Price floor gives relief only to smallholders By Chandeepa Wettasinghe Rubber prices at the Colombo auction have hit the lowest levels since 2009, and appears to continue to slip for the foreseeable future, while production may fall, having already reduced to the lowest since 2004, heralding a dark age for the industry.
“Today I bought a batch of RSS1 for Rs.212. The prices are the lowest since July 2009 and the national production has fallen to 98,514 tonnes in 2014,” Colombo Rubber Traders Association Chairman M. S. Rahim told Mirror Business.
The contributing factors to the price drop were the oversupply by the top producing countries leading to imports into Sri Lanka, and the fall in synthetic rubber prices with the oil glut. Forbes & Walkers Commodity Brokers Director-Rubber Damitha Perera said that the prices are now starting to bottom out.
“We are now starting to level with the world prices, though in some countries it’s still lower,” he said.
For the rest of the year, Singapore rubber futures showed a kilogramme at around US$1.43 (Rs. 192.53), while Tokyo futures stood at around 206 Yen (Rs. 232). To counter the falling prices, both the previous and the new regime have offered minimum prices for a kilogramme of rubber.
Former President Mahinda Rajapaksa had offered Rs.300 per kilogramme in the November Budget, with votes from rubber growing areas favouring him, while during the Interim Budget, Finance Minister Ravi Karunanayake offered a minimum price of Rs.350 for RSS1 and RSS2, and Rs. 300 for RSS3 and RSS4. However, the state is now saying that only smallholders will be reaping the benefit.
Rahim said that smallholders only produce about 1 percent of the RSS1 supply. “They have created utter confusion. Putting prices like this is bad. Exporters and manufacturers don’t really know any smallholders,” he said.
There are 127,000 smallholders operating in 79,000 hectares of the total 133,000 hecatares in cultivation. Rahim said that 30 percent of the smallholder trees are over 25 years old, being extremely unproductive, while most individuals own areas less than 1 acre. In comparison, the estates which have been producing the highest quality rubber, in addition to tea, have been cumulatively losing around Rs. 2 billion a year.
Meanwhile, Perera said that the quantity reaching the auction has been low in the past 2 months. “The growers are keeping their stock, thinking that the government will pay Rs.350. The mechanism was not announced till 2 weeks ago, so people kept them. But before the New Year they will have to cash in,” he said.
Smallholders are supposed to sell their produce at the low prices and show the receipt to the Rubber Development Department and claim the difference.
“But half the people won’t claim it. They cultivate half an acre in far places, and they don’t like to fill forms. They won’t come to Colombo to claim it,” Perera said.
Plantation Industries Minister Lakshman Kiriella said that the programme has been implemented with Rs. 3 billion being allocated by the Treasury, contrary to the Rs. 3.6 billion stipulated in the Interim Budget. Perera also said that the growers in Sri Lanka are now starting to follow the trends of their peers in Vietnam and Thailand. “They’re finding it hard with the world prices. They’re cutting their trees and selling for income till they convert into dragon fruit or oil palm or find something else,” he said.
He projected that production would fall by a further 10-15 percent this year, while prices may start to pick up in mid-2016.
Recently, NDB Securities (Pvt) Ltd. too gave the rubber industry an overall negative long-term outlook.
According to government statistics, rubber production had been booming till 2011, when it hit 158,000 tonnes. Then it continued to fall each year to 152,000 tonnes in 2012, 130,000 tonnes in 2013 to the 98,000 tonnes last year. However, Rahim showed some skepticism regarding the higher production statistics in the recent years.
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“Today I bought a batch of RSS1 for Rs.212. The prices are the lowest since July 2009 and the national production has fallen to 98,514 tonnes in 2014,” Colombo Rubber Traders Association Chairman M. S. Rahim told Mirror Business.
The contributing factors to the price drop were the oversupply by the top producing countries leading to imports into Sri Lanka, and the fall in synthetic rubber prices with the oil glut. Forbes & Walkers Commodity Brokers Director-Rubber Damitha Perera said that the prices are now starting to bottom out.
“We are now starting to level with the world prices, though in some countries it’s still lower,” he said.
For the rest of the year, Singapore rubber futures showed a kilogramme at around US$1.43 (Rs. 192.53), while Tokyo futures stood at around 206 Yen (Rs. 232). To counter the falling prices, both the previous and the new regime have offered minimum prices for a kilogramme of rubber.
Former President Mahinda Rajapaksa had offered Rs.300 per kilogramme in the November Budget, with votes from rubber growing areas favouring him, while during the Interim Budget, Finance Minister Ravi Karunanayake offered a minimum price of Rs.350 for RSS1 and RSS2, and Rs. 300 for RSS3 and RSS4. However, the state is now saying that only smallholders will be reaping the benefit.
Rahim said that smallholders only produce about 1 percent of the RSS1 supply. “They have created utter confusion. Putting prices like this is bad. Exporters and manufacturers don’t really know any smallholders,” he said.
There are 127,000 smallholders operating in 79,000 hectares of the total 133,000 hecatares in cultivation. Rahim said that 30 percent of the smallholder trees are over 25 years old, being extremely unproductive, while most individuals own areas less than 1 acre. In comparison, the estates which have been producing the highest quality rubber, in addition to tea, have been cumulatively losing around Rs. 2 billion a year.
Meanwhile, Perera said that the quantity reaching the auction has been low in the past 2 months. “The growers are keeping their stock, thinking that the government will pay Rs.350. The mechanism was not announced till 2 weeks ago, so people kept them. But before the New Year they will have to cash in,” he said.
Smallholders are supposed to sell their produce at the low prices and show the receipt to the Rubber Development Department and claim the difference.
“But half the people won’t claim it. They cultivate half an acre in far places, and they don’t like to fill forms. They won’t come to Colombo to claim it,” Perera said.
Plantation Industries Minister Lakshman Kiriella said that the programme has been implemented with Rs. 3 billion being allocated by the Treasury, contrary to the Rs. 3.6 billion stipulated in the Interim Budget. Perera also said that the growers in Sri Lanka are now starting to follow the trends of their peers in Vietnam and Thailand. “They’re finding it hard with the world prices. They’re cutting their trees and selling for income till they convert into dragon fruit or oil palm or find something else,” he said.
He projected that production would fall by a further 10-15 percent this year, while prices may start to pick up in mid-2016.
Recently, NDB Securities (Pvt) Ltd. too gave the rubber industry an overall negative long-term outlook.
According to government statistics, rubber production had been booming till 2011, when it hit 158,000 tonnes. Then it continued to fall each year to 152,000 tonnes in 2012, 130,000 tonnes in 2013 to the 98,000 tonnes last year. However, Rahim showed some skepticism regarding the higher production statistics in the recent years.
www.dailymirror.lk/
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