ANALYSIS. Global trends hold the key for domestic rubber prices

Rubber growers are passing through a very difficult phase due to the fall in rubber prices. The remedial measurers taken by the Kerala government has not yielded results as desired by the stakeholders in the industry including about 12 lakh small and marginal rubber growers.

Kerala introduced a ‘Rubber Price Stabilisation Scheme’ on December 22, 2014, that operated till March 31, 2015. The scheme was aimed at keeping the domestic prices (RSS-4, Kottayam) higher by at least 20 per cent from the international prices (RSS-3, Bangkok). It was introduced following a meeting convened by the Chief Minister of Kerala, at Thiruvanathapuram on December 18, 2014, in which auto-tyre manufacturing companies agreed to buy RSS-4 at a minimum price of 20 per cent above the international price (RSS-3, Bangkok).

In order to make domestic sourcing of NR more attractive and thus to discourage imports, Kerala exempted various forms of NR from the levy of 5 per cent tax, payable under Kerala Value Added Tax Act of 2003 for the period from December 20, 2014 to March 31, 2015. However, Rubber Board did not report daily market prices of RSS-4 during the period from December 23, 2014 to March 31, 2015 following the introduction of the RPS Scheme. . For RSS-4, instead of reporting the true market rates, the Board reported a Daily Reference Price (DRP) which was computed by adding 20 per cent to the FOB price of RSS-3 at Bangkok. But, the actual market rates were considerably below the DRP reported by the Board.

The lack of updated information about the market prices of RSS-4 affected farmers’ capability to bargain with traders and to realise the best price for the produce. Even if superior grades of RSS were produced, traders tend to offer them much lower prices by down-grading the sheets as RSS-5 or lower grades. The gap between the prices of RSS-4 and RSS-5 used to be less than ₹5 a kg until the introduction of RPS scheme . But, the gap widened during March 2015 and reached ₹19 on March 31, 2015 providing scope for a section of traders to make huge profit. Under the scheme, auto-tyre companies purchased a total of 42,300 tonnes of natural rubber mainly from a few number of large-scale rubber dealers who had accumulated stocks. These few large-scale dealers used the opportunity to sell off their accumulated stock rather than purchasing fresh produce from farmers. As a result, farmers could not benefit from the scheme.

By the waiver of the 5 per cent VAT payable under Kerala Value Added Tax Act, the State incurred an estimated loss of ₹28 crore for the implementation of the scheme. But, the beneficiaries were a few number of large-scale dealers rather than the farmers.

In order to reduce imports, the Centre raised the customs duty for all dry forms for natural rubber by five percentage points, effective from April 30, 2015, to “25 per cent or ₹30/kg whichever lower” which is the maximum possible rate as per the Bound Rate committed by India under the GATT 1994. The customs duty levied prior to April 30, 2015 was at the rate of “20 per cent or ₹30/kg whichever lower”.

Kerala has earmarked ₹300 crore in its budget proposals for 2015-16, for implementation of an income guarantee scheme for rubber smallholders in the State. The Scheme envisages a guaranteed price of ₹150 for every kg of rubber produced by the smallholders in the State. The difference between ₹150/kg and the reported market price will be the subsidy to be credited direct to the farmers’ bank account. The scheme aims at giving direct benefit to farmers rather than bolstering the market price. The disbursement of subsidy has started with effect from August 26, 2015. Compared to the large number of growers in the State, only about 2 lakh growers have registered for subsidy under Rubber Production Incentive Scheme. Even after incentive scheme became a reality, rubber prices continued the downward journey uninterrupted and RSS 4 finished at ₹112 a kg on August 26. Survival of the domestic prices depends upon the behaviour of the international market in the days to come.