PETALING JAYA: The Primary Industries Ministry (MPI) will not implement a floor price for rubber as it will incur high costs and encourage smuggling as global rubber prices see a downturn, the Ministry said in a statement Tuesday (Nov 6).
It said based on 2017 production, if the rubber floor price is set at RM4 per kilogramme from the current price of RM2.20 per kilogramme, it will cost the government RM2.5 bil a year.
MPI said a higher rubber floor price will lead to speculative activity among rubber sellers by lowering rubber prices in hopes of the Government covering the difference between the market price and the floor price.
It will also create space for smuggling activities from abroad as international rubber will become cheaper than local rubber, it said in a statement Tuesday (Nov 6).
MPI was responding to a proposal by Terengganu state agriculture, agro-based industry and rural development committee chairman Dr Azman Ibrahim who told Utusan Online that the RM50mil allocation for the Rubber Production Incentive (IPG) scheme will not benefit smallholders.
Dr Azman said the IPG is not enough to support the daily living of smallholders and urged the government to set a floor price of RM4 per kilogramme.
MPI said the IPG is similar to the floor pricing concept.
Under the IPG, the government would provide an incentive to smallholders if the price of tyre-grade Standard Malaysian Rubber (SMR 20) fall below RM5.50 per kilogramme and RM2.20 per kilogramme at farm price for scrap rubber or cuplumps.
"The price differences will be covered by the Government for smallholder production."
"This move will enable smallholders with an average of 2 hectares and cuplump productivity of 3,000 kilograms per hectare, per year to enjoy a monthly income of RM1,100," it said.
It said the IPG was created to ease the burden of smallholders and encourage them to continue tapping despite low rubber prices in the market.
It added that a total of 450,568 smallholders and rubber tappers with the Rubber Transaction Authority Permit (PAT-G) cards are eligible to apply for IPG.
"Up to Aug 31, 2018, a total of 783,877 claims involving an allocation of RM90.94mil have been approved for IPG distribution purposes," it added.