The life of a rubber farmer depends on tyres. That’s because tyres consume about 60 percent of the world’s natural rubber. But with the downturn in economy, especially in China – the world’s biggest rubber consumer – the demand for tyres has reduced, price of rubber has crashed and so has the life of rubber farmers across the world.
India is the world’s sixth largest rubber producer, with Kerala accounting for 80 percent of the country’s rubber production. About 1.2 million poor farmers are fighting to make ends meet. While the state’s Congress-led UDF government has come up with a half-hearted subsidy scheme, the Modi government is guilty of having left key posts in the Rubber Board vacant.
Firstpost talks to farmers and officials to gauge the crisis and offers solutions. This is the second part of a two-part series on the Great Rubber Slump.
Fact one: Tyres are made of rubber. Fact two: Price of rubber has crashed.
Why aren’t tyre prices coming down, is the question that rubber farmers have as you drive through the districts of Kottayam, Pathanamthitta and Idukki, Kerala’s ‘rubber belt’.
That is precisely the question that SP Singh, the convenor of All India Tyre Dealers’ Federation (AITDF), has been asking for some time, and getting no convincing answer.
“When rubber prices go up, tyre companies go to great lengths to explain why they are hiking tyre prices, but when rubber prices go down, they maintain a deafening silence,” Singh tells Firstpost. He said the companies had selectively reduced prices on some tyres more as “tokenism” but not in proportion to the current slump in rubber prices.
Tyre dealers, he said, found this situation difficult to explain to consumers. On average, natural rubber accounts for about 40 percent of a tyre’s cost.
In a second representation made in seven years to the Ministry of Corporate Affairs (MCA) in November 2013, the AITDF said five companies, which controlled 90 percent of India’s tyre market — Apollo Tyres, MRF, CEAT, JK Tyres and Birla Tyres — were indulging in cartelisation to keep prices high.
The AITDF alleged that in January 2009, not just rubber prices, even the excise duty on tyres was slashed, but the tyre prices were not brought down. However, in 2011-12, the rise of rubber price to Rs 243/kg led to a tyre price hike of 18 to 25 percent. It's been a free fall ever since with no corresponding drop in tyre prices.
The MCA referred the matter to the Competition Commission of India (CCI), which was set up by the Union government in 2003 to look into, among other things, anti-competitive agreements and abuse of dominant position by enterprises. The CCI ordered an investigation by its Director-General, who concluded in December 2015 that the five companies were indeed in “active collusion” to determine tyre prices under the aegis of Automotive Tyre Manufacturers Association (ATMA). The investigation found evidence that Koshy K. Varghese, Executive Vice-President (Marketing) of MRF and Neeraj Kanwar, Vice-Chairman and Managing Director of Apollo Tyres, had a dialogue on pricing of tyres through ATMA.
ATMA's contention was that steep increase in the prices of raw materials other than natural rubber — nylon tyre fabric, carbon black, butyl rubber, rubber chemicals, bead wire etc. — made it difficult to reduce tyre prices. The commission refused to buy their claims and also the argument that “dumping” of cheap tyres by China in the Indian market has put Indian companies under pressure.
Says Thomas Ouseph, noted rubber consultant and former Secretary of Rubber Board: “The government has always been sympathetic to tyre companies and they have been making fabulous profits.”
The CCI, which is currently in the process of hearing final submissions from contending parties, may soon come up with a verdict. The next hearing is on 17 May, but it will be of little use to rubber farmers.
Vicious import cycles
By keeping the tyre prices high, the companies do not cause any direct harm to the farmers. But by importing rubber in devious ways, they can.
Even in the best of times, Indian companies had to import rubber because the country’s production fell short of demand. “Imports are necessary because of the shortfall in production, but the companies import more than needed, and that depresses the domestic price,” points out Ouseph.
And they are too eager to import rubber from countries like Indonesia, Thailand, Vietnam and Malaysia, where rubber is cheaper by about Rs 20/kg.
An analyst, who has watched the rubber industry for decades, says, “They time their imports in a way that brings down the price of Indian rubber. They place import orders when India has little rubber that is during the monsoon. But by the time they receive rubber from abroad at a cheaper price, India has stock and the cheaper import reduces the domestic price.”
The import of rubber has more than doubled from 1.8 lakh tonnes in 2009-10 to 4.4 lakh tonnes in 2014-15, partly because of production shortfall.
“Production has been coming down at an alarming level and this will lead to a supply crunch in time,” points out N. Dharmaraj, President of United Planters Association of Southern India (Upasi) and Chief Executive of Harrison Malayalam.
From a high of 9.13 lakh tonnes in 2012-13, production of rubber in India fell to 7.7 lakh tonnes in 2013-14 and to 6.45 lakh tonnes in 2014-15. Upasi estimates that, in 2015-16, production will be just 5.4 lakh tonnes and imports will touch an all-time high of 4.6 lakh tonnes.
As a result, from being the world’s third largest producer of rubber after Thailand and Indonesia in 2011, India slipped to the fourth place in 2012 after Malaysia and now finally to the sixth after Thailand, Indonesia, Vietnam, China and Malaysia.
India’s production is falling because a good number of farmers have stopped producing. That’s because producing rubber is costing them about Rs 100/kg, while it is fetching them in the market just about that much, may be a little less or more, depending on the fluctuating prices.
The Mercy Boban story
For the farmers to survive or make money, the market prices must go up. “Or you must bring the cost of production down,” says Mercy Boban, 50, who has won an award from Rubber Asia magazine for doing precisely that.
With her husband, the principal of a college, and son, a software engineer, away in Thiruvananthapuram, Boban looks after the family’s 25-acre rubber plantation.
A postgraduate in history, Boban has hired seven skilled tappers who tap latex in a way that causes minimum damage to the tree and gets maximum output. And she takes care of the trees and the tappers with equal zeal.
She gets the soil tested by local staff of the Rubber Board, uses only recommended fertilisers and does everything to nurture the trees with due diligence. This textbook approach led to a remarkable productivity of 2,967 kg/hectare in a block during 2014-15, nearly double the average yield other farmers get. And from May 2015 to February 2016, she spent about Rs 8 lakh on her plantation and extracted 14,225 tonnes of rubber from 2,430 trees and sold it for about Rs 14 lakh. This only means she brought her cost of production down to an amazing Rs 56/kg. While other farmers spoke of starvation, she made a neat profit of about Rs six lakh.
“It’s hard work,” she says with a satisfied sigh. “It’s not easy going around the plantation every morning and checking on everything. Other farmers have negative thoughts. I handle everything in a positive manner. That’s what gets good results.”
Kurian Abraham, the Editor of Rubber Asia says, however, that it’s difficult for all farmers to marshal the time and resources needed to adopt her methods.
What the farmers must do
Experts say that after the boom and the bust, the farmers can hope for another boom in a few years. If the low price persists and if more and more farmers discontinue tapping in India and elsewhere, the world is in for a huge rubber shortage. By the time the economy finally recovers, tyre makers will find themselves short of rubber, and farmers will find the prices shooting up.
“When the boom returns,” cautions Abraham, “farmers who have quit rubber will miss the windfall.” He advises them to remain unfazed by the current downturn and hold on to rubber while keeping their costs low, though they must cautiously diversify into other crops like pineapple and medicinal plants.
The fear of an impending rubber shortage is so strong that world’s top tyre companies are investigating guayule shrub, which grows in south-western United States and Mexico, as a possible source of natural rubber in future. Bridgestone, Cooper Tire and Rubber, and Apollo Vredestein (the Netherlands unit of India’s Apollo Tyres) have produced prototype tyres made of natural rubber from guayule. Continental has made test tyres made of rubber produced from the roots of dandelion, a flowering plant indigenous to Kazakhstan.
India’s tyre cartel must stop
India’s tyre companies must stop cartelisation and stop being greedy. The likes of MRF’s Koshy Varghese and Apollo’s Neeraj Kanwar must exchange emails not on how to keep tyre prices high, but on how to sustain plantations. They must learn that a reasonable price for farmers will encourage them to stick to their rubber plantations and ensure enough raw material for their tyres in future, when the market looks up.
And the government must wake up and find ways to help farmers to adopt smart agricultural practices and raise productivity like Mercy Boban has done. That work must be done by the Rubber Board, but the Modi government is guilty of having left the board without a chairman for close to two years and without a production commissioner for one and a half years. The board has had no secretary for 15 years. And the board, comprising growers, traders and manufactures and others has not been reconstituted for two years.
To read Part 1: India's 1.2 million rubber farmers fight to survive