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15 มี.ค. 2016
Read in Minutes


Put the rubber price problem in the right perspective

Viroj Na Ranong

Not long after Phraya Ratsadanupradit (Khaw Sim Bee Na Ranong) arranged to secretly ship a large volume of pararubber (natural rubber) seeds from Penang, Malaysia, to Trang at the beginning of the 20th century (1901), rubber became one of Thailand’s major exports, along with rice, teak and tin.

Although Thailand was the latecomer among the three major producing countries of para-rubber (Thailand, Indonesia and Malaysia, hereafter TIM, that supply about 70% of rubber worldwide), in less than a century Thailand has become the leading producer and exporter of the para-rubber, and has recently surpassed Malaysia to become the largest rubber user in TIM.

During the first half of the 20th century, Thailand had consistently been the smallest producer in TIM. However, since domestic rubber price tended to be above rice prices, rubber had expanded throughout the South and has become the staple crop of the region.

The situation began to change in the second half of the 20th century due to the success of the rubber replantation scheme run by the Office of Rubber Replanting Aid Fund (ORRAF) that was founded in 1960. ORRAF uses the cess money – a specific rubber export tax – and later supplemented by external loans mainly from the World Bank, to provide support to farmers who cut down their old rubber trees and replant the area with the new high-yielding varieties.

By 1965, ORRAF had set up 12 provincial offices, including in two provinces in the East, which had become another major rubber planting region, partly due to its location near the sea port, although para-rubber had its ups and downs there more than in the South.

Since 1989, ORRAF began to support rubber planting in the new areas in the Northeast. Although the scheme was not well received until more than a decade later – after the surge in oil price – by 1991 Thailand became the largest producer and exporter, partly due to Malaysia’s policy change which saw a large part of rubber plantations turned to oil palm in the late 1970s, while provided several R&D and tax-exempt measures to support rubber processing.

Historically, the para-rubber price has fluctuated significantly. There have been a few agreements /organisations designed to stabilise its price. The International Natural Rubber Organisation (INRO) was one of the most remarkable UN-sponsored efforts to form a joint organisation that comprised seven rubber-exporting countries and 23 importing countries in 1980 to stabilise the price of natural rubber by buying for and selling from a buffer stock based on the rules set under its agreement (INRA).

During 14 years of INRA I & II (1982-1995), INRO made significant profits from its scheme (about 3.50 baht/kg), which indicates that it was doing its job properly, ie, buying when the price was low and selling when the price was high, thereby making prices more stable by hampering fluctuations. The Thai government, however, was not satisfied with INRO mainly because it bought most of the rubber elsewhere. In 1999, Thailand and Malaysia withdrew from INRO, effectively forcing its dissolution.

During 1992-1999, the Thai government intervened in the local market and lost more than 8.1 billion baht (close to 10 baht/kg). Since then, every Thai government has talked about cooperation within TIM. In 2001 after the Bali Declaration, TIM formed the International Tripartite Rubber Council (ITRC) and then the International Rubber Consortium, Limited (IRCo) in 2002.

Unlike INRO, however, IRCO does not have significant funds that can be used to build a buffer stock. Its mere presence, therefore, has no real impact. The only measures agreed upon had been to reduce export/production and to use more rubber for domestic road construction.

In Thailand, whenever the rubber price is not satisfactory, both farmers and the government would call for promoting domestic use, blaming the low proportion of domestic use as the reason behind the low price.

Many cite Malaysia as a previously rubber producing country that has moved out of the low price trap by turning itself to a rubber processing country as it now can use up more than half of its production.

This argument makes little sense. The mere reason that Malaysia uses more than a half of its production is because it now produces much less rubber than it used to (down from 1.66 million tonnes in 1988 to 0.67 million tonnes in 2014).

In addition, even when Malaysia uses most of its production (0.45 out of 0.67 million tonnes in 2014), rubber prices in Malaysia do not differ much from its neighbouring countries.

In fact, Thai businesses have done all they can to use para-rubber to produce any viable product. Rubber use in Thailand has more than doubled from 0.24 million tonnes in the year 2000 to 0.60 million tonnes in 2015, at a growth rate of 5.3% per year.

The figure would be even more dramatic if we look at a longer horizon; the average growth of 7% per year between 1995 and 2015. Not surprisingly, our domestic use has surpassed Malaysia’s since 2010 and never looked back. Low domestic use does not mean that we do not try our best to use it, nor did it cause the price fall. If anything the low rate reflects our huge growth in production more than our failure to make use of it.

During the past 10 years over which rubber prices have both risen and fallen, our domestic use has continued to rise, but the proportion has never gone beyond 15%. When the price skyrocketed, no one paid much attention to that low figure. It is quite a mystery how it has become the scapegoat just as the price fell.

Viroj Na Ranong, PhD, is Research Director for Health Economics and Agriculture of Thailand Development Research Institute (TDRI) and the National Distinguished Researcher in Economics awarded by The National Research Council of Thailand (NRCT) in 2015.

First published: Bangkok Post on Wednesday, March 9, 2016