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The rubber plantations of Kerala, a cornerstone of the state's agricultural economy, are facing a period of considerable turbulence, primarily driven by international trade dynamics and evolving regulatory landscapes. Despite a temporary suspension of reciprocal tariffs by the U.S. government until June 9th, the ripple effects of this ongoing trade friction have already cast a long shadow over the sector, threatening to undermine the renewed momentum that the industry had been experiencing. The immediate impact has been a decline in domestic rubber prices, a development that is causing significant anxiety among rubber growers who fear that further price erosion could render their operations economically unsustainable. This situation underscores the complex interplay between global trade policies and the livelihoods of small-scale farmers, highlighting the vulnerability of agricultural sectors to external economic shocks. The article clearly articulates a problem, its causes and potential effects, and offers a glimmer of hope, though it also acknowledges the deep-seated anxiety that persists in the industry. This complexity of factors makes a comprehensive analysis necessary in order to fully understand the potential impacts and challenges that the Kerala rubber plantations will face. The initial impact of the US tariff suspension, despite seeming to offer relief, has sparked concerns about reversing the rubber industry’s progress. Prices for the RSS-4 grade rubber, a key indicator of the market's health, have already dipped below ₹200. This sharp decline is particularly alarming because it threatens to push rubber prices below the cost of production, making it financially unviable for many growers to continue cultivating the crop. The drop in price is attributed to uncertainties surrounding international trade and a perceived slowdown in imports. Tire manufacturers, who are major consumers of natural rubber, have reportedly frozen their purchases in response to the unpredictable global trade environment, further exacerbating the downward pressure on prices. The Rubber Board, a government agency responsible for promoting the rubber industry, has echoed these concerns, predicting that market uncertainties will continue to drive prices lower. The potential consequences of this price decline are far-reaching. If prices stabilize at around ₹180, as some industry experts predict, many growers may be forced to cut back on essential plantation maintenance, such as fertilization, weeding, and disease control. This neglect could lead to a long-term decline in rubber production, which would further exacerbate the industry's woes. The National Confederation of Rubber Producers’ Societies (NCRPS), an umbrella body representing Kerala's small-scale rubber farmers, has warned that a price stabilization at ₹180 would not even cover the basic cost of production. This situation would not only undermine the economic viability of rubber farming but also discourage growers from investing in critical plantation maintenance. This lack of investment could lead to a long-term decline in production, further compounding the challenges facing the industry. The economic vulnerability of rubber growers is further compounded by other factors. Many small-scale farmers rely on rubber cultivation as their primary source of income, making them particularly susceptible to price fluctuations. The lack of diversification in their income streams leaves them with limited options when prices decline. Furthermore, the rising costs of inputs, such as fertilizers and pesticides, have squeezed profit margins, making it even more challenging for growers to remain competitive. The combination of these factors has created a perfect storm for the Kerala rubber industry, threatening the livelihoods of thousands of farmers and the long-term viability of the sector.
While natural rubber itself is exempt from the reciprocal duties imposed by the U.S., finished rubber products are not. This distinction creates a significant challenge for Indian rubber product manufacturers, who currently export approximately 20% to 25% of their output to the U.S. The imposition of tariffs on these finished products will undoubtedly affect their long-term competitiveness in the U.S. market, potentially leading to a decline in exports and a loss of market share. An official noted that once tariffs are in effect, Indian rubber products will face a major challenge to their global competitiveness. This situation highlights the interconnectedness of the global rubber market and the vulnerability of Indian manufacturers to changes in trade policies. The impact of the U.S. tariffs is further compounded by the European Union's introduction of deadlines for compliance with its Deforestation Regulation (EUDR), which is set to take full effect by 2026. This regulation aims to combat deforestation associated with the production of various commodities, including rubber. The EUDR requires companies to demonstrate that their products are not linked to deforestation or forest degradation. The US and EU together account for about 55 percent of India’s rubber goods exports, creating a twin blow to the sector. This dual challenge underscores the importance of sustainable rubber production practices. Indian rubber growers and manufacturers will need to adopt environmentally responsible methods to comply with the EUDR and maintain access to these key markets. The compliance requirements of the EUDR will likely increase the cost of production, further squeezing profit margins for rubber growers and manufacturers. This situation will require investment in sustainable farming practices and traceability systems. The confluence of these international trade and regulatory challenges poses a significant threat to the long-term viability of the Kerala rubber industry. The imposition of tariffs on finished rubber products and the compliance requirements of the EUDR will create additional costs and challenges for Indian manufacturers and growers. The industry will need to adapt to these changes to remain competitive in the global market. The domestic rubber market is projected to grow at a compound annual growth rate (CAGR) of 3–5%, which many believe will cushion the impact of external shocks. This growth is driven by increasing demand for rubber in various industries, such as automotive, construction, and healthcare. The official observed that rubber is a strategic raw material and is globally in short supply. Eventually, the market will have to realign with fundamental demand-supply dynamics. This suggests that the long-term outlook for the rubber industry remains positive, despite the current challenges. However, this growth may not be sufficient to offset the negative impact of the U.S. tariffs and the EUDR compliance requirements. Furthermore, there is no guarantee that the domestic market will be able to absorb the excess supply of rubber if exports decline.
Despite these challenges, there remains a glimmer of optimism within the Kerala rubber industry. The domestic rubber market is projected to grow at a compound annual growth rate (CAGR) of 3–5%, which many believe will provide a cushion against the impact of external shocks. This growth is driven by increasing demand for rubber in various sectors, including automotive, construction, and healthcare. An official observed that rubber is a strategic raw material and is globally in short supply. Eventually, the market will have to realign with fundamental demand-supply dynamics. This suggests that the long-term outlook for the rubber industry remains positive, despite the current challenges. Still, anxiety runs high among stakeholders. Shashi Singh, president of the All India Rubber Industries Association, said U.S. buyers have already advised Indian manufacturers to temporarily halt production. They’re focusing on clearing existing inventories before placing new orders. By then, the pricing gap could further erode our competitiveness in this critical market, he cautioned. This cautious approach by U.S. buyers reflects the uncertainty surrounding the trade environment and the potential impact of tariffs on the competitiveness of Indian rubber products. The halt in production could further exacerbate the economic challenges facing the Kerala rubber industry. The situation underscores the need for proactive measures to mitigate the impact of the tariffs and ensure the long-term viability of the sector. The Kerala rubber industry faces a complex set of challenges, including declining prices, international trade tensions, and evolving regulatory requirements. While there are reasons for optimism, the industry must take proactive steps to adapt to these changes and ensure its long-term sustainability. This requires collaboration between the government, industry stakeholders, and rubber growers. The government can play a crucial role in providing support to rubber growers, such as financial assistance, technical guidance, and market access. Industry stakeholders can work together to develop sustainable production practices, improve product quality, and explore new markets. Rubber growers can adopt modern farming techniques, diversify their income streams, and invest in sustainable practices. By working together, the Kerala rubber industry can overcome the current challenges and thrive in the long term. The future of the Kerala rubber industry depends on its ability to adapt to the changing global landscape. The industry must embrace innovation, sustainability, and collaboration to ensure its continued success. This requires a long-term vision and a commitment to investing in the future of the sector. The challenges facing the Kerala rubber industry are significant, but they are not insurmountable. By taking proactive steps, the industry can navigate these challenges and emerge stronger and more resilient.
Source: Tariff turbulence casts shadow over rubber plantations of Kerala