Vipin V. Nair

Foreign players could disturb the dealers' network It could eliminate sheet rubber production Farm-gate price for the commodity could get reduced

Kochi , Feb 9

THE Centre's decision to allow 100 per cent FDI in rubber processing may hit the country's million-plus farmers as it could reduce their income and disrupt existing procurement network, according to a section of the trade here.

Allowing foreign players with deep pockets to get into processing and warehousing will also affect crumb rubber factories and small-scale traders, they said.

The Union Government on January 24 announced that the terms and conditions for FDI in processing and warehousing of rubber and coffee, and many other sectors, had been revised to permit 100 per cent investment.

According to Mr N. Radhakrishnan of Cochin Rubber Merchants Association, the move would eventually lead to a handful of large players taking charge of the natural rubber sector, disrupting the existing network of 9,000 rubber dealers and 1,000-odd rubber producing and marketing societies.

Danger to sheet rubber: Since foreign processing units would be buying latex or cup lump instead of sheet rubber to manufacture block rubber, this would slowly eliminate sheet rubber production in the country, he added.

In the case of sheet rubber, a grower gets 98- 99 per cent of the day's price from a trader. Compared to this, growers in Malaysia and Indonesia get only 75 per cent as they sell latex directly to processors.

The reasons for the high "farm-gate" price realisation in the country is mainly thanks to the sheet rubber, which gives the farmer the power to hold back his produce and costs just about Rs 1-1.50 a kg to process.

Mr Radhakrishnan said once foreign processors are allowed, they will initially enthuse the growers with higher prices to sell latex but will eventually rule the market.

"Farmers will have no option but to sell the latex to them when they are out of producing sheet rubber. Then, they will earn much less farm gate price of 75- 80 per cent."

Tough job: However, Prof K.K. Abraham, President of the Pala Marketing Society - a leading rubber procuring and processing co-operative in the State - said getting into natural rubber processing will be a tough job for foreign players.

"It is not easy to create a network infrastructure that will supply them adequate latex to process crumb rubber. Sourcing raw material is not easy in today's circumstances."

Weaning away growers from producing sheet rubber and supplying latex instead is a mammoth task, and perhaps even requires Government subsidies, he added. "Indonesia had to give subsidies in the past to encourage farmers to supply cup lump."

Such a possibilities appears remote in the current situation when rubber prices are ruling at record levels. "I don't think foreign players are going to come that fast into processing," Prof Abraham said.

First victim: But if foreign processors come in, one of the first segments to suffer would be the 50-odd block rubber factories, which together produce less than one lakh tonnes of block rubber out of the total production of 7.80 lakh tonnes.

"These companies will be adversely affected," Prof Abraham said.

Also, many small-scale industries that rely on sheet rubber to manufacture rubber goods will go out of work for want of raw material as they are equipped to process only sheet rubber.

Alternatively, they will have to make heavy investment to alter their machinery to use block rubber, Mr Radhakrishnan said.

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