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Tuesday, 8 February 2022 01:26 - - {{hitsCtrl.values.hits}}
By Charumini de Silva
Despite exports crossing $ 1 billion mark last year, rubber sector is being rattled by regression owing to multiple issues prompting an industry leader to urge Government’s immediate intervention to ensure survival.
Unavailability of raw materials locally, high freight charges both ways in import and exports, clearing shipments, foreign exchange and energy crises, ad-hoc labour rules and search for alternative markets were underscored as major challenges that the rubber industry is faced with.
“We are right now in a position where we are forced to import natural rubber and latex for manufacturing,” DSI Group Managing Director Dr. Kulatunga Rajapakse told a webinar last Friday.
He said although rubber and rubber-based product exports last year surpassed $ 1 billion mark and becoming the second largest earner, Rajapakse pointed out that local natural rubber production, which has dropped sharply by 40% to 75,000 tons (75 million kilos) with lack of attention given to replanting efforts.
“Previously raw rubber was being exported without any value addition, but now there is hardly any that goes out in raw form as all industrialists give a substantial value addition before exporting. We believe that this also needs the attention of the Plantation Industries Ministry to ensure sufficient replanting efforts are being taken place to ensure production of raw materials necessary for industry development,” he stressed at a webinar titled ‘Export Performance 2021 and Future Challenges to Drive Exports and Economic Development in the New Normal’, organised by the Institute of Certified Management Accountants of Sri Lanka (CMA).
Citing that two years back, the Government initiated a replanting program in Monaragala with the assistance from France where 5,000 hectares were cultivated, Rajapakse said the initiative benefitted the exporters immensely, whilst noting such programs are key for the sustainable development of the sector.
He also pointed out that the glove manufactures are full of orders post-COVID, but they had to import latex because of the non-availability.
“If we had sufficient raw material available in the local market we could have saved a lot of foreign exchange. Replantation of rubber should be a long-term policy because buyers also ask for short delivery periods. The delays in importation of raw materials will be detrimental in going forward. However, with the R&D and lean production we still manage to excel in these situations,” he said.
He said rubber exporters too face the delay in shipments, shortage of vessels, increased freight rates and clearance from the port without demurrage – which has become a common challenge for all businesses at present.
In terms of the ongoing foreign exchange crisis, Rajapakse said companies that do not have over 50% exports are faced with serious challenges with insufficient forex cashflow.
“Most of the exporters are diluting their costs with domestic partners. Freight increase is 150% and this has to be borne by us in both ways, one during importation and second when exporting,” he explained.
Suggests freight rebate for certain products, fuel duty drawback will give breathing space for businesses with thin margins, adding India too is practicing similar concepts to encourage and support exports.
“We are always focusing on earning foreign exchange, but we need to save as well. Dollar saving is not considered much in the country. But all the industries that are manufacturing with industry substitution are saving the dollars. Industries must also be encouraged to save more dollars, then it will give somewhat consolation for the foreign exchange crisis we are in today. We should not forget that there is an increase in both exports and imports. It is important to consider both imports and exports to calculate the net foreign earnings,” he pointed out.
Pointing that workers’ remittances are given an enhanced recognition by the Government, Rajapakse said such incentives should also be extended to the export industries – the only sector that kept the economy afloat for the past two years amidst unprecedented challenges post-COVID.
He said European Union GSP+ is a massive consolation that exporters have, but now the inventories have come down. “A lot of the customers are pressing for lower prices and lower quantities, which has forced us to look into other markets. The rubber industry is exploring opportunities in the Asian markets in particular now.”
Rajapakse also warned that the failure to understand the economic impact of the ongoing energy crisis would have severe adverse impacts on the rubber manufacturing industries, as an industry which has a high energy consumption.
“Many factories are operated in fuel-based boilers and only very few use firewood. Thus, any shortage in fossil fuel, or power interruptions will reflect in huge losses in rubber manufacturing plants. Machine restart is a huge cost and involves high wastage. Therefore, the energy crisis needs to be looked into with serious attention if the Government wants the export sector to perform,” he pointed out.
He also said the ad-hoc labour rules in the export market were uncalled for, insisting on the Government for a long-term holistic approach to address it.
