The elasticity of truth: Will Sri Lanka’s rubber industry bounce back?

It is hoped that the Government will initiate an honest appraisal of the current state of the raw rubber industry, its future, and how it could supply the needs of the value adding rubber industry, and involve grass-root consultations in such an appraisal. If the appraisal is limited to a five-star hotel summit, truth will be the casualty and with it, the future of the industry 

If an honest appraisal is done, it appears that the rubber industry in Sri Lanka is ailing from a debilitating decease and its very survival is at stake in the longer term.

Among other reasons, fluctuating demand, and consequent drop in prices for raw rubber coupled with a high cost of production arising from minimum wages and upkeep of plantations, under development of value adding industries, the importation of raw rubber for the few value adding industries from countries where production costs are lower, appear to be some of the underlying causes for the decease. 

Vimal Dias, a small and medium scale plantation owner, himself a management consultant with a long history in supply chain management work, both at national and international level, laments the lack of a realistic appraisal of all the factors that contribute to the situation faced by Sri Lanka.

He presents several issues. Firstly, the shortage of rubber tappers and the declining numbers of younger persons in rubber tapping. He also questions the policy of giving subsidies for replanting rubber trees when the issue relating to rubber tappers have not been considered. He questions the need for more trees if they cannot be tapped. 

Secondly, the high cost of production arising from guaranteed minimum wages and plantation upkeep costs without commensurate prices for raw rubber that are needed to keep plantations, especially the small to medium ones, afloat. These points are examined in more detail later in the article. 

Dias is a strong advocate of an honest appraisal of the industry, but insists that such an exercise should include representatives from the grass roots and that it should not be a top down appraisal involving only large plantations owners, industry leaders and senior government officials. 

In assessing the status of the rubber industry in Sri Lanka, it is worthwhile noting different narratives that have been presented to describe its status and its future direction and potential to increase foreign exchange earnings.

Sri Lanka Association of Manufacturers and Exporters of Rubber Products (SLAMERP) Chairman Prabhash Subasinghe had pointed out with disappointment that rubber production in the country grew only 7% to 85,000 tons in 2017: “The local demand for rubber is almost 130,000 tons, this creates a major shortfall and inefficiency.”

He says the turnover of Sri Lanka’s rubber industry currently stands at approximately $ 1 billion and that in 2017, the estimated rubber product export value was $ 855 million. Subasinghe had stated then, in early 2018, the industry could be worth $ 3 billion by 2020 if certain interventions suggested were implemented. It is unlikely that this target has been achieved. The long term aim had been stated as a $ 4.4 billion industry by 2025.

The Export Development Board gives a reader an upbeat outlook: “Sri Lanka has a well-established natural rubber industry with a well-organised infrastructure comprising of all supporting institutes in public and private sector. Rubber Research Institute (RRI) of Sri Lanka is one of the oldest research institute for rubber in the world. Moreover, Sri Lankan rubber sector is the third largest export earner of the country providing over 300,000 direct and indirect job opportunities to Sri Lankans across various professions and walks of life. Rubber trees are grown systematically and re-planting programmes are carried out continuously in keeping with the recommendations of RRI. Sri Lankan rubber plantations mainly consist of many small holders as well as bigger rubber plantations that are managed by well established companies. There are already a number of international rubber manufacturers with state-of-the-art manufacturing units utilising the availability of premium quality rubber, in Sri Lanka.”

Rubber Research Institute former Executive Director Dr. L.M.K. Tillekeratne in an article titled ‘Impact of declining rubber production to the economy’ published in the Daily News of 7 December 2019, gives a less upbeat impression about the industry. (Dr. Tillekaratne’s full article may be access via https://www.dailynews.lk/2019/12/07/features/205019/impact-declining-rubber-production-economy). In it he says, Natural rubber production in Sri Lanka is declining at an alarming rate from 155,000 Mt produced in 1967 to 82600 Mt last year.

Sri Lanka with over 140 years’ history as the pioneer rubber grower in the world outside South America, was in the fourth place in the world as a NR producer in late 1960s has already fallen down to the 12th position, overtaken by countries entered into growing rubber much later, such as Vietnam, Cambodia and Myanmar. Rubber industry in Cambodia and Myanmar was developed with the expert assistance given by Sri Lankan scientists. With that technical support they were able to increase their rubber production by three to four times within six years. During this half a decade, the productivity of rubber lands in Sri Lanka has dropped down to 774 kg/Ha/ Yr while the same in Cambodia has risen from 450 Kg/Ha/Yr to 1090 kg/Ha/ yr. 

At present, the contribution from the rubber industry to the total export value of Sri Lanka is only 5% of which Rs. 4.8 billion comes from the export of raw rubber particularly in the form of latex crepe rubber. Income from rubber finished product export is $ 864.4 million (Rs. 152 billion).

About 70% of the total rubber and latex production of the country is converted to value added products like solid tyres, foam rubber, surgical, examination and industrial gloves and also for making solid and pneumatic tyres and tubes, rubber floorings, toys etc. Last year, 135,000 Mt of raw rubber and latex have been consumed by the local products industry while the total production of raw rubber in the country was only 82600 Mt. 

Hence, over 76,000 Mt of both dry rubber and latex have been imported to meet the shortfall in 2018. It is best for the economy of Sri Lanka, if this upward trend in rubber consumption for value addition is continued. But, the danger is that already, the rubber products industry will have to depend largely on the raw rubber supplies from other Asian countries.

Vimal Dias, confirms the drop in production and also the drop in income as latex prices which have steadily been on the decline while the cost of production has increased. He says Rubber estate owners have no pricing pressure and have to accept what the local market offers them. So the only thing they could do is to lower their cost of production (COP) as far as possible to stay in business and produce a profit. However, over the last 10 years or so, the COP for producing field latex has been rising steadily. This is because about 80% of the COP accounts for labour and has risen very significantly in recent years. Government dictated wage rises have been frequent and is the chief cause for this rise in COP.

Dias notes nine typical problems for the unhindered rise in the cost of production which has no linkage to productivity and how the cost of production may be lowered if the raw rubber industry is to survive in Sri Lanka.

1. Lack of tappers

One of the ways in which the COP could be lowered is by simply producing more latex from the stock of trees under tapping. Unfortunately, most estates have a severe shortage of skilled tappers and recruiting any new tappers has become more or less impossible. The Rubber Development Department (RDD) offers tapper training programs, but it is very difficult to find any persons who are interested in undergoing tapper training and getting recruited as a tapper. 

In major rubber producing countries, many tappers commence work as early as 3 a.m. in the morning, wearing flash lights on their caps. This is to capitalise on higher yields that result in tapping very early in the morning. However, tappers in Sri Lanka usually commence work around 6 a.m., finish their work by 11 a.m. and earn around Rs. 750 per day. In the past, tappers used to do a certain amount of double tapping during cropping months. This is when a tapper taps more than one block of trees allocated to him/her within the same day. On such days, the tappers earn more than double the normal daily wage.

This practice was mutually beneficial for tappers as well as for the estate owners. However, these days most tappers are reluctant to do any double tapping. This is mainly because most tappers are now getting to be very old and find it difficult to do even single round of tapping. Most tappers are over the age of 60 and none of their children are interested in being a tapper. Whether this situation would change if there is large scale unemployment due to the coronavirus is left to be seen. Further, it takes time to produce a skilled tapper. 

2. Tapper productivity

The number of kg of field latex brought by a rubber tapper has the biggest impact on the profitability of any estate. The number of kg produced usually depend on many factors such as; age and clone of the tree, tapping panel. Tapper skill and effort, number of trees taped for the day, month of the year and weather pattern etc. While some of these factors are within the control of the tapper, some aren’t. Hence, daily intake could vary a lot, say from a low of around 3 kg to 10 kg per day. 

The norm is to allocate between 250 to 300 trees per tapping block, but nowadays tappers are not tapping more than 200 trees per day. Lack of proper supervision and use of elderly tappers are the key contributory factors. Another reason why the number of taped trees are so low is because many trees within a tapping block are not tapped, either deliberately or because they don’t yield any latex due to some disease. Such incidence will also reduce the yield in terms of kg of field latex collected per tapper. 

3. Abandoning new mature fields 

In many estates, fields that were planted about eight to 10 years ago have reached their tapping stage some years ago. Unfortunately, these fields have to be kept untapped and abandoned due to lack of skilled tappers. This is a big financial loss for the owners, the Government and is a big waste of valuable resources.

4. Newly-planted fields 

In addition to the type of fields mentioned in 2.) above, many estates also have new clearings that are still immature. These fields have to be maintained at great cost over seven years, as the replanting subsidy given by the RDD is grossly inadequate to cover all replanting costs and bring the fields up to tapping stage. On these fields also reaching their tapping stage, they would get added on to the category of abandoned mature fields mentioned above, thus aggravating this problem even further.

Under above conditions, it is important to ask the question as to why the RDD is encouraging planting and replanting of rubber fields by supplying planting materials and paying subsidy for field maintenance over a period of about seven years. Billions of rupees spent on this activity by RDD may not provide the desired results, until the question of the tapper shortage is satisfactorily resolved. In such a situation, it may be better to temporarily stop the replanting program for a few years and increase the level of subsidy for existing fields. This way, they could be saved from being neglected at a time when plantations are undergoing great financial stress. 

5. Loss due to rain 

In most estates, the number of tapping days is limited to around 240 days per year, after discounting for statutory holidays and rainy days. Even from this low number of tapping days, high absenteeism among tappers will further reduce the number of actual tapping days. 

6. Rain Guards 

A possible answer to rainy days is to fix Rain Guards (RG) on rubber trees. The RDD funds a program to provide RGs covering a very substantial part of the cost of fixing RGs. This program has been active for many years, but it appears that results have not been very encouraging. This is mainly because tappers are not willing to tap on most rainy days, defeating the very purpose of using RGs. Perhaps this is why many estates are still not in the habit of continuously using RGs. 

7. Mechanisation 

Normally the answer to ever rising costs is to mechanise some key activities where possible. Unfortunately, this has not been possible in rubber plantations. Only areas where mechanisation has played a vital role is in the area of new field development, in terms of: jungle clearing, cutting holes to plant rubber and cutting drains. Use of heavy machinery have played a big role in lowering the cost as well as the speed of preparing new rubber fields.

8. Field maintenance 

Besides tapping, the next biggest item of cost is to keep fields free of weeds. Heavy rains and lack of suitable weedicides such as glyphosate have become a big headache for estates. In recent times, use of bush cutters have become popular as an answer to speeding up weeding operations and reducing costs.

However, experience shows that it is not a complete answer, as weeds tend to return with a vengeance after use of the bush cutter. Hence, many estates have been compelled to revert back to the age old method of manual weeding, despite its high cost.

9. Fertiliser 

Mature rubber has to be fertilised at least once a year to maintain high productivity levels. Immature fields have to be fertilised even more frequently. These days, the cost of fertiliser and labour cost of applying fertiliser is very high. Unfortunately, currently all types of rubber fertiliser is out of stock in Sri Lanka causing a major problem for planters. 

The main purpose of finding suitable answers to above problems faced by rubber plantations would be to reduce the COP and maximise the number of kg of field latex collected from a hectare of mature rubber. Currently, most small estates in Sri Lanka are only harvesting around an average of 1,000 kg of rubber per hectare per year. This is low in comparison to the potential harvest with trees cultivated at a density of 375 per hectare (150 per acre), of approximately 2,500 kg of rubber per hectare per year as noted in the Encyclopaedia Britannica. Available data shows that in India, Myanmar, Vietnam and Malaysia, the average harvest is around 1,000-1,500 Kg. Of course harvesting will be affected on account of the terrain of plantations.

Challenges facing rubber estates

Rubber plantations in Sri Lanka generally fall into three key categories. In the first category are the large lands running into thousands of acres managed by plantation companies that received land under land reforms. The second category is the estate sector, owned by private individuals and companies with less than 50 acres in extent. The third and the last category are small holdings, where owners themselves operate and manage their small plots of land. An attempt is made here to describe some of the technical and management issues facing the estate sector in particular. 

Dark clouds have been hovering over rubber estates for some time now. Rubber is a commodity, and hence its price in the world markets moves in cycles. Normally natural rubber tends to do well when the global economy is doing well. It has a good correlation with GNP of developed countries, particularly that of USA and China. The last boom period for rubber was around 2011, when the price of RSS 1 went beyond Rs. 600/kg. Unfortunately, from here onwards, it was a slippery slope for rubber, hitting an average of Rs. 300 in March 2020. In April and May 2020, there were no prices recorded for RSS 1 at all, and this led to a situation where smallholders got rather a raw deal for their rubber latex sold during these two months. 

Small estates basically have only two options in marketing their produce. In days gone by, most estates had its own factory and a smokehouse to produce rubber sheets, but this practice has now come to an end in many estates. It has become much easier to sell raw field latex mixed with ammonia to factories like Lalans Group, Dipped Products and other local latex collectors, etc., at around 15% to 20% less than the average RSS 1 price of a given month. Problems of engaging rubber makers and guarding rubber stores against frequent thefts have mostly prompted such a move. 

The other most important indicator to on tapper productivity is the average number of kg of rubber harvested per tapper over a period of one year for the estate as a whole. With low prices, plantations which are unable to maintain this average at least above six kg/tapper may get into much difficulty very soon. 

Many owners have inherited their properties and have not raised loans to purchase their lands. So their financing costs are usually low or non-existent. Hence, this would help them to avoid making large losses even if rubber prices remain low. The Government has also made profits from agriculture tax free, but this is however a less of an attraction in these days when profits are so hard to make. 

Some planters may be waiting for glory days of 2011 to return, when rubber prices skyrocketed. Now with coronavirus spreading all over the world and making all economies weak, this may only be a distant dream.  Planters are currently between a rock and a hard place. It has reached a point where the three major stakeholders of this business, namely, owners, workers and supervisors, are feeling very frustrated and not very motivated. 

So then what options are available to them going forward? One would be to increase productivity, but doing so against the many head winds described above looks a daunting task, without any major policy changes. The second option would be to grow tea or any other alternative crop. Unfortunately, such crops are even more labour intensive and setting up a new tea field for example would be very costly. The third and the last option would be to sell the land. However, not many are interested in buying rubber lands at a time when rubber prices are so low. Besides, the new land fragmentation law is also not very helpful in transforming rubber land into any non-agricultural projects. 

Finally, the importation of raw rubber from countries with a lower cost of production, although understandable from the point of view of the profitability of local value adding industries, is basically hastening the death of the local raw rubber industry. It would be interesting to know whether the cost of imported raw rubber is factored in when statistics are released on foreign exchange earnings from the export of value added rubber goods.

Conclusion

a. The raw rubber producing industry is on a steep decline and may not last long unless wages are linked to productivity. 

b. Rubber tappers will be even harder to find in years to come, and unless there is a practical long term plan to arrest this decline, the raw rubber industry could become a nostalgic experience of the past. If earnings are linked to productivity, it may even attract a new breed of tappers not unlike some coconut pickers today who are younger, more mobile and who are very efficient at what they are doing.

c. Subsidies given by the government using the CESS that is levied on the sale of raw rubber for planting and re planting new trees, appears counterproductive unless there are tappers to tap these trees when they reach the stage of tapping.

d. More research and development is needed to explore possibilities of developing trees that produce higher yields in a shorter period of maturity 

e. If Sri Lanka were to increase its value adding rubber related industries, there will be far greater reliance on imported raw rubber to do this as local production may be insufficient or non-existent. 

f. The inconvenient truth of some or all rubber plantations being consigned to history in the longer term may have to be entertained and a decision taken to grow other crops in existing plantations including forestry products where the harvested timber could be used locally or even exported.

It is hoped that the Government will initiate an honest appraisal of the current state of the raw rubber industry, its future, and how it could supply the needs of the value adding rubber industry, and involve grass-root consultations in such an appraisal. If the appraisal is limited to a five-star hotel summit, truth will be the casualty and with it, the future of the industry. The underlying theme of the appraisal should be how the raw rubber industry could support the Government’s overall policy of import substitution and shifting the focus to value-adding industries.