
Low rubber price, major obstacle to reinvigorate Malaysian natural rubber
By Professor Dato Dr Ahmad Ibrahim
Malaysia has lost her position as a major player in the world natural rubber industry. The country has suffered much losses in revenue because of that. Nothing wrong with the policy though. Despite the growing attractiveness of palm oil, the government has always maintained the country’s commitment to NR.
This is part of the nation’s agricultural diversification strategy. The country has kept the 1 million hectares planted with NR. The idea is to consistently supply at least 1 million tonnes a year, assuming an average of 1000kg/hectare production, to energise the downstream rubber business.
It is unfortunate that less than half of the plantings are harvested. Though lack of labour has been cited, the real reason is the low price. The latest figure suggests production may have dropped to less than 400,000 tonnes. This has forced many processing factories to close down. Rubber product manufacturers turn to import to replenish supply. A big drain on our foreign exchange.
If we are to reinvigorate rubber growing, I believe the focus, at least for Malaysia, is to find ways to maintain a reasonably good rubber price. We are no longer a low cost producer like some other rubber producing countries.
As long as we can sustain a price level profitable enough for our smallholders, there should be no problem maintaining a high enough production to feed our downstream industry. The question is, how can we do that? Admittedly, increasing the price of natural rubber on the global market involves addressing both demand and supply factors.
On the demand side, strategies include expanding market applications. For example, promoting the use of natural rubber in new industries, such as renewable energy, bio-based materials, and advanced polymers. This is where we need to invest in the relevant R&D. We should scale down other R&D topics.
Increasing market awareness by highlighting the environmental benefits of natural rubber compared to petroleum-based synthetic rubber is a supporting strategy. This is where we should launch marketing campaigns emphasizing the biodegradability and sustainability of natural rubber.
Strengthening trade alliances can be a demand-side strategy. Form global alliances to manage supply and stabilize prices through coordinated actions. But not like the INRA strategy which proved to be a failure. IRCO, that tripartite arrangement now based in Bangkok is a repeat of that failed strategy.
Strategies on the supply side include production management, where we implement production quotas in major producing countries to prevent oversupply. Also encourage low-yield plantations to transition to alternative crops to balance supply and demand. Next, improve smallholder efficiency. Provide technical assistance and training to smallholders for better harvesting practices. Poor tapping practices are known to injure the tree. This reduces the quality of the wood, a potential income source. We may need to consider subsidizing to increase latex yield.
Diversifying the risk of low rubber price makes sense. This can take the form of encouraging intercropping to provide farmers with alternative income sources during low-price periods. Excess stock, which bear down prices, should be minimized through better forecasting and planning.
There are policy-level strategies to consider. For example, establish a minimum price floor through government policies or international agreements to protect farmers from extreme price volatility. Impose tariffs on synthetic rubber imports to make natural rubber more competitive in domestic markets.
Collaborate with other natural rubber-producing countries to harmonize production and pricing strategies. Also support innovation incentives. Provide subsidies or tax breaks for industries using natural rubber, encouraging manufacturers to prioritize it over synthetic alternatives. Global collaboration with major rubber consumers can help. Engage with countries that are major rubber consumers to create favourable trade policies and increase imports.
ESG practices are given top consideration by investors. Good to align natural rubber production with ESG principles to attract investment from sustainability-focused funds. Carbon offseting is a potential new business. Market rubber plantations as carbon sinks, tying rubber production to global carbon credit markets.
By combining these approaches, the natural rubber industry can stabilize and potentially increase its global market prices while ensuring sustainability and competitiveness. There is no more time to waste to embark on such strategies if Malaysia is to revive her rubber growing ventures.
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The author is an Associate Fellow, Ungku Aziz Centre for Development Studies (UAC), Universiti Malaya.