KOCHI, Mar 19: An expert team from the Cost Accounting Branch of the commerce ministry is currently visiting the Rubber Board headquarters in Kottayam to kickstart the exercise for fixing a new benchmark price for natural rubber.The team's visit was preceded by a discussion between Board officials and a member of the Cost Accounting Branch last week. Top sources in the Rubber Board told The Financial Express that the technical team would inspect 400 selected units spread across the state and is likely to submit its report to the commerce ministry in two weeks' time. However, they said the modalities of working out the contentious issue of cost of production would be finalised only after a discussion between the expert committee and Board officials and representatives of industry.
They also indicated that the government may take a decision on revising the existing buffer stock system for making it more effective after fixing the new statutory price.
The ministry's move to fix a new benchmarkprice for natural rubber follows a letter from Rubber Board chairman KJ Mathew sent a couple of months back seeking a revision of the statutory price for the commodity to insulate growers from rapidly falling prices.
The average price of rubber declined from Rs 54.25 in 1996-97 to Rs 30 per kg in 1997-98. The letter also pointed out that the ruling benchmark price of Rs 24.90 per kg was fixed in February 1994.Sources said a major bone of contention in fixing the new statutory price would be the method for calculating the cost of production for the commodity.
According to the standard cost estimation method, the price of land is excluded from the cost of production. Instead, the normal practice is to impute either rent or opportunity cost of land, or income from the next best use, into the cost estimates.
According to the existing method, imputed income from tapioca cultivation has been used as a proxy for land value. This second best method for arriving at the cost of production of rubber was usedconsidering the evaluation of the land use pattern in major rubber-growing areas. They said before the introduction of rubber cultivation, the land was used first for paddy cultivation and later for tapioca cultivation.
A top source in Rubbermark, the state-run agency in charge of procuring and marketing rubber, said if the land value was excluded the cost of production for the RSS 4 variety of natural rubber would work out to be Rs 28.90 per kg. However, if the land value was included this would go up considerably, he added.
Industry sources are demanding inclusion of land value in the cost estimates, considering the high land values prevailing in the state. They said that since 1994, when rubber prices started shooting up, input costs also went up by nearly 30 per cent to 40 per cent. But though rubber prices have fallen by more than 100 per cent, input costs have not fallen, squeezing the profit margins of growers.
It may be recalled that statutory control over rubber prices was fixed by the Indiangovernment way back in 1942 through the Rubber Control and Production Order which was revised several times later on the basis of increases in input costs. The order was done away with in 1981. However, the government introduced the buffer stock system in 1986 in a bid to narrow the gap between prices in the lean and busy seasons.
Under the buffer stock system operated by the State Trading Corporation (STC), the price in the market is influenced by procuring natural rubber from the domestic market whenever prices tend to go below the lower level in the price band fixed and rubber is sold whenever prices cross the upper level of the band.
The lower and upper bands were revised occasionally taking into account changes in the cost of production of the crop. However, the system developed hiccups after 1991, when the exim policy allowed the import and export of natural rubber under the advanced licensing scheme.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
