No plan for scrap rubber floor price

Such measure will need high allocation should natural rubber experience sharp downtrend

KUALA LUMPUR: The government has no plans to implement a floor price for scrap rubber as it would involve a high allocation, said the Primary Industries Ministry.

The ministry said that based on 2017 production, if the scrap rubber floor price was set at RM4 per kg, it would cost the government an additional allocation of RM2.5bil a year.

The MPI said this in a statement in response to a report on Nov 3 quoting the Terengganu State Agriculture, Agro-based Industry and Rural Development Committee chairman Dr Azman Ibrahim as saying that the RM50mil allocation for the Rubber Production Incentive (IPG) scheme would not bring much benefit to smallholders and proposed a rubber floor price of RM4 per kg.

The ministry said the government was not able to consider the proposal for floor pricing as it would require a lot of financing to support the measure in the event natural rubber prices experienced a sharp downtrend.

“Floor pricing will lead to speculative activities among rubber sellers by lowering prices with the hope that the government will cover the difference between the market and floor prices.

“At the same time, the measure will create space for rubber smuggling from abroad as the local price will be higher than international price,” the ministry said in a statement.

It said the IPG was created to reduce the burden on smallholders and to encourage them to continue tapping despite low market prices.

“A total of 450,568 Rubber Transaction Authority Permit (PAT-G) cardholders have been eligible to apply for IPG since 2015.

“As at Aug 31, 2018, 783,877 claims had been approved for IPG distribution involving an allocation of RM90.94mil,” the ministry said.

It said the IPG scheme was similar to the floor price concept because the scheme would be activated when the average monthly price of Standard Malaysia Rubber (SMR) 20 for the previous month fell below RM5.50 per kg or the farm-gate price for scrap rubber was lower than RM2.20 per kg.

“The price difference for smallholders will be borne by the government. This will enable smallholders with an average of two hectares and cup lump productivity of 3,000 kg per hectare per year to enjoy monthly income of RM1,100,” it said.

Meanwhile, the ministry said the government was also concerned for the rubber smallholders’ welfare as they were very dependent on scrap production.

“In view of the higher price of latex compared with scrap and is also the main requirement for industries, the government will focus on improving the facilities for latex production throughout the country.

“The government will empower rubber collection centres to facilitate the process of latex collection,” it said.

The ministry hoped this would increase latex production, reduce the country’s dependence on latex imports and at the same time, help to increase the income of smallholders by moving from scrap to latex production.— Bernama