Tyre companies to buy rubber at 25% higher than global price

These companies will buy rubber from local market with 20% customs duty and 5% purchase tax from local dealers

Major trye makers have agreed to procure natural rubber from domestic market at 25% rate higher than the International (Bangkok) price. In a meeting with Kerala chief minister Oommen Chandy, top brass of 12 leading tyre companies had approved the purchasing formula proposed by Kerala government.

According to the agreement worked out on December 18, tyre companies will buy rubber from local market with 20% customs duty and 5% purchase tax, over the international price from local dealers.

Rubber Board will fix the price on a daily basis, based on Bangkok daily rates. As per the agreement, government will refund 50% of the purchase tax to the companies.

The other 50% also will be disbursed as refund claim on VAT collected from the buyers. The scheme will be applicable to the purchase of RSS-4 grade only.

Accordingly based on today's Bangkok price tag of Rs 105 a kg, growers will get Rs 131.25 a kg for RSS-4 grade although the market price is Rs 115 a kg.

The state government has informed that the scheme will be on till 31st March, 2015. Now for importing rubber companies have to remit 20% duty. Based on the new agreement, 20% is collected as customs duty and 5% extra as purchase tax. This ensures 25% higher price to the local farmers who are struggling hard due to incessant fall in prices.

Rubber prices had been falling for some time and for the first time in years went below Rs 115 a kg forcing the state government to call a meeting with the tyre manufacturers. In 2009, rubber price went up to Rs 245 a kg.

Addressing the meeting, Chandy said that the Kerala economy had been shattered with the rubber prices falling so low. "Rubber is one single plantation crop that has over the years helped to build the rural economy of Kerala.

Today the situation is such that the price of natural rubber has fallen below the cost of production, forcing many farmers to either stop tapping the rubber trees while some have started felling the trees, he added. This lead to 25% drop in production in October and November.

Kerala has 90% of the rubber plantations in the country spread over 6.5 lakh hectares engaging 1.1 million farmers.

State Finance Minister K.M.Mani said that when the rubber prices were high in 2009 Kerala government had helped the tyre manufacturers by taking up the case with the central government and got reduced the import duty from 20% to 7.5%.

"Now it's your turn to help us. Today you are importing more than 3 lakh tones of natural rubber. So when we are facing trouble you should help us," said Mani. Raghupati Singhania of JK Tyres, who led the tyre manufacturers said that today the domestic price of natural rubber is 20% higher than the international prices.

"We do have to import rubber for making high quality truck tyres. Also the consumption of rubber is more than the domestic production. However, we have agreed to help the farmers here," he said. The new arrangement beginning Friday will continue till the end of this fiscal.

"Since rubber has a 20% import duty, the tyre manufacturers would give that to our farmers and the state government will also chip in to the extent of five% which will be reimbursed in two equal instalments to the manufacturers. So the prices would go up by 25% starting tomorrow," said Chandy.

Chandy also said that the Kerala government will now approach the centre to see that maximum subsidy is given for re-plantation so as to help the farmers.