Sri Lanka’s rubber growers are being hit by falling world prices with production volumes also dropping due to a drought within the country, an industry association said.
Deputy Chairman Planters’ Association of Ceylon (PA) and CRTA Vice Chairman S. S. Poholiyadde said in a statement that rubber prices have halved over the past three years.
Colombo Rubber Traders’ Association (CRTA) Chairman, M S Rahim said that latex crepe reached record highs of 600 rupees a kilo in 2011 but ended 2012 at 385 rupees and remained around 400 rupees in 2013.
From January 2014 rubber prices have fallen again with latex crepe down around 305 rupees, he said.
In April the average price for latex crepe at Colombo auction was 300 to 230 and ribbed smoked sheets were unquoted, the statement said.
Commodity Volatility
Global commodity prices including oil plunged after a credit and economic bubble broke in the US and EU in 2009 ending a so-called ‘food crisis’.
But in 2010 and 2011 prices picked up again and have been very volatile following excessive money printing programs by the US Federal Reserve know known as ‘quantity easing’, despite slow economic activity around the world.
But with the Fed set to ‘taper’ or gradually end its excessive money printing, commodity prices, precious metals and oil prices have moved down , as the inherent strength of the paper US dollars increases against real assets, economic analysts have said.
Gold prices have fallen sharply over 2012. In the past few months as ‘tapering’ took hold, volatility in commodity prices increased.
World coffee prices have also fallen in April after spiking to record highs in March .
But tea prices have held so far.
This month New Zealand New Zealand milk powder prices plunged after a recent spike.
Commodity and precious metals are falling as the US economy recovers and many European economies also beginning to show strong growth and unemployment is starting to fall, though China’s economy is slowing.
Economic analysts say a similar situation was also seen in the 1980s with a strong dollar pushing down commodity and food prices benefitting the poor.
At the time, European governments came up with price support schemes leading to the so-called ‘butter mountains and wine lakes.’
With 2014 expected to be an El Nino year, agricultural output may fall, giving some price support.
Weak Outlook
Meanwhile the in the Planters Association statement, Damitha Perera, Director Rubber, Forbes and Walkers Commodity Brokers said China was not aggressive in markets, which was not good for Sri Lanka.
“Crepe and RSS is stagnant as this is the lean period and off season. A boom in prices is not expected for a few months,” Perera said.
April 09, TRS20 which covers Thai, Indonesian and Malaysian rubber grades
Reuters, a new agency said on April 09, TRS20 which covers Thai, Indonesian and Malaysian rubber grades was near the lowest since 2009 on Singapore’s SICOM exchange. Tokyo rubber futures have fallen more than 18 percent this year.
Thailand’s STR20 grade was said to have been traded around 1.90 US dollars, with producers claiming that at below 2 dollars they were in losses.
Reports that the Thai government was planning to sell down a rubber stockpile were later denied.
Sri Lanka’s rubber industry says cost of production continues to escalate.
Planters’ Association of Ceylon’s S Poholiyadde says recent collective agreement with trade unions which raised salaries had increase cost of production by 20 to 25 rupees a kilogram.
Asoka Nugawela, Professor of Plantation Management at Sri Lanka’s Wayamba University was quoted as saying that wages will increase further in the future, requiring more productivity gains.
In 2012 however Sri Lanka’s rupee fell to 130 to the US dollar from 110 reducing real wages.
Production Effects
The Rubber Traders Association fears that small holder farmers may convert rubber lands to other crops due to weak rubber prices.
Large plantations firms were also feeling the pinch, the statement said.
Other analysts have noted that protectionist import taxes on vegetable oil were also making palm oil artificially profitable in Sri Lanka at the expense of export crops like rubber.
Poholiyadde said land acquisitions were shrinking the areas available for cultivation. There was a shortage of tappers, with young people not wanting such work.
Poholiyadde claimed that a “protectionist strategy was crucial”, without elaborating.
Sri Lanka already penalizes rubber production with export taxes, with farmers big and small denied the world price, while manufacturing businesses profit at their expense.
But analysts warn that any state intervention to push up domestic rubber prices higher than elsewhere in the world would discourage new investments in rubber based factories and may even cause a shift of production outside the country.