Financial Times

Rubber growers still reluctant despite favourable prices

Despite a sharp rise in rubber prices, some plantation management companies and smallholders are still unconvinced about record rubber prices and have not commenced replanting programmes, says a top industry official

"Based on the rising demand for rubber neither tea nor oil palm would be more economically attractive than rubber in the future," noted Dr. L.M.K. Tillakaratne, Director of Sri Lanka's Rubber Research Institute (RRI) in a recent statement.

Commenting on the plight of the local rubber industry despite a sharp improvement in world prices, the statement said:

"Sheet rubber is now fetching between Rs. 90 to Rs. 95 per kg, crepe rubber about Rs. 115 and sole crepe over Rs. 150 compared to the period of the East Asian financial crisis in mid- 1997 while natural rubber (NR) prices dropped by 50 percent within a period of 12 months."

"During this period most of the rubber lands belonging to plantations and some smallholdings were abandoned without tapping while some of the plantations replanted their lands with crops like oil palm. At this stage, some organizations were under the blind opinion that rubber is a "sunset industry" and it would never recover. Some were advocating uprooting rubber for firewood. But after a careful analysis of variations in the demand and supply situation RRI predicted that the future of NR will soon become attractive and urged farmers to maintain their rubber plantations without neglect. RRI strongly opposed the replacement of rubber in southern Sri Lanka especially in the Galle and Kalutara districts with oil palm, raising possible environmental impacts. Rubber prices have now improved to record levels today as predicted but unfortunately the availability of rubber lands for tapping is very small for us to reap the economic gain from improved rubber prices."

"With the likely increase in petroleum prices caused by possible war in the Middle East, it is predicted that the prices of petroleum by-products will shoot up in the future. If so, a major portion of the increased consumption predicted for in 2003 would be NR, which would help to improve the rubber prices further. However, the percentage of SR (synthetic rubber) consumed in the world in 2002 is reported to be 59.6 %, which is a slight increase over the 59.4% consumed in 2001."

"According to the predictions, even though restricting decisions have been taken by the Tripartite Agreement among Thailand, Indonesia and Malaysia, the farmers in Malaysia will continue to harvest the plantations to get the benefits of the attractive higher prices of NR."

"Hence, the production of NR for 2003 is expected to go up by 7% during the year while the same is expected to rise by another 5.5% in 2004 too."

"Therefore, there is no reason for rubber farmers in Sri Lanka to worry too much about the future of rubber. At least now they must take the advice of RRI economists who are making these predictions after analyzing all the data available through international agencies. Short-sighted policies such as selling harvestable rubber trees for firewood and MDF manufacture should be stopped immediately. Uprooting harvestable trees and even the trees below 20 years, without removing the rootstock should be treated as a national crime. This will not only restrict planting rubber in such fields for another several years due to white root disease, but also create a huge impact on the environment. Those who have been using rootstocks as the firewood for kilns will have no alternative for the future other than falling trees in forest reserves for the purpose. Under no circumstances should Plantation Management Companies or smallholders exceed the percentage uprooted for replanting beyond 3.3 - 3.5% of the total acreage."

"The plantation companies must keep in mind that even if the world market prices of NR drop in the future there would be a tremendous demand for NR locally for rubber based industries which are earning over Rs. 18 billion per annum. According to the situation at present, the rubber products manufacturers import rubber for their own consumption at Rs. 15 - Rs. 20 above the local FOB price."

"Based on the rising demand neither tea nor oil palm would be more economically attractive than rubber in the future."

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