Will boosting natural rubber output in Northeast solve the rising deficit?

The maximum potential capacity for natural rubber production in the country is poised to decline in the coming years, thanks to the rising share of old and senile plantations with very low productivity. Assuming the present trends in new and replanting remain unchanged, the maximum potential production, which is presently around 9.8 lakh tonnes (lt) per year, will decline to 8.89 lt in 2030 and a mere 3.49 lt in 2040.

Since 2012, natural rubber production declined and remained well below the maximum potential capacity primarily because of low price of the natural rubber. Notwithstanding this, demand for natural rubber has been steadily increasing at a CAGR of nearly 2.5 per cent since 2010. This is expected to stay buoyant even as the economy is likely to grow at an annual rate well above 7 per cent.

This will invariably increase the deficit in domestic production of natural rubber in the future, putting the robust Indian rubber industry, which has an annual value of turnover of more than ₹100,000 crore, in a tight spot.

Deficit in domestic production of natural rubber during 2018-19 was about 5.6 lt which was as much as 46 per cent of the total consumption. During 2020-21 when the Covid pandemic consumption overshadowed the industry, the deficit registered a reduction, but these are projected to sharply increase in the future. The estimated deficit is 9.21 lt and 21.8 lt in 2030 and 2040.

The deficit will account for 51 per cent of the total consumption in 2030 and 86 per cent in 2040, which is alarming. These estimates of deficits are based on maximum potential production. Realised yields can fall well below the potential production for various reasons, including low price, climate change, etc. This will further aggravate the deficit in natural rubber availability in the country.

The Indian automotive tyre market is projected to grow at a CAGR of 3.6 per cent during 2022-2027, and the trend is likely to continue fuelled by the fast-growing automobile industry. Appreciating this, major tyre companies which collectively consume more than 70 per cent of the natural rubber available in the country expanded their production capacities over the years. The sudden and unexpected reversal in domestic production of natural rubber witnessed since 2012 has created a crisis of sorts in the Indian tyre industry. The industry can address this in two ways, which appear to be easy solutions. Still, both are riddled with severe economic and environmental sustainability problems in the longer term, as explained below.

Easy fix

An immediate solution before the Indian tyre industry is to resort to more natural rubber imports as is being done now. But this can be risky and expensive in future. Natural rubber availability at low price in the international market cannot be taken for granted for as long as the industry has learned during the Covid pandemic. Supply-side constraints in future due to adverse effects of climate change can be even more serious and long-lasting than the difficulties encountered during the current pandemic.

Major natural rubber producing and exporting countries in South-East Asia such as Indonesia, Thailand, Vietnam etc. are highly vulnerable to climate change. Also, in future, these countries may not be enthusiastic about giving away their raw rubber and instead may want the Indian tyre companies to do the value addition on their shores and export tyre to India. Some of these countries are now extending various incentives such as tax breaks, cheap energy etc,. to attract foreign rubber industries.

Secondly, the Indian tyre industry may use more synthetic rubbers instead of natural rubber. While the industry’s major share of synthetic rubbers came from imports in the past, capacity for their domestic production has been significantly scaled up in recent times. An increase in the consumption of synthetic rubbers (which are manufactured from petroleum stocks) will invariably raise the carbon intensity of the Indian rubber industry, which is incongruous with the declared intention of India to attain net-zero emission by 2070.

New planting in the North-East

In this context, the recent initiative of the Rubber Board in collaboration with the Automotive Tyre Manufacturer’s Association of India to take up natural rubber cultivation in 200,000 ha in the Northeast in five years is timely. Given the long gestation period required for a new rubber plantation in the Northeast to come to yield, it may take nearly a decade to see any appreciable increase in rubber production coming from the newly planted area. But this may have only a small impact on increasing the country’s total natural rubber production and reducing the deficit (see graph). By the time the new area in the North-East comes into full bearing, the share of old and senile regions in the South will go up.

The figure shows the trend in deficit/surplus (difference between production and consumption) in domestic supply of natural rubber between 1986-87 and 2020-21 (continuous blue line). Dotted lines indicate the projected deficit in natural rubber supply (difference between estimates of maximum production capacity and demand) from 2021-22 to 2040-41 with (green dots) and without (red dots) rubber coming from the 200,000 ha being newly planted in the Northeast.

This will offset the additional production from the North-East, and the deficit will be still large; 8.77 lt in 2030 and 18.48 lt in 2040. This will be as high as 49 per cent and 73 per cent of the estimated consumption in 2030 and 2040, respectively, which is highly unsustainable for a vital industry like the tyre sector. The National Rubber Policy of the Indian government envisages producing at least 70 per cent of the required quantity of natural rubber within India, which appears to be nearly impossible to achieve at this point.

Additionally, climate change may pose a severe threat to rubber production from the North-East in future. The probability of a devastating cyclonic storm striking a rubber holding and inflicting permanent damage to the trees at least once during its lifecycle has increased manifold in recent years. Changing climate may trigger the incidence of new diseases or cause minor diseases to assume serious proportions in the region in future. Rubber Board would require more human and financial resources to create better awareness about scientific rubber cultivation practices, latex harvest and processing techniques among prospective new growers, skilling the tappers, establishing the required marketing avenues in the region etc. to reap the full benefits from the additional area cultivated in the North-East.

Supply from the South

Rubber cultivation in the North-East deserves to be promoted for more than one good reason, including improving the livelihoods of the economically and socially marginalized local peasant communities and preventing degradation of the fragile ecosystems in the region. But this should not be at the cost of rubber cultivation in the South, where the return on investment in rubber cultivation is the highest.

Despite the adverse effects of climate change, high costs etc., the total area under rubber and productivity are the highest in the traditional rubber growing regions in the South. The region will continue to supply the lion’s share of domestic production. Still, the rising percentage of old and senile rubber holdings is a major impediment to increase production. Without replanting these unproductive holdings in the South, the North-East initiative alone will be extremely inadequate to take the Indian rubber industry out of the natural rubber deficit crisis, as explained above. Therefore, it is only prudent to replant these old and senile holdings in the traditional region on a war footing to supplement the Northeast initiative.

(The writer is former director, Rubber Research Institute of India)

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