Navin calls to end populist govt. intervention in rubber industry

By Nishel Fernando
Plantation Industries Minister Navin Dissanayake yesterday asserted that the populist government interventions in Sri Lanka’s rubber industry have indirectly led to subsidization of big businesses as well as to corruption, while emphasising that the price stability of natural rubber should be a key priority for policymakers on par with the increasing productivity, which requires pragmatic decision-making.

Dissanayake said this delivering the keynote address at World Rubber Summit 2018, organised by the International Rubber Study Group (IRSG) in collaboration with the Plantation Industries Ministry, in Colombo, yesterday, under the theme, ‘Breaking Barriers Towards Sustainable Growth’.

“There is this mistaken belief of many governments, especially the politicians, that cushioning the impact of market vagaries faced regularly and cynically by the small farmers through various intervention measures, such as subsidies, free-farm inputs and income support, is essential to the welfare of them. Governments maintain costly structures to implement these measures.”

The Sri Lankan government provides several subsidies to rubber farmers in the smallholding sector, which include replanting and fertilizer subsidies.

Despite the government’s efforts, the natural rubber production has slumped to 79,000 MT in 2016 from 155,000 MT produced in 1967, while the natural rubber exports declined during the first quarter of this year by almost 40 percent year-on-year (YoY) to US $ 11.8, largely owing to the low prices in the international market.

Dissanayake outlined that the longer time period of seven to 10 years taken by a rubber tree to produce latex in profitable volumes has also caused the rubber farmers to move away from natural rubber production to other crops, while the commercial-scale farmers have shifted to commercially viable crops such as oil palm.

“It seems that this populist belief is unsustainable, counterproductive and helps only the consumers to procure rubber at an artificial price, thus indirectly subsidizing big businesses. Does the industry bear the cost of subjects directly or indirectly? I see no evidence,” he said.

The minister asserted that ideally, there should be no subsidies, no incentives and no excessive bureaucracy overlooking the affairs of the rubber industry.

However, he noted that due to party politics in Sri Lanka, subsidies appear to remain essential for social welfare of rubber farmers.

Subsidies impede sustainability 
He pointed out that the government subsidies have become the major issue for the sustainability of the rubber industry.

“The question of the impact of corruption on sustainability is another issue. When subsidies and other forms of government assistance or regulations are involved in sustaining an inefficient production system, there exists a possibility of corruption. This obviously will have an impact on the efficiency and resource allocation,” he said.

Calling for the IRSG’s support to sustain the rubber industry, he added, “I am sure the global rubber consumer assembled here, under the aegis of the IRSG, would collaborate with their counterparts in governments to find a solution, a kind of solution that enables the rubber farmers to leave the government out of their equation except as a fair and transparent regulator, a respected umpire.”  

The minister commended Brazil for breaking away from the unproductive populist practices and noted that Brazil is on a path to produce rubber in a truly sustainable manner by preventing the commoditization of rubber through certification and managed expansion.

“Sustainability is not about supporting an inefficient producer; it’s about developing a self-sustaining generation of producers who can weather the markets on their own with adequate resilience.”

The minister also expressed his concerns on the rubber prices in international markets noting that increasing productivity might not necessarily increase profits for rubber producers.

“At present, natural rubber producers try to confront the problem of low yields. If disruptive technologies play wonders and natural rubber producers will reach productivity levels of say, 3000 kg per hectare by 2040.

On average, at half the current cost of production with promised automated tapping and troubling plant diseases fully eradicated, what will be the resulting global production volumes and ensuring price level? You suggest that higher productivity and low costs bring more profits. I am not sure the profit is increased per kilogramme or per hectare but what happens then? How does it affect the demand curve? Let’s see,” he elaborated.

Dissanayake warned that the increase would lead to lower prices subsequently adversely impacting the bottom layers of rubber value chain, the smallholder farmers.

“Businessmen will start investing in rubber. Shrewd politicians will take notice. Land grabbing begins. Rent-seeking is possible. The governments will offer all kinds of support for a cash cow. Our people will open more rubber farms or replant rapidly expecting to enrich faster. Increased output will impact the supply-demand equation. The resulting glut will obviously make natural rubber cheaper but will the prices reach and remain at constant equilibrium? Will the interest in developing alternatives natural rubbers such as Dandelion remain?” he said.

He pointed out that though in theory natural rubber can be made profitable, in practice, most of the local producers were unable to do so, unless the prices are high.

“So, what are the true future prospects for Hevea Brasilliensis with competition emerging? Can we sustain it from an economic perspective? In theory, rubber can be made profitable. In practice, most of our producers are unable to do so, unless the prices are high. This is the reality. As policymakers, we have to make pragmatic decisions that are fair to all.”

The minister asserted that the policies should focus on the bottom players of the value pyramid rather than focusing merely on the top layer.

Natural rubber initiative
Meanwhile, expressing his views on the IRSG’s sustainable natural rubber initiative (SNR-i) Dissanayake said that the IRSG needs to evaluate the impact of SNR-i to the smallholders, if the IRSG is considering of making SNR-i a mandatory requirement.

“It seems that the IRSG is thinking of making this a mandatory requirement to satisfy certain similar private initiatives. Is this initiative really demand driven and popular among all industry stakeholders?
For example, a rural woman smallholder in our newly developed Monaragala region, which received intense government support to develop her hectare of rubber, may have never heard of SNR-i. Is she expected to comply with these guidelines?

Is it only for cooperates? If so, what is its impact at the grass root level? The poor and vulnerable small rubber farmers are not going to listen with admiration to a policy that compels to remain poor to keep sustaining global value chains. The bottom of the value pyramid must be our main focus,” he pointed out.

The minister also noted that despite the impact of climate change on rubber production is increasing.
“Consider all aspects of it carefully and allow the industry players who know the industry intricacies to take the lead in identifying sustainability barriers, determining strategies and implementation mechanisms.

Governments should become partners by providing policy support and instructional backing. Let us think collaboratively and derive the benefits of synergies of sustainability across the rubber industry value chain.”  

Global production of natural rubber grew by a 6.8 percent YoY to 13.3 million tonnes in 2017. However, the global consumption of natural rubber was increased by a mere 1.4 percent to 12.9 million tonnes during the same time period. The world rubber demand is expected to rise to 17 million 
tonnes by 2040.