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Rubber rumbles

Sep 22, 2011 6:03:37 PM - www.ft.lk

Buoyant on a lucrative trend, Sri Lankan rubber manufacturers have requested the Trade Ministry to double the cess on raw rubber exports, creating the stage for a clash with producers.
Sri Lanka, the seventh largest natural rubber exporter in the world, has decided to increase taxes to reduce raw rubber exports, the Trade Ministry stated yesterday.

According to Trade and Commerce Minister Rishad Bathiudeen, considering the increase in price of natural rubber in the international market, the cess on export of raw rubber has been increased from Rs. 8 to Rs. 12 per kg or 2% of the F.O.B. price, whichever is higher.
Parliament agreed to the amendment made to the Sri Lanka Export Development Act No. 40 of 1979. The amendment, by an Extraordinary Gazette Notification No. 1712/23 dated 1 July 2011, increases the cess on export of raw rubber and was tabled on Wednesday (21) for ratification by the House. The order under the Sri Lanka Export Development Act was passed by the House on the same day.
“In fact, the Sri Lanka Association of Manufacturers and Exporters of Rubber Products has in a letter addressed to me recently urged a revision of the cess on export of natural rubber to Rs. 24 per kg,” he said.
However, producers fear that their interests will be ignored in the move. Analysts told Daily FT that they feared small-time producers will be ignored in the interests of big business through this move.
“Most producers in Sri Lanka are small plantations. If the cess is increased, it will limit their access to the international markets and directly affect their earnings. In addition a larger increase of cess may lead to lesser production in the long-term,” industry sources said.
In 2010 Sri Lanka produced 153 million kilograms of rubber, an increase of 12 per cent from the previous year. However, despite Sri Lanka’s potential to manufacture high quality finished products, a considerable portion of rubber is still exported in raw form.
Higher demand, particularly from China, which is the world’s largest consumer of rubber, has doubled Sri Lankan prices. India is also driving global demand.
Sri Lanka imported raw rubber to the value of US$ 101 million in 2010 and to the value of US$ 105 million from January to July this year. Last year, Sri Lanka exported US$ 170 million of raw rubber and rubber finished products to the value of US$ 567 million.  
Prices doubled from Rs. 348 rupees per kg in January of 2010 to Rs. 700 in mid-February 2011. However prices have now dipped to Rs. 617.50 per kg at this week’s auction in Colombo. This resulted in a local industry shortage provoking raw rubber imports. Nonetheless the Trade Minister is of the opinion that raw rubber exports need to be reduced.
“The Ministry in charge of rubber cultivators as well as the Colombo Rubber Traders Association along with other organisations need to lobby against further increasing the cess so that the producers also have a fair deal,” the source insisted.