A study of supply response of rubber in Sri Lanka

Abstract

The rubber industry occupies an important place in the Sri Lanka economy. The recent performance of the industry both in respect of replanting and processing and the deteriorating position of rubber in world trade has caused great concern. The need to improve replanting, production and processing is recognised by the Government. To this end a rubber replanting subsidy and some processing facilities are provided. The results have not been encouraging. This study attempts an estimate of the replanting and output response of rubber producers. The main determinants of replanting such as profitability and the replanting subsidy are specified and discussed. These are investigated for three different producer groups namely - smallholders, medium estates and large estates. The determinants of output are also investigated. Several hypothesis are formulated in respect of output response, It is seen that profitability as determined by costs and prices has been the only important determinant of replanting by all three producer groups These groups are shown to have been efficient in an allocative sense. The recent decline in profitability is the reason for the decline of replanting of all groups, despite the replanting subsidy. Price is not found to be an important determinant of output in this study. However it is argued that price could be an important determinant of output. It is shown that the obscure role of price has been due to high yielding varieties coming into production.