The Hindu Business Line : A rubber business back in limelight

FOR hundreds of thousands of rubber growers in the country, these are glorious days. The price of rubber has crossed Rs 60 a kg-mark after nearly eight years, and rubber farmers are again on a high. Barely three years ago, they had had to content with just about Rs 26 a kg for their livelihood. The only thing they seek now is a weeklong sunshine so that tapping can resume after being disrupted by the monsoon.

The agri-business of rubber is back in limelight. Every aspect of the commodity - be it demand, production, exports or price - has seen a steady increase over the past one year. Beating expectations, production of rubber in 2003-04 rose 9.5 per cent to 7.11 lakh tonnes from 6.49 lakh tonne a year ago; the Rubber Board had projected only 6.85 lakh tonnes during the year.

Rubber consumption also went up to 7.18 lakh tonnes, up from 6.95 lakh tonnes in the previous fiscal. The average price for rubber (RSS 4 grade) in 2003 was Rs 48.25 per kg as compared to Rs 35.55 in 2002. Exports of rubber in 2003-04 were 75,906 tonnes, catapulting India to the league of rubber-exporting nations.

The present boom notwithstanding, there are still some grey areas remain for the rubber and its allied industries. Since price is a factor determined by the dynamics of the market, and it may fluctuate from one extreme to the other, the industry should not lose its focus on these issues just because the going is good now. Timely action to redress these concerns would further strengthen the country's position as a major producer of rubber in the world.

Experts are of the opinion that it is high time that the country increased the share of technically specified rubber (TSR) or block rubber in its share of production. This type of rubber is processed according to technical specifications laid down by the Bureau of Indian Standards. Originally developed to counter the threat of synthetic rubber, block rubber contains almost no impurities and can be made in various shapes and weights vis-à-vis sheet rubber. Despite various efforts, the share of TSR in the country's total rubber production is only 13 per cent, compared to 55 per cent at the international level. Sheet rubber still has a predominant share in the production, accounting for 68 per cent, while globally its share is only 30 per cent.

In the global markets, TSR is the preferred form of processed rubber and it is imperative to boost its production to fuel India's nascent-but-growing rubber exports.

Lower domestic consumption of block rubber is often blamed as the major reason why TSR production has not picked up in India. Tyre manufacturers, who consume as much as 50 per cent of the rubber production, still prefer to use the RSS (ribbed, smoked sheet) variety. Also, the fact that in the country, block rubber is processed from scrap rubber goes against increasing the output. Internationally, latex is used for the production. Scrap rubber accounts for only 15 per cent of the total production, and naturally block rubber processing is restrained. Growers are averse to process block rubber from latex because the higher processing costs almost negates any price advantage that they get from TSR. Though the Rubber Board is offering incentives such as subsidies for machinery and equipment, TSR processing is yet to catch up in a big way. Streamlining the raw material supply chain also needs to be done.

An area that has probably not benefited from the current price boom is the rubber co-operative sector. Cooperative societies engaged in procurement and marketing of rubber are hard up as they are plagued by lack of professionalism, increasing overheads and accumulated losses from yesteryears. There are 50-60 rubber cooperative societies in Kerala, but barely a few can boast of a good financial track record. Wafer-thin margins with which these societies operate mean that even a small fluctuation in price could hit them. Increasing wage bills and other expenses also debilitate many societies. Moreover, most of the societies have failed to keep pace with the changing times and have not adopted latest and innovative ways of functioning. The poor financials of the societies also deny them the opportunity to get direct funding from the National Cooperative Development Corporation (NCDC).

In order to get direct financial assistance from NCDC, cooperative societies should have a three-year track record of profitability and positive networth, among other conditions. No rubber cooperative in Kerala has earned profits for three consecutive years and hence they become ineligible for this facility. The funds that NCDC has released through the state government are yet to reach the societies, who now call upon the NCDC for a more lenient stance towards funding them.

The rubber industry also needs to adopt better techniques when it comes to planting and tapping the rubber tree. Experts say that the seven-year maturity period for a rubber tree in India longer than that in some of its rival countries, who have more favourable climatic conditions. The industry, which is a labour-intensive one, also needs to evolve strategies to improve productivity. Experts have suggested that productivity-linked wage schemes should be introduced and mechanisation in areas of weeding and tree-felling etc should also be embraced. As for high-yielding varieties, the Rubber Board has recently stated that it has developed new clones. The new varieties of RRII 414, 417, 422 and 430 can now be planted in 50 per cent of the total area of cultivation. These plants have shown a yield increase of 20 to 42 per cent compared with RRII 105, the present popular variety. Developed by the Rubber Research Institute of India (RRII) after 22-years of research, these new clones should be available for farmers soon.

Subsidy: The subsidy for natural rubber exports has remained one of the most contentious issues of the industry in recent times. Tyre manufacturers are opposing the subsidy tooth and nail, alleging it is this incentive that helped the domestic price to rise steeply. They say that there is no justification for providing the subsidy when the international rubber prices are higher than the domestic prices.

The tyre industry, which uses 3.50 lakh tonnes of rubber every year, estimates its raw material costs would have surged by at least Rs 350 crore in one year because of the jump in domestic rubber prices. This has hit the bottomline of many a tyre company.