By Dr DK Joseph
Natural rubber contributed almost 45% to the agricultural GDP of Kerala, which accounts for 90% of India’s NR output. The State’s rubber plantation sector has over one million growers and half a million workers. It is the only source of livelihood for nearly 1.5 million families. Now this sector is facing peril, says Dr KJ Joseph, Professor at the Trivandrum (Kerala)-based Centre for Development Studies (CDS)
Dr Joseph, who says the views expressed in this interview are strictly personal and not that of CDS, points out that commodities like natural rubber are known for the ups and downs in their prices. In case of NR, for example, the price has hit the bottom. In April 2011, it fetched Rs 243 per kg, the highest-ever, but then fell to Rs 94/kg in January 2016. This is a fall of 61.32% just within five years.
The total revenue from rubber has now become a quarter of what it was five years ago. With the decline in production and marginal restrictions on imports, the prices began to move upwards and reached Rs 134 per kg on June 9 June this year.
“History teaches us that given the cyclical nature of prices and other associated features of primary commodities like plantation crops, hardly any country in the world has achieved remarkable levels of prosperity by focusing on primary commodities,” he said.
While appropriate price stabilisation measures could help mitigate the misery of those engaged in the sector, a sharp decline in prices like what the NR sector is facing now is bound to have long-term impact on the economy of Kerala and the NR sector in particular.
It is likely to affect the State’s economy because NR accounts for a major share of its agricultural GDP. At the on going market price, the net income that the growers with average holdings size (0.5 hectare) receive is lower than the income of those below the poverty line. Such a situation will have serious short-run implications on the livelihood of those engaged in the sector.
The surplus from the NR sector, needless to say, has been contributing towards investments in Kerala, especially in human capital. The State’s high Human Development Index has contributed to all round socio-economic development. “However, the current slump in NR prices would have an inevitable impact on such investments, with its long run ramifications,” Dr Joseph said.
With respect to the NR sector, the adverse impact has already been manifested in production and productivity, he noted. Given the low prices, rubber tapping has become unremunerative. A large number of holdings remain untapped resulting in a steep decline in production from 940,000 tonnes in 2004 to a little over 500,000 tonnes at present.
Further, the decline in prices has undermined the ability of the growers to make long-term investments in their holdings, the economist said.
More importantly, since the price of NR and rubber wood move in sync with each other, replanting also got adversely affected leading to ageing of plantations that could lead to the emergence of associated problems.
The plantation economy in general and the NR sector in particular is no more the exclusive terrain of large estates. Going by the official estimates, small holders account for 90% of the area and 93% of output indicating their higher level of productivity, Dr Joseph pointed out.
“We must hasten to add that these small holders have a dual role in the sector, as growers and as tappers. Hence, when one reflects on the safety-net for the small holders, welfare components for the workers cannot be ignored.”
The recent price crash has been catastrophic in the sense that many small growers have been forced to join the rank of those below the poverty line. In such market-driven adverse situations, it is the responsibility of the Government to intervene to help the farmers with short-term solutions to bail them out from the crisis, he suggested.
In fact, setting up of the Price Stabilisation Fund (PSF) with a corpus of Rs 5 billion has been an attempt in this direction. The scheme that was envisaged was unattractive, and predictably the response from the growers was very poor, Dr Joseph noted.
The National Research Programme on Plantation Development (NRPPD) has already made the case for enhancing this corpus as the return from the same is very meagre.
“To the best of my knowledge, no effort has been made so far either to enhance the PSF or offer any financial support to the NR growers from the existing corpus despite they are in crisis,” he added.
It is always advisable to think in terms of prevention rather than cure. The small growers have been systematically supported with “ideas and objectives” by the existing institutional architecture and policy framework.
The R&D establishment of the Rubber Board — Rubber Research Institute of India (RRII) — has been supporting the growers with knowledge inputs while the developmental architecture has been supporting them with subsidies.
Recognising the significant role played by the Rubber Board in general and RRII in particular, Jairam Ramesh once said: “We need a Rubber Board for all the plantation crops.”
But the rubber research is limping at present when more research effort is needed to make the sector competitive. Increasingly, the term subsidy has become one of the most unwelcoming terms of Indian policy-makers. In a sense it could be argued that the Rubber Board hardly gave any subsidy because during the life span of a hectare of NR holding, the grower contributes as much as Rs 54,000 to the Government by way of cess.
Hence a case could be made for increasing the financial support of Rs 25,000 being given to the growers in the name of subsidy, which at present compares poorly with other plantation crops and what is paid out to their counterparts in other NR growing countries like Thailand.
In fact, many growers do not benefit from the meagre amount being paid in the name of subsidy. Instead, they look forward to remunerative prices along with adequate investible resources and support services.
Perhaps, it is high time to think in terms of linking growers with the financial institutions to ensure adequate and timely credit for investments in NR cultivation with a built-in provision for a subsidy that is equal to the interest component until the pre-bearing period of the credit is availed.
It is equally important to provide them insurance against risks like natural calamities and price volatility. It is encouraging to note that the Ministry is in the process of evolving such an insurance scheme by pooling resources from the Central Government, State Government and the growers.
With an assured price, the farmers will not find it difficult to repay the capital once the plantation starts yielding. “In fact, since NR is being considered as an industrial raw material for fixing the import duty, we don’t need a highly shrewd person to advise the Government to include NR in Make in India programme of the Central Government or else consider it as an agricultural product,” Dr Joseph said.
Since a large proportion of rubber holdings do not come under the Plantation Labour Act, 1951, the workers engaged therein are not entitled to any of the benefits under the provisions envisaged in the PLA.
Hence the safety-net for workers and tappers should include adequate provisions that are at least on a par with PLA such that their welfare is ensured. Such measures will also be helpful to ensure the steady supply of needed labour force for the sector.
On the rationale of blaming globalisation as the main reason for the bad times that the Indian NR sector is going through, Dr Joseph recalled what Nobel laureate Joseph Stiglitz had said: “Globalisation itself is neither good nor bad.”
Stiglitz said: “Globalisation has the power to do enormous well, and for the countries of East Asia which have embraced globalization under their own terms and at their own pace, it has been an enormous benefit. But in much of the world, it has not brought comparable benefits. For many it seems closer to an unmitigated disaster.”
Dr Joseph explained that in this context “the key issue is the need for us to globalise on our own terms and at our own pace. As already indicated, the NR sector has been a victim of globalisation, which, was implemented through WTO and regional trade agreements like India-Sri Lanka FTA and the India-ASEAN FTA which came up later.”
In sync with Stiglitz, it could be argued that NR issue is problematic not necessarily due to globalisation and FTAs per se but the way India went ahead with it.
“NR has been considered under WTO as an industrial raw material and therefore the import duty was slashed from 75% to 25%,” he pointed out.
But when it comes to the production of NR in the country, it is considered as an agricultural product without having any consideration that the industrial products get.
“While WTO could be blamed for the industrial raw material status of NR, WTO doesn’t come in the way of considering it as an industrial raw material in the domestic policy parlance, for example, while considering its cost of production. This double standard for NR should go.”
Prior to ASEAN-India FTA, an ASEAN-India Vision 2020 was prepared in 2004 at the instance of the Vajpayee Government wherein Dr Joseph was involved in the drafting of this document and its finalization at the instance of the Ministry of External Affairs and 10 ASEAN member countries.
Since India and ASEAN together account for bulk of the global production of plantation crops like NR, the Vision called for the establishment of ASEAN-India Commodity Boards for sharing of best practices and technology to enable the sector to move up the value chain and have effective control over the distribution of gains across the value chain along with avoiding glut in the market.
The implementation of these provisions are beneficial to the planting community both in India and ASEAN. Without the implementation of this provision, the Ministry of Commerce went ahead with a FTA leading to wasteful competition between the NR growers of ASEAN countries and India. It is high time to evolve appropriate institutional architecture for ensuring cooperation among the NR growing countries instead of perilous competition.