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Wednesday, June 12, 2024

Liberia: Stop The Export of Raw Unprocessed Rubber but PROTECT Farmers’ Right to Fair Price!

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By: Ambulah Mamey

Senator Nyan Twanyen, welcome to the Senate. Your first major argument on the floor is peripheral, lacks depth, and is not grounded in material evidence. You are repeating the usual sentiments that have not helped but kept the rubber sector underdeveloped.

The understanding and interpretation of Part-II Section-5 of the Competition Act of 2016 is erroneous. The Competition Act prohibits conspiring to fix or control prices, not legal price regulation, which is the role of the proposed Rubber Board.

For example, the Act prohibits rice importers conspiring with authorities to set high prices or rubber exporters conspiring to set lower prices to cheat consumers and farmers, respectively.

Contrary to your understanding, price boards in commodity trade regulate prices to protect traders, not to conspire against them.

Effective price boards include representation from all actors- from farmgate to ship docket- making conspiracies impossible. This participatory and transparent structure which allows all the actors (farmers, brokers, processors, and other traders) in the rubber industry to know the price of rubber at a given time, proven successful elsewhere, is what we advocate.

Sadly, it is this structure that brokers oppose because they do not want farmers to be regularly aware of the prices and changes in prices of rubber. The current rubber market regime in Liberia is technically not a free market regime because of acute market information asymmetry.

The regime does little to inform farmers about the fair price of rubber during the time of sale; leaving them and the income they make at the mercy of brokers and owners of processing factories who have all the information.

The insinuation that rubber factories (processors of Technically Specified Rubber) in Liberia do not have the capacity to buy the quantity of rubber that farmers are producing and as a consequent leaving farmers’ rubber unsold because brokers are banned from buying rubber is incorrect.

As of February 2024, Liberia’s four active rubber processing factories had a combined capacity to process 254,000 tons of raw rubber annually, while farmers produced only 185,000 tons. This means the factories can buy all the rubber produced in Liberia and still need 35% more to meet their capacity.

Also, brokers are allowed to buy rubber from farmers and sell it to processing companies. The Executive Order states that no one, including processors and brokers, should export raw unprocessed rubber. It did not say brokers should not buy rubber.

I offer here an example of the rice and petroleum markets in Liberia to demonstrate and simplify how the rubber market would operate under the proposed price board. Rice and petroleum importers sell to distributors, who sell to wholesalers, then to retailers, and finally to consumers.

The entire process is regulated, ensuring transparency and profit for everyone along the chain. This model is proposed for rubber: farmers will sell raw rubber (cum-lump) to brokers, brokers sell to factories, factories use the raw rubber to manufacture TSR (Technically Specified Rubber) and sell.

Further, the argument that the term “processing” or “adding value” is being misused shows a lack of understanding. The price for one ton of TSR is higher than one ton of raw rubber because of the value-added during processing. The attempt to discredit hundreds of millions invested in rubber manufacturing companies as “putting acid on rubber” is disingenuous.

Even if proponents of such a statement do not know that the price difference between cup- lump and TSRT is the value added, they cannot also see the massive factories built by these rubber processing companies to know value is being added?

The political rhetoric of saying “I am standing with the poor farmers against the big corporations” may sound sweet to the ears but does not address the fundamental issues of fair price for farmers, additional jobs for Liberians, and additional tax revenue for government, more foreign exchange for the CBL, and reduction in inflation and economic development in Liberia.

All anchored on the new idea of prioritizing and supporting local manufacturing over the old idea of exporting raw materials.

Rubber farmers and brokers in Liberia deserve better prices and profit. Exporting unprocessed rubber provides quick profit but denies Liberians jobs, higher tax revenue, and more foreign exchange.

Processing rubber before export creates more jobs, higher tax revenue, more foreign exchange, and potentially reduced inflation.

The solution, therefore, is not to export raw unprocessed (cup lump) rubber but to protect farmers’ interests through a price regulation mechanism that includes the representatives of farmers and by that remove the chronic information asymmetry that keep rubber price information in the hands of brokers and rubber processing factories to the disadvantage of farmers.

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