Exports to cut rubber stocks by 50,000 tn

Ajayan in Kochi

A continued slump in both prices and the market, a steady production leading to excessive holdover stock and the threat of cheap imports have landed the rubber sector in a miserable situation. Under the WTO regime where quantitative restrictions (QRs) have been lifted from April 1, the industry is trapped in a tricky situation.

It is literally a struggle against the burgeoning stock and the import threat on one hand and a low price that makes rubber an unviable venture. As per statistics available with the Rubber Board, the stock at the end of August is estimated to be 1.2 lakh tonnes. Come September and the rubber season starts and total production during this period will be around 3.5 lakh tn taking the stock to 4.7 lk tn. The tyre industry has already placed orders for the import of 15,000 tn and another 5,000 tn import is expected, taking the year-end stock to 4.9 lk tn. The tyre and other rubber-based industries are expected to consume 2.65 lakh tonnes. This would mean that the new year would start with a surplus stock of 2.25 lk tn.

On the price front, presently the internationally accepted RSS4 variety sells at Rs 35 per kg in the domestic market. There had been a long-standing demand for a minimum support price (MSP), a matter in which the Supreme Court had to intervene nearly a month ago. It had asked the Centre to fix an MSP for rubber. This has resulted in a demand for an MSP for all approved transactable grades.

It should take some time for an announcement as the proposal has to pass through the offices of the finance ministry, the Rubber Board, the commerce ministry, etc before finalisation.

According to Cochin Rubber Merchants Association president N Radhakrishnan, fixing of MSPs for different grades would be an impetus to raise production. Rubber dealers and growers swear by Section 13 of the Rubber Act, 1947, which makes it mandatory for the department of commerce to notify the MSP from time to time.

The basis for the fixing of the MSP of Rs 39 for the RSS4 variety, which accounts for 50 per cent of production is a study done by the Rubber Board. The benchmark price presently is Rs 34.05 a kg, fixed way back in 1998. Over the three years, an annual inflation rate of 5 per cent would make the benchmark price go up to Rs 39, though this has not been done, he said. However, the whole exercise of MSP is rendered meaningless in the present WTO regime. A case in point is the threat of imports even in the wake of a domestic price of Rs 35. Import of rubber at the international price Rs 27.83 which is the FOB at Singapore and the 25 per cent import duty and freight and other charges will make the landing price of the commodity Rs 42.93 a kg. Currently, domestic price of Rs 35 per kg, buying the commodity after paying the necessary taxes will make the commodity dearer at Rs 44.27. Dealers and growers even while clamouring for a higher MSP refuse to accept the reality.

Mr Radhakrishnan admits that under the WTO regime nothing can prevent imports under the Open General Licence (OGL). As Kerala produces over 85 per cent of the country’s rubber and most of the end users are outside the State, landing price of the commodity should not go beyond Rs 32 in the present situation. Anything beyond that will invite imports.

Import under the Advance Licensing Scheme (ALS) was banned early this year. Under this scheme the industry was allowed to import 12,000 tonnes, as part of an export incentive. The State Trading Corporation had been procuring rubber which it stopped in February this year. With moves to privatise the corporation, there is little chance of STC restarting the uneconomical procurement. The industry could surrender the licence and get rubber from the STC at the international price. This was of great help to the domestic rubber sector. Rather than encourage duty-free imports, the tyre industry should demand the reinstallation of the ALS scheme, it is argued. The automotive tyre industry which has already placed orders for import of 15,000 tn has publicly announced that it has no responsibility to protect the domestic sector.

A way out of the present crisis would be exporting rubber and depleting the surplus stock at least by 50,000 tn. Exporting rubber at the international price would mean a loss of Rs 12 per kg in the form of handling and other charges, besides lesser price as the product would not meet international standards. Mr Radhakrishnan argues that when the rubber industry has been contributing Rs 90 crore cess annually to the exchequer, a one-time relief given by the Centre should not matter. However, this would mean subsidising the industry. The corporate sector which has a chunk of plantations too are beset with problems besides these. This sector has been contributing mainly centrifuged and pale latex, which are of very high quality and the EBC varieties mainly for the tyre companies. The cost of production is much high and the price levels do not cover this.

According to Harissons Malayalam Ltd rubber plantations general manager RM Ganapathy, while the industry has been beset with problems, the high cost of labour has been an additional burden for the corporate sector. Major plantations were grappling with the problem of finding money to pay wages, he added. There had to be some system to link productivity with wages. As per a study undertaken by the Association of Kerala Planters, the tapping task in the organised sector in the country was 300 to 400 trees a day, while this was 500-600 in Indonesia and 400-500 in Vietnam. Alongside change in the labour mindset, should come mechanisation.
While efforts of Indonesia, Thailand and Malaysia to form a cartel and sell rubber at $1 a kg has not succeeded, there is hope that this cartel will ultimately succeed and by the end of next year will rise further.