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Natural Rubber (NR) is one of the primary commodities of the South Indian state of Kerala, which is the leading producer of rubber among the states in India. The importance of rubber in the Indian economy can be substantiated by looking at the sizeable contribution of rubber production which makes India the largest producer and the third largest consumer of natural rubber in the global economy. A total of 6-7 lakh tons is annually produced in India which amounts to approximately Rs. 3000 crore; 90 % of this total rubber production is contributed by Kerala (Indian Mirror, 2017). Of the rubber consumption in India, 50 % is by the automotive tyre sector that is dependent on both natural rubber as well as synthetic rubber. Major Indian tyre companies like MRF, CEAT, Apollo, etc. are all dependent on rubber, the consumption pattern of which has seen a shift in the recent times with the companies increasing dependence on relatively cheaper synthetic rubber imports from countries like Singapore and Malaysia. This has resulted in a phenomenon where the rubber prices are fluctuating and regressing heavily which has blighted the rubber farmers and producers in Kerala. This invariably led to either a shift in cultivation among the producers or set them in a retrograde motion with lesser production of natural rubber. To understand this crisis more clearly and to investigate the current situation among the rubber farmers in Kerala, let’s look at the international factors that explain a lot of this dormancy in the rubber production owing to plummeting prices.

International Context:

The ASEAN (Association of South East Asian Nations) – India Free Trade Agreement or AIFTA was signed on 13th August 2009.  Such free trade agreements across nations had gathered momentum as early as 2008 when countries were grappling with the impact of the global financial crisis and the slump in many economies especially that of developing nations. These agreements were received well by most economists and trade specialists in the subcontinent, as a catapulting of capital in terms of interregional trade was predicted, with comparative advantages for individual countries being affirmed. But it was clear for many that it was heading towards an adverse state of affairs for many small-scale domestic producers and farmers who were destined for an ordeal, especially with the proclamation of TIGA (India- ASEAN Trade in Goods Agreement). The TIGA which entered into force in January 2010 was aimed at establishing a full-fledged free trade area between ASEAN and India and was the biggest Preferential Trading Agreement (PTA) initiative in India’s post-independence history (Harilal, 2009). Although at the national level, a consensus regarding the agreement was arrived at among all the political parties (except the left), such blind collective approval was eluded in the south Indian state of Kerala, which was largely concerned of the long-term implications of such free trade agreements that could inhibit the domestic production of primary commodities of South India, especially of rubber.

The reason why Kerala is largely concerned with AIFTA is that most of the Southeast Asian nations share similar geographical and agro-climatic conditions which also translate into similar production patterns as that of Kerala. In fact, South Asia and Southeast Asia were the main contestants in the international markets for rubber and other primary commodities like coconut, rice, tea, coffee etc. for centuries. A free trade agreement was bound to set all this into disarray, thus, diminishing the importance of domestic production of commodities like rubber in India, as there were better and cheaper alternatives now.

Long-Term Consequences:

The AIFTA had, as one of its main proposals, a progressive reduction schedule of tariff rates on the import of certain commodities (which were categorized) over the years. Rubber, which was included under the Exclusion List of commodities, had a ‘base rate quoted as low as 20 per cent. This meant that the import duty could not be raised beyond the upper limit of 20 per cent even when the prices fall drastically on account of the real or potential threat of import surges’ (Harilal, 2009). Even though it has been slightly increased recently (in 2015) to 25 per cent (or 35 Rupees per Kg, whichever is lower), the adverse long-term implications still linger. This marginal hike in the import duty was itself due to increasing concerns of heavy import escalation of rubber, which reveals the obtuse discernment of the crisis by the Union government, which however was not yet given the importance and attention it should get. Despite the slight and temporary improvement in the rubber prices, the incessant imports which arise out of the demands of companies here in India have yet again slackened the rubber production in Kerala, with panic spreading across the producers and labourers who were engaged in rubber plantations and related sectors.

People like K.N. Harilal (a previous member of the Planning Board) had predicted the long-term impact of AIFTA, on the primary commodities of Kerala such as rubber which he says is the backbone of the state economy, a decade ago. However, not many policymakers or concerned officials cared to take due notice, mainly due to corporate pressure from major tyre companies, which has led to the worsening of this ‘rubber crisis’ in Kerala. What started as a minor and temporary fluctuation of prices had developed later into a depression in the prices which led to an agrarian crisis that ensued many horrible consequences in the state of Kerala and other neighbouring South Indian states. K.N. Harilal rightly observes, “The agrarian crisis had indebted, pauperized and displaced many peasants as well as agricultural labourers from their traditional livelihood opportunities.” The rapidly increasing imports of rubber are shocking and the figures reveal only part of the problem, which is excess domestic supply without adequate demand being generated resulting in pushing the prices way down. The production itself has decreased this year by almost 12% as compared to 2017. The vast irregularity in export and import can also be observed in the statistics:

Rubber Exports and Imports at 6-year intervals in Metric Tonnes:

 

2000

2006

2012

2017-18

Imports

8970

89799

262753

469760

Exports

13356

56545

30594

5072

(Source: Rubber Board, Ministry of Commerce and Industry)

The Current Situation in Kerala:

The ongoing situation in Kerala is grave and calls for quick action by the union government officials to improve the conditions of rubber farmers and labourers, who are abandoned and left to suffer in order to appease the South East Asian nations with whom India signed the AIFTA almost a decade ago. It is almost as if this level of suffering wasn’t enough that the recent government-implemented policies such as demonetization and GST were dumped on them, all of which collectively contributed to the hitherto worst rubber crisis that the Kerala economy has witnessed. The prices fell below the cost of production leading to stagnation in production and millions of small growers are experiencing severe hardships and losses. This was because the period saw the highest record of import, which increased from 2.65 lakh metric tons in April to October in 2017 to 3.63 lakh metric tons during April to October in 2018 (Mathrubhumi, 2018).

With a large number of rubber stocks available, the big companies (mostly tyre companies) are by and large dependent on these cheap import stocks or are willing to buy the local ones if they sell it at marginal prices. Most of the large rubber plantation owners and producers have shifted to other businesses and agriculture, owing to their rightly observed impression that the investment of time and money on rubber in Kerala is a lost cause. M.O Devassia Mattathil, for example, was a leading figure in rubber and pepper trade in Kerala, who later on went on to start other businesses which his successors are now taking care of. But that is the case of an affluent family in Kottayam who had the financial means and timely information to gradually shift into very diverse fields of agriculture and trade. The other picture that reveals the truly shocking reality is that of millions of small-scale farmers and labourers who work in the rubber plantations and pay the heavy price for this disadvantage infused by the government’s foreign and trade policies.

There are farmers who have taken loans to buy rubber estates and have ended up debt-ridden and impoverished due to the drastic price fall in recent years. Cases of farmer suicides have even been reported, like that of Krishnan Kutty Nair who took loans from various banks and individuals and was not able to repay them after the rubber prices crashed over the years. He had lost his house owing to his inability to pay the loan interests and was later found hanging from a tree in a rubber estate in Kottayam district. There have been other isolated incidents like this in the state as well, which might increase if the problem is not dealt with in a timely manner. The price of the rubber which was around 129 rupees per kilogram last month has now reached 121.50 rupees per kilogram in November, a fall by 8 rupees within a month (Mathrubhumi 2018). It is expected that this trend would continue unless there are some active efforts by policymakers and economists to acknowledge the gravity of this crisis and its detrimental effect on the Indian economy in the long run and proceed to gradually increase the tariff rates on imports from countries like Malaysia, Singapore and other Southeast Asian countries. This should be initiated through a prudent bargain with the ASEAN countries, by trying to put forward the genuine grievances of millions of Indian farmers who unquestionably got the short end of the stick.

References:

Harilal, K.N. (2009). India- ASEAN Free Trade Agreement: Implications for Primary Commodities of South India.  Indian Journal of Politics and International Relations. Vol.2, No.2.

Indian Mirror. (November 5, 2018). Indian Rubber Industry. Retrieved from: http://www.indianmirror.com/indian-industries/rubber.html

Mathrubhumi {Malayalam edition} (November 15, 2018). Nose-diving of Rubber Prices amidst the season.

Rubber Board, Ministry of Commerce and Industry (2018). Export-Import Statistics of NR.

Image Source: Internet Geography

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Written By Nikhil Seethi

A highly motivated student with a perceptive approach to public policy issues and development.Has published articles in academic journals and newspaper

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