### 📈 Rubber Industry at a Crossroads Amid Structural Stress

Sri Lanka’s rubber sector faces a critical period as escalating costs, policy shifts, and biological threats challenge its long-term viability. Based on 2026 data, the industry risks structural decline without immediate intervention. • Overall Export Performance Total export earnings fell to ~US$ 945 Mn in 2025, a 6% contraction from US$ 1.01 Bn in 2024. Tyre and value-added segments were hit by US tariffs, affecting a market that yields one-third of total revenue. • Domestic Policy & Market Shocks The removal of the Simplified VAT (SVAT) system caused a liquidity crisis; buyers now face 18% upfront VAT. Auction prices for top-grade crepe rubber plummeted to Rs. 800/kg, down from over Rs. 1,300/kg previously. Labor costs rose further in 2026 following a 15% wage hike, squeezing margins for plantations. • Production & Biological Constraints Pestalotiopsis leaf disease has persisted for 8 years, slashing yields by up to 40% in affected areas. Acute shortage of skilled tappers and an aging workforce are driving a decline in latex output. Smallholders are increasingly abandoning rubber for faster-return crops like tea, cinnamon, and pepper. • Regulatory Outlook EU Deforestation Regulation (EUDR) compliance is now postponed to late 2026. While RPCs are well-prepared with GIS mapping, the sector requires state support for digital traceability and replanting subsidies to remain competitive against low-cost producers like Vietnam and Thailand. _Note: Figures based on provisional 2025/2026 industry data._