INDIAN INSTITUTE OF MANAGEMENT KOZHIKODE

Executive Post Graduate Programme in Management

Exploring Agri Business

Exploring Agribusiness in Kerala:

Analysis the Value Chain of Plantation crops.
(Special focus on Rubber)

Submited By –GROUP 1
Varghese Mathew EPGPKCO5025
Gautham T EPGPKCO5009
Sajan U EPGPKCO5018
Sebu Zachariah EPGPKCO5019
Dilip K.Gopal EPGPKCO5007
The term plantation crop refers to those crops which are cultivated on an extensive scale in
contiguous area, owned and managed by an individual or a company. The crops include tea,
coffee, rubber, cocoa, coconut, arecanut, oil palm, palmyrah and cashew. These are high
value commercial crops of greater economic importance and play a vital role in improving
Indian economy, especially in view of their export potential, employment generation and
poverty alleviation particularly in rural sector. Coconut, cashewnut, cocoa, arecanut, oil palm
and palmyrah come under Ministry of Agriculture while tea, coffee and rubber are dealt by
Ministry of Commerce.
Major Plantation Crops of Kerala
-Rubber
-Tea
-Coffee
-Coconut
-Arecanut
-Cashew

Kerala’s Plantation Agriculture-An Over view

The Declining Share of The Agriculture in Kerala state GDP

Contribution of Agriculture to Kerala State GDP During 2011-12, the contribution from
primary, secondary and tertiary sectors to the GSDP at constant prices (2004-05) was 9.48
percent, 20.22 percent and 70.30 percent respectively. At current prices, the primary,
secondary and tertiary sectors contributed 15.11 per cent, 21.05 per cent and 63.22 percent
respectively to the GSDP during 2011-12 This difference in sectoral share between constant
and current prices shows that inflationary trend impacts in the primary sector is much higher
than in the secondary and tertiary sectors.
While analyzing the sectoral distribution of state income, it is seen that the contribution from
primary sector has been decreasing and while that of the tertiary sector has been increasing.
The contribution of secondary sector remained almost stagnant. Sectoral distribution of GSDP
from 1980-81 to 2012-13 is provided in Table 2.1. This clearly displays an ever declining share
of agriculture and the huge jump in the contribution of tertiary sector in the total GSDP of the
state over the years.
The share of agriculture declined from 39.23 percent in 1980-81 to almost 9.34 percent in
2012-13. At the same time income from agriculture experienced an increase during the period.
Agriculture income in the state increased from 10781 crore in 1990- 91 to 12197.9 crore in
2013-14 thereby increasing 13 percent during the past 12 years. Even though agriculture
income increased, the share of agriculture income to SDP declined sharply from 23.14 percent
in 1990-91 to 7.17 in 2012-13 (Figure 2.1). The period from 2000-01 witnessed a steep decline
in the share of agriculture in the total SDP of the state.
The declining share of real agricultural income to SDP reveals the expansion of industrial and
service sector of the economy and also change in the occupational structure of the economy.
These structural and occupational changes in the economy are good signs while looking
through the prism of development. But the sustainability of an economy with too much
reliance on service sector oriented growth remains a question mark in the political and
economic discourse of the state.

Income Share of Main Plantation Agriculture Crops in Kerala

The composition of various crops in the total agriculture income of the state also witnessed
some drastic shift during the period. The period witnessed the emergence of rubber replacing
coconut as the principal income generating crop in the state
Fall in production, increasing vulnerability to diseases and fall in price of coconut resulted in
the fall in the income share of coconut in the state. Share of paddy, coconut, tea, coffee in the
total agriculture income of the state declined from 65.68 percent in 2004-05 to 46.75 percent
in 2013-14.During the corresponding period the share of rubber in the total agriculture income
of the state increased from 28.65 percent in 2004-05 to almost 50 percent in 2011-12 and
later declined to 46.12 percent in 2013-14 due to fall in natural rubber price (Table 2.2).
Increase in area of cultivation, higher production and productivity and increase in the price
of rubber in the commodity market played an important role in the emergence of rubber as
the principal income generating crop in the state.
Why is Kerala slowing down in the plantation Sector?
In the plantation industry, the single largest contributor to cost is labor and welfare costs. This
contributes to almost 65% of the cost of production. The gap between the cost of production
and price realization is generally widening year-on-year in South India.
Lack of long-term policies or distorted policies since Independence has left this industry
gasping for survival. Kerala has become a high-cost producer of plantation products. The
reasons can be attributed to high cost of production, low productivity of land, labor and capital
employed, outdated and archaic laws which prevent innovation and modernization of the
industry.
The reasons for high cost of production are unrealistic taxation laws prevailing in the State,
highest wages of the workforce, high cost of inputs, low productivity of manpower employed
and cost increase due to various litigations and climate change.

In Kerala, there is a very rigid and regimented implementation of Kerala Land Reforms Act.
As a result, when the commodity prices fall, increasing income from the land by adopting
other means is not possible. Other States are encouraging activities to increase the revenue
from unit area of plantations through value-addition of existing crops, inter-cropping of high
value crops, introduction of the concept of integrated farming, ecotourism in plantations
etc.Such initiatives have helped other competing plantation States to reduce the cost of
production and increase their margins considerably.
Government policy for the sector
From 1972 onwards, the State Governments, from time to time, have appointed different
committees to study the issues plaguing the plantation industry. So far, there were nine
committees and they have given their recommendations for sustaining the plantation industry
in the State. There were several guidelines which form the basis for the plantation policy: The
guiding principle for the plantation policy should be ‘Once a plantation should always a
plantation.’
The policy should consider land as the integral part of any plantation activity. All ambiguities
on title, ownership, rights should be clarified and settled through this policy.

Further plantation should be considered as a driver for socio-economic development of

stakeholders like workmen, growers and other communities in and around the plantations.

As the plantations are being located in the pristine and the fragile ecology of the Western
Ghats, the policy should encourage conservation, preservation and uplift of the ecological
conditions of the Western Ghats through sustainable agriculture.

The policy should also encourage increase in the revenue and employment opportunities from
unit area of plantation through different ecologically sustainable vocations and other activities
like inter-cropping, integrated farming activities, harnessing of non-renewable energy sources,
fruit processing etc.

The plantation industry in the State contributes to nearly 33% of agriculture GSDP (gross
state domestic product) of the State and total turnover of the industry was nearly ₹21,000
crore in 2012-13 and approximately ₹9,000 crore in 2016-17.

This industry employs around 3.5 lakh workers directly and nearly above a million workers
both directly and indirectly together. Even though this industry is a major contributor to the
State’s exchequer, there is no department in the State government to handle issues faced by
the industry. Hence, the policy should recommend formation of a new plantation
department.

At present, the industry is governed by archaic laws enacted in the 19th and 20th centuries.
These laws have outlived their purpose and some have become detrimental to the very
existence of the industry. Hence, land, labour [and] environmental laws governing plantations,
should be revisited and codified to encourage sustainable, ecofriendly, labour-friendly, profit-
oriented plantation activity.
The labor situation in the Kerala’s plantations.
The trade union and labor situations in the plantation industry have evolved over a period of
time. The militant trade unionism has given way to a participative, rational approach where all
the stakeholders understand the importance of each other for collective existence. Even
though the collective bargaining power of the trade unions in the industry holds the industry
to ransom some times, in general, the cordial industrial relationships prevail in the industry.

The State is today facing an acute shortage of semi-skilled and unskilled labor. All the
industries are dependent on migrant labor from Tamil Nadu or the north. In plantations also,
availability of labor is becoming a serious issue. The shortage has resulted in giving up
cultivation on marginal areas and restricting it only to those which are prime and highly
productive.
Steps to uplift the Plantation industry
According to [noted agriculture scientist] Dr. M.S. Swaminathan, Kerala is the Plantation State
of India and it cultivates nearly 45% of the plantation crops cultivated in the country. This
sector in the State needs changes at all levels through concerted action by all the stakeholders
like growers, employees, trade unions, traders, researchers, government etc. For the
plantation industry in the State of Kerala to survive, all out efforts are required from [all] the
stakeholders to increase the returns from unit area of plantations considerably.
From being a commodity producer, this industry needs to move up the value chain so that
there can be significant increase in the margin. The ill-effects of climate change are affecting
the sector irreversibly.
The Kerala Land Reforms Act should be so modified to allow cultivation of crops such as
pepper, cashew, oil palm, horticultural crops etc., in addition to the traditional crops — tea,
coffee, cardamom, rubber and cocoa. This will also help in tiding over weather change. Inter-
change between the existing plantation crops should also be considered.
The government should have a consistent policy with regard to ownership of land which would
allow long-term investments in plantations, including FDI. Today, there is no security on
ownership and hence, even banks seem to be reluctant to fund future development.
To strengthen the domestic market and retain the interest of growers in plantation crops or,
generally in agriculture, the governments of India and Kerala should follow a policy of “Make
In India — Grow In India.”
Anxious to increase manufacturing, various trade agreements were executed to bring in
cheap raw materials like rubber and food items such as tea and pepper into the country. The
latest is the attempt to import cup-lumps for manufacturing block rubber. Protection should
be given to growers by ensuring import duties are maintained to prevent dumping of rubber
and other crops in the country
KERALA’S RUBBER PLANTATION SECTOR

Global Scenario
Natural Rubber is a commercial plantation crop from the tree species, Hevea brasiliens
is grown in tropical humid climatic conditions. Thailand, Indonesia, Malaysia, Vietnam,
China and India are the major NR producers globally.

The current world production and consumption of NR is around 12.40 million tonnes
and 12.60 million tonnes respectively. The major NR consumers are China, India, USA,
Japan, Thailand, Indonesia and Malaysia.

Rubber is largely perceived as a strategic industrial raw material and accorded special
status globally for defence, national security and industrial development. Major
consuming countries keep strategic reserves of NR.

Rubber is an internationally traded commodity and price of rubber is influenced inter-

alia by trends in economic growth, production in major producing countries and
demand in major consuming countries. Domestic NR prices generally follow the trends in
the international market and is therefore, subjected to fluctuations in price
Indian Scenario

Indian rubber industry is characterized by the co-existence of a well-established rubber

production sector and a fast growing rubber products manufacturing and consuming
sector. The Rubber Industry value chain begins from NR plantations and ends with a
huge range of dry rubber and latex based products.

Historically, NR was a regulated commodity with strong tariff protection and domestic
market regulations. The key factors which have contributed to the growth of Indian
rubber industry are positive intervention of institutional agencies aiming at self-
sufficiency and import substitution.

Most of the rubber products including tyres require blends of NR and SR. Consumption
of SR is mainly determined by end product composition, technological change and
relative prices. Consumption of SR in India in rubber products manufacturing sector
increased from411,830 tonne in 2010-11 to 633,975 tonne in 2017-18.

Currently, there are four companies producing SR and production increased from
110,340 tonne in 2010-11 to 331,221 tonne in2017-18. Styrene Butadiene Rubber and
Poly Butadiene Rubber accounted for 63% and 34% of SR production in the country.
Import of SR amounted to 338,189 tonne in 2017-18. Consumption of SR in India is
projected to reach 1.2 million tonne by 2025.

Production and Consumption

India is currently the sixth largest producer of NR in the world with one of the highest
productivity(694,000 tonnes in 2017-18). The production capacity in India is around
900,000 tonnes, of which around 75% is tapped. Out of the total area under rubber in
India of around 822,000 ha, 614500 ha is a mature yielding crop.
Traditional rubber-growing states comprising Kerala and Tamil Nadu account for 81% of
production. Major non-traditional rubber growing regions are the North Eastern states
of Tripura, Assam and Meghalaya, Odisha, Karnataka, Maharashtra and West Bengal.
Sheet rubber is the most preferred form of processing accounting for around 70% of
processed rubber.
Block rubber and latex comprise17% and 12% respectively of rubber production in the
country.
India is the 2nd largest consumer of NR globally with current consumption of
around1.1 million tonnes. Sheet rubber, block rubber and latex account for 47%, 43%
and 8% respectively in NR consumption.
Around 40% of the total NR consumption in India is at present met from import of
rubber. 68% of NR consumption in India is in the automotive tyre sector
Rubber Export
NR is not a traditional export-oriented commodity, more so because of the current deficit in
production. Export of NR happens to adjust temporary demand-supply imbalances in the NR
domestic market. There is a huge export potential for rubber products in the country, which if
promoted, shall indirectly increase the demand for domestic NR as also the export earnings.
Export from rubber products was worth ₹ 20,915 crores in 2017-18.

Legal and Institutional Framework in India

The Rubber Act, 1947 (XXIV of 1947) provides for the development of the rubber industry
under the control of the Union. The Rubber Board, headquartered at Kottayam, Kerala, under
the administration of the Ministry of Commerce and Industry has been effectively supporting
the rubber industry since seventy years by undertaking/assisting/encouraging scientific,
technological and economic research, providing training on improved methods of planting,
cultivation, manuring and spraying, giving technical advice to rubber growers, improving
marketing of rubber, compilation of statistics etc.

Considerable investment from the Central Government has been made in the last seventy
years for providing financial support, advisory and regulatory services through the Rubber
Board as per the requirement from time to time.

Provisions of Central and State level legislations and rules thereof relating to taxation, forests,
land use, environment, pollution etc are also applicable to rubber sector. For promotion of
rubber sector, Government of India has allowed 100% Foreign Direct Investment (FDI) in
plantations of rubber, coffee, tea, cardamom, palm oil tree and olive oil tree.
International commitments and cooperation
India is a member of World Trade Organisation (WTO) and a signatory to several trade and
economic cooperation agreements with other countries. Present economic and trade
policies for the sector are in consonance with the commitments made under such Agreements.

India is also a member of intergovernmental commodity organisations, the Association of

Natural Rubber Producing Countries (ANRPC), International Rubber Study Group (IRSG) and
the International Rubber Research and Development Board (IRRDB). ANRPC coordinate NR
related issues, IRSG generate statistics on production and consumption of NR & SR and IRRDB
coordinate research on NR and SR.

The National Rubber Policy 2019

National Rubber Policy (NRP) envisages a well-developed value-chain of environmentally
sustainable and globally competitive rubber industry, comprising natural and other forms of
rubber and products thereof and ancillary sectors, capable of supplying materials and products
of international standards to domestic and world markets, with focus on welfare of the entire
stakeholder community and national economic progress
Objectives

I. To promote overall sustainability of the Rubber Industry with respect to economic,

social and environmental dimensions.
II. To provide required focus towards development of the entire Rubber Industry value
chain from upstream production to downstream manufacturing activities.
III. To strategize towards increase in area under Natural Rubber by new planting without
causing any adverse impact on forests/natural ecosystems and food security.
IV. To facilitate increase in average national rubber productivity through appropriate agro-
management practices including systematic replanting and ensuring better income for the
growers.
V. To strategize towards meeting of raw material requirement of domestic industry
through domestic production as far as possible.
VI. To promote activities for ensuring quality of processed forms of NR at par with
international standards.
VII. To promote the development of rubber product manufacturing sector and facilitate
export of quality rubber products
 Kerala Growing Area Statistics

There is a visible fall in the share traditional rubber growing states in the total area of rubber
production in the state. Share of Kerala in total area of rubber in the country fell from 84.3 percent in
2000-01 to 75.0 percent in 2012-13. Share of natural rubber in Tamil Nadu reduced from 3.3 percent in
2000-01 to 2.7 percent in 2012-13 (Table 2.3).

During the period from 2000-01 to 2012-13, there was an increase of 88 percent in the area of rubber
plantation in north east region. In the case of north east region comprising Tripura, Meghalaya and
Assam, the share in total area of rubber plantation in the country increased remarkably from 8.4
percent in 2000-01 to 15.9 percent in 2012-13

Rubber Holding in India according to Size According to the size of plantation, almost 99 percent of the
total rubber plantations in the country fall under the category of 2 hectare and below(Figure 2.3). The
trend is almost similar in traditional regions like Kerala and Tamil Nadu and non-traditional regions
including North East.The percentage values given in Figure 2.3 are almost consistent over the years.
Rubber is the major plantation crops in which majority of the farmers are small holders contrary to
other plantation crops like tea, coffee, cardamom etc.
Trends in Area, Production and Productivity of Rubber in Kerala vis-à-vis India Area and production of
rubber plantation in the state increased manifold during the period 1990-91 to 2012-13. Area of
natural rubber plantation in the state witnessed a uniform growth throughout the period from 1990-91
to 2013-14 even though the annual growth rate after 1997- 98 remained below one percent in most of
the time. In terms of area, there was increase from 407821 Ha in 1990-91 to 548225 Ha in 2013-14
thereby registering a growth of 34 percent during the period (Table 2.4).
In terms of production, phenomenal growth was witnessed during the period as given in Table 2.5.
Percentage production values increased110 percent from 307521 in 1990-91 to 648220 in 2013-14.
While a close scrutiny of Table 2.5, it is visible that there has been a steady increase in production of
natural rubber over the years. The state was able to achieve this high growth even though in the year
2007-08 and 2009-10 the production growth fell in to negative zone.

Introduction of high yielding variety of natural rubber and more scientific nature of farming may be
attributed as the main reason for the increase in rubber production. State experienced an annual
average growth of 1.33 percent in terms of area and 4.52 percent in terms of production during the
period from 1990-91 to 2012-13. Annual growth rate of production increased almost 6.59 percent
during the ten years from 1990-91 to 2000-01 whereas in the next twelve years from 2001-02 to 2012-
13 the annual growth rate declined more than half to3.16 percent.

Compound Annual Growth in Area and Production of Rubber in Kerala In terms of Area during the
period 1990-2001 the state experienced a compound annual growth of 1.52 percent (Figure 2.6) and
during the period 2001-12 area increased 1.28 percent. In the period from 2012-14 area of cropping
registered a decline in growth to below one percent. The situation could be attributed to the decline in
the commodity price of natural rubber during the period

Rubber Board Activities

o Plantation Development and Area Extension
o Cluster Development and Capacitating Market linkage for small Holding-Rubber Production
societies/Self Help Groups
o Training on Planting Techniques
o Labor Banks-Pool Bank for Tappers
o Critical Input supply and Price concession
o Farm Mechanization
o Agro Management units/Superior Nurseries for planting materials
o Advisory services
o Surveys
o Disaster Management
o Regional Laboratories
o Industrial development and Training Programmes
o Market Promotion and Information
RIBBED SMOKE SHEET (RSS) SHEET VALUE CHAIN

Aggregators/ Tyre Manufactures/

Farmers Collectors/ Wholesalers Other Product
manufactures/Export
Dealers ers

LATEX VALUE CHAIN

Farmers- Mainly Large Latex Collection and Manufacturing

Plantations Centrifugation companies/Exporters

GOVERNMENT INTERVENTION
MINISTRY /RUBBER BOARD
COMMERCE /AGRICULTURE

On Farmers-/Plantations
Minimum Support Prices
-Better Yielding Varities
Subsidies for replanting etc

On Collectors-
MSP, Collection Norms -
Registration for Dealers

On Manufacturing Companies-
Regulates the Export -Import
VALUE ADDED PRODUCTS FROM RUBBER

 Tyres, Tubes, Rubber Bands

 Industrial Parts-Hoses, Gloves
 Medical products like catheter ,Bags
 Floor mats, Sport goods, footwear, Mattress

CONCLUSION
The external and internal challenges in the Indian rubber industry can be addressed by
ensuring synergy amongst components of the entire rubber value chain and through
appropriate policy interventions. While sustained production of NR and price support are
critical to protecting the incomes of rubber farmers, the rubber products manufacturing
sector is at the centre of growth in the value chain in the Rubber sector and therefore needs
specific focus
Taking cognizance of the presence of vast untapped production potential of NR and large
consumption base of rubber products in various sectors, including strategic industries such as
defence, aerospace and petrochemical, specific policy and operational interventions need to
be devised for a sustainable development of the domestic Rubber Industry. Also, in
recognition of the strategic importance of Rubber, policy priorities need to be accorded to
rubber as a strategic raw material.

In the context of projected growth of Indian economy, strengthening and advancing all links in
the value chain in rubber sector is the key priority.
KEY FOCUS AREAS FOR REVIVAL OF RUBBER
 -Area Expansion
 Replanting of senile Area
 Productivity enhancement
 Tackling Labor shortage
 Price safety Mechanism
 More value added products Manufacturing and export
 Commercial utilization of Rubber wood
Carbon Market

The carbon dioxide sequestration rate of rubber trees is very high as compared to many
other plant species and even tropical forests which has been thoroughly quantified by the
RRII and research institutes in other countries. Production of one ton of NR leads to
absorption of3.24 tons of CO2 from the atmosphere and release of 2.35 tons of
Oxygen.Under the Clean Development Mechanism (CDM), one of the three forms of
carbon trading mechanisms under the Kyoto Protocol, rubber planting is theoretically
eligible for carbon credits that can be obtained and sold in the CDM market. Efforts
would be made to solve the “additionally” criterion and other legal hurdles to make this
happen. However, the carbon dioxide sequestration and other ecosystem services
provided by rubber plantations in the country would be documented also using geospatial
technology. At the same time, a voluntary market for such carbon sequestration for sale
to a buyer either under a bilateral CDM or under the proposed Intended Nationally
Determined Contributions (INDC) of developing countries like India would be explored.

Reference- Rubber Board of India website, Rubber asia, Kerala Govt Agri statstics
.