A fall in global oil prices may have brought cheer to the Indian government as well as economists in Asia’s third-largest economy, but rubber farmers here say they are suffering as crude has weighed on other commodity prices.
Crude oil prices slipped below $75 for the first time in more than four years last week on expectations of higher production in the U.S.
Cheaper crude oil means lower prices for synthetic rubber which is made from petroleum products and the main competitor for the natural rubber grown by farmers in India, Thailand and elsewhere. In India, rubber prices have fallen by 24% in the last 12 months to 118 rupees per kilogram.
As prices have plunged, farmers have slashed their rubber production and some are switching to other commodities.
“We never faced this kind of situation,” said Regi Paul, who has a 20-acre rubber plantation in the southern state of Kerala. “I am planning to give up most of my rubber plantation and switch to banana, nutmeg or coconut.”
India is the world’s fifth largest producer of rubber, producing more than 800,000 tons in the year that ended March. India doesn’t export much rubber though it imported about 320,000 tons last year.
Many farmers in Kerala, which accounts for about 90% of India’s total output, have stopped the production to cut their losses. They say current rubber prices are not high enough to cover the cost of labor used to harvest and process the commodity.
Rubber production has declined 32% on year to 58,000 tons in October, which is usually the start of the peak production period.
According to the state-run Rubber Board, the share of natural rubber in the overall rubber demand has come down to 66% from 75% in the last decade mostly due to increasing use of synthetic rubber in passenger cars.
India is not the only country facing this situation. Thailand, the world’s biggest rubber producer and exporter, last month said it plans to introduce measures worth $1.8 billion to support local farmers dealing with sharp price declines.
The world’s major producers are also planning measures such as limiting supplies to overcome the crisis.
If the crude prices decline further, natural rubber prices may fall to as low 100 rupees per kilogram, said Chowda Reddy, senior analyst with Inditrade Derivatives and Commodities.