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Kerala's rubber growers ignorant of imminent futures trading

D Jose in Thiruvananthapuram

Hit hard by the crash in the prices in the past two years, the rubber growers in Kerala are apprehensive about the current move by the Rubber Board to introduce forward trade in natural rubber.

The Rubber Board has already initiated the process for setting up the futures exchange in Kerala, which produces about 90 per cent of India's rubber. It has identified the Bangalore-based Indian Institute of Plantation Management for conducting a feasibility study. The board has submitted a proposal to the World Bank, which originally mooted the idea for forward trading, for assistance to conduct the study.

A World Bank team visiting the state this week is expected to give the nod.

The IIPM, which conducted similar studies for futures trade in tea and coffee, is expected to go into issues like marketing, storage, ownership etc, said Jayaratnam, director of the World Bank-assisted India Rubber Project.

The Rubber Board's move has not generated enthusiasm among the growers: a majority of them are oblivious of the rules of the game. "I don't know much about the futures trade," said J K Thomas, a major planter in Kottayam, the country's rubber capital.

"I have heard a lot about the Pepper Futures Exchange at Kochi. I have not come across any pepper grower who says he has been benefited by the futures trade," Thomas said. He said there was a need for creating awareness among the growers about the mechanism of futures exchange, if the forward trading has to succeed.

It is a tough task since the growers belong mainly to small and marginal category. More than 85 per cent of the rubber is produced by this category. There are about one million small and marginal growers in Kerala, according to official statistics. The average holding is two acres.

Many growers still do not know how they would be able to play in the futures market, since there is bound to be a minimum quantity needed for futures trade. The Rubber Board officials say the small growers can play their role through the rubber producing societies, cooperative bodies of rubber growers found in all the major producing centres. These societies can deal with the traders in the future exchange on behalf of the small growers, contended Jayaratnam.

However, many say that the functioning of the societies is not satisfactory. Some of the societies have become defunct and many non-functional plagued by various problems, said Dominique J Mechery, a planter in Thiruvananthapuram. A lot needs to be done to revive these societies, if the Rubber Boards intends to make them agents of the growers, he added.

Many wonder what benefit the futures trade would bring when the future of the natural rubber itself appears highly gloomy. "A correct perception of the price is imperative for the growers to commit their produce for the future trade. The rubber market in the country is highly tricky," says Ramachandra Sharma, chairman of the rubber committee of the United Planters' Association of India.

The tyre manufacturers, who are the major consumers of rubber, have been dictating the terms now. They are in a position to control the market forces by virtue of their strong lobbying power. They can resort to imports in different guises when the growers quote a higher price for future delivery. They can also curtail their stocks, Sharma said.

Although it is mandatory for tyre manufacturers to maintain two months stocks, many do not follow the stipulation, as it has lost its relevance at present. The stipulation regarding the two months stock was made when transport facilities were inadequate. Now the situation is not the same.

The commodity can be reached anywhere in the country within a few days, added Sharma.

K V Thomas, who gained experience in commodity exchanges abroad, feel that the monopolies would not be able to control the market in futures trade. He is of the opinion that the futures trade would immensely help the growers to get the remunerative price.

World Bank expert Dr H P Smith, who made the suggestion for introduction of futures trade, feels that the forward trading is ideal for a commodity like rubber, which witnessed frequent fluctuation in prices. A workshop organised by the Rubber Board subsequently evoked good response from experts.

There is no exchange for futures trade in rubber in India at present. Futures trade in rubber is done through commodity exchanges in Japan, Singapore, Malaysia and Kualalumpur. The exchange at Kualalampur does not transact much business. The two exchanges in Japan do not have the provision for trade in foreign currencies. India is contemplating trade in dollar contracts to enable the trading of high quality rubber used by the aviation tyre sector.

The move for futures exchanges in India got a boost in the wake of the liberalisation of the policy on future trade in commodities by the government of India following the economic reforms in 1991. Future trade was introduced in several commodities, including pepper, since then.

The government was not encouraging futures trade till then due to allegations that the major reason for the unprecedented hike in commodities in the 60s was the future trading, said T Vidyasagar, president of the First Commodities Clearing Corporation of India, attached with the International Pepper Futures Exchange at Cochin.

Although India has 26 exchanges conducting future trade in commodities, only a few of them are functioning properly. As many as 24 exchanges do not have a secretariat and modern communication facilities, Vidyasagar pointed out.

Meanwhile, prices, which remained low, have started looking up raising hopes among the growers that they would peak by the end of this year. The price of RSS 4 category moved up from the average Rs 28 a kg in December to around Rs 32 at present. The rubber manufacturers feel that the price would reach about Rs 40 a kg within a couple of months.

The optimism is based on the steady growth seen in the consumption of the recession-hit auto tyre sector and the rise in the price of synthetic rubber following the increase in the price of petroleum products.

Business

Kerala