Rubber farmers curb tapping and miss chance in tyre boom

Higher car sales to benefit foreign rubber sellers due to high rubber imports

Several rubber farmers have put away their tapping knives and switched to planting other crops, as ample global supplies and sinking benchmark prices of the tyre-making raw material squeeze their profit margins.

But this means local rubber farmers are likely to miss out on an expected boom in tyre demand from rising car use in India, paving the way for cheaper imports and supporting Asian prices that have dropped almost 26% this year.

"For most Indian farmers it is not viable to continue tapping at current levels," said George Valy, president of the Indian Rubber Dealers' Federation.

India could need to ship in more than 1 million tonne of rubber by 2020, equivalent to Vietnam's total output, versus estimated imports of 400,000 tonne this year, he added.

With cheap imports from key suppliers Thailand, Indonesia and Vietnam flooding the market, Indian farmers have stopped replacing aging trees and ceased expanding acreage.

Rubber trees are ready for tapping around six to seven years from planting and yields start declining after 20 years.

The April-November rubber output fell 5.5%, while consumption grew 4.6%. Imports rose 15%.

The country is expected to become the world's No.3 car market by 2018, up from No.6 now, according to IHS Automotive. But higher car sales will benefit foreign rubber sellers instead of local farmers, with India seen importing 40% of its rubber demand this year, up from 10% a decade ago.

"Even after paying 20% import duty, Indonesian rubber is nearly 10% cheaper than local supplies," a senior official at the Automotive Tyre Manufacturers Association said.

HIGH WAGES

High wages are another problem for Indian rubber farmers.

Average Indian rubber prices quadrupled to Rs 208 ($3) per kg in eight years to 2011-12, leading to a spike in wages, but while prices have fallen more than half, wages have stayed high, said Jom Jacob, deputy director of state-run Rubber Board.

Also, many young workers from the top rubber producing state of Kerala in southern India, the country's most literate state, move to the Middle East or richer cities for better-paying jobs, creating labour shortage and ensuring wages stay elevated.

"At current prices, tapping rubber trees means losing money on workers' wages. I have stopped tapping since January," said Joy Joseph as workers dug up soil to plant nutmeg outside his house in Kerala.

The 55-year-old Joseph, who has tapped rubber trees for three decades, said he had lost Rs 200,000 this year and that he would not resume tapping unless rubber prices rose to Rs 150 per kg.

Indian rubber prices are currently at Rs 115 per kg.

"Workers have many options, we don't. If we pay them higher wages, our production cost goes up," says V T Thomas, another farmer from Joseph's Elamgulam village, who also suspended tapping in January.

($1 = 63.4300 rupees)