Sri Lanka rubber producer gains seen from traceability system

April 03, 2012 (LBO) - Small farmers making rubber in Sri Lanka might be able to get better prices by pooling their efforts and introducing traceability systems that would ensure guaranteed quality to buyers, researchers have found.

Most small holders suffer from a "quality penalty" or discount on the market price by buyers to offset perceptions their produce is usually substandard, said Sriganesh Lokanathan, senior research manager at LIRNEasia, a think tank.

But they could become better integrated into export-oriented agricultural supply chains, and on better terms, using information and communications technologies, he told a news conference in Bangkok where LIRNEasia presented its research.

Almost 72 percent of Sri Lanka's rubber is produced by smallholders who account for just over half the cultivated extent.

Exporters want stable volumes of produce, made according to well-defined quality standards and at stable prices but face many problems in ensuring such supply on a consistent basis, Lokanathan said.

The study covered India, Bangladesh, Thailand and Sri Lanka where most land holdings are small holdings.

Small farmers find it difficult to give the required quantities at stable prices for a given standard and do not have enough money to invest in technology to improve the quality of their produce.




In Sri Lanka, Lokanathan said about 43 percent of the rubber output is sold as 'ribbed smoked sheets' (RSS) made from raw, processed latex.

The visual-based grading of RSS, on a scale of one to five, creates problems as buyers dealing with smallholders find it too costly to find out the quality of each and every sheet.

In Sri Lanka, buyers offer prices in two bands, 1- 2 for the top grades, and 3 - 5 for the rest.

"Within those price bands prices don’t vary a lot so farmers end up making only RSS5 because trying to show you have a higher quality sheet is difficult," Lokanathan said.

But a farmer collective called 'Pandeniya Thurusaviya' has managed to get over the quality penalty and now produce RSS1 and are able to get higher prices.

"The reason is that all shared the same access to post-harvest infrastructure like the smoke house where rubber sheets are made and warehouse to store sheets," Lokanathan said.

"They got over the quality issue by internalising the quality issue with pressure within the group to maintain quality."

However, the effort has not been replicable as the group of 34 famers was not able to bring enough buyers to support more farmers, their own small auction was not integrated with main Colombo auction and it is not feasible to have many small regional sales.

Lokanathan said small growers might be able to form collectives or work as outgrowers to achieve better economies of scale and improve quality and increase collective bargaining power.

Although many co-operatives efforts had failed, the use of ICT such as for introducing traceability systems could give growers the incentive to improve quality given the demand in western markets like Europe to be able to trace product origins.

"If you can use traceability as a way to build that incentive structure, you create incentives to produce higher quality because you can track where the bad quality product came from," said Lokanathan.



Use of ICT could also build trust within growers and with outside groups through more frequent communication and improve the two-way information flows required by modern supply chains, he said.