association of Natural Rubber Producing Countries suggests that the global supply could grow at a much slower rate of 0.3 per cent in 2016, compared to 0.8 per cent in 2015.

“It is true that the growers are facing an unprecedented crisis . However, it is to be remembered that a similar slump in prices happened in 1997-2001. There will be difficulties and it is not wise to discard a crop like rubber ”, says Valy.

The rhetoric will have little comfort for Tomy Elamthottam and Babu Joseph.

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