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Lower prices may drag India's rubber acreage

MUMBAI (Reuters) - A sharp fall in domestic natural rubber prices is seen dashing hopes of new plantation, which may create scarcity and push up prices in coming years, farmers and officials say.

The most traded RSS-4 (ribbed smoked sheet) prices have fallen by 47 percent to 75 rupees per kg, since hitting an all-time high of 142 rupees on Aug. 28.

“There is an expected 20-30 percent fall this fiscal in the area under new plantation as farmers will turn away on poor returns,” Rubber Board chairman Sajen Peter told Reuters.

In 2007-08, total area under rubber plantation was 635,000 hectares and area under new plantation was 20,000 hectares.

“There will also be some effect on new plantations in the north east because of the price slump,” said J.K.Thomas, rubber committee member, United Planters Association of Southern India (UPASI). Re-plantations are also likely to take a hit.

In 2008/09, Indian farmers re-planted the crop on 8,500 hectares, but in 2009/10 that is bound to dip, Peter added.

“Five percent of the total acreage gets replanted every year and out of that about 1 percent will get affected as planters will either switch or just simply stop tapping and not go in at all for replantation,” UPASI’s Thomas said.

Low returns on rubber timber, a key income generator after the plant is cut, is also detrimental, industry players said.

The rubber plant generally takes seven years to be ready for tapping and has a life span of about 30 years, after which the yield starts reducing, making re-plantation necessary.

“Labour charges, cost of seedlings and cost of fertilisers shot up when rubber prices rose. And these are still the same or only marginally lower,” said Martin Kadakkuzha, a farmer in Kannur in Kerala, which accounts for 90 percent of the output.

In 2008, prices of many agri-commodities rallied, boosting demand for agriculture labourers and pushing up daily wages.

Labour issues may force a shift to coconut and cocoa, Thomas said. The situation may worsen as the industry sees a further dip in prices due to the economic slowdown, he said.

“Natural rubber prices are not expected to make much headway in the near future in the domestic and international markets... Prices are expected to fall to 65 rupees (per kg) in the first six months of FY10,” Peter added.

LONG-TERM IMPACT

Lower pace of new plantation and re-plantation will not have an impact in short term since major consumers, like tyre makers, are cutting output, but prices may firm up in the long term.

India is the world’s fourth largest rubber producer and consumer. Tyre makers consume about 60 percent of total output.

“In the short-term, prices may remain depressed mainly on lower demand, but demand has to increase with a revival in global economy. We may see a rise in demand from mid-2010,” Anand James, senior analyst at Geojit Comtrade Ltd, said.

Some industry officials said despite a sharp fall in prices, rubber is still the best choice for farmers in Kerala.

Prices in Indian markets are higher than international market and farmers are still making profits, M.F. Vohra, president of All India Rubber Industries Association said.

Additional Reporting by Boby Michael in Mumbai

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