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                     Rubber
 
 
Thw world produces around 10 million tons of natural rubber each year, which combined with an annual production of synthetic rubber of 13.5 million tons supply the global demand for rubber. Production of both, natural and synthetic has been steadily growing to meet demand.
 
 
The natural rubber producing countries have a high degree of collaboration between them, it is an advantage that they are within the same region with a lot of common concerns.
Thailand, Indonesia, Malaysia and India are the leading exporters of rubber. Indonesia and Malaysia have, in recent years, a lot more trees than are harvested. When returns from rubber fall, there is a change in the proportion of trees that are being exploited. This is particularly true for Indonesia although farmers in Malaysia are increasingly reluctant to harvest and increasingly leave it to migrants. In contrast, in Thailand and India they harvest as much as they can. The implication for supply is that in most normal years, it would be possible to increase production by over 30% by simply tapping the rubber. The recent price hike led to Indonesia increasing production by 50% during 2005-2007. This reserve capacity makes the global supply curve more elastic than some other tree crops.
 
In Malaysia, harvesting rubber is not popular with local farmers but organised replanting ensures a steady suppy of rubber wood which is used extensively for furniture.
Based on FAO data
 
Of the 10 million tons produced,
  • 7 million tons entered external trade with
  • 3 million tons being consumed in producing countries.
 
 
Rubber is, therefore, an export or import substitute oriented crop. The leading two exporting countries are Thailand and Indonesia and the two dominate world trade in natural rubber with Malaysia and Vietnam coming up in the next echelon.
IRSG
While China is not self sufficient in rubber, India has a growing surplus which is going to come under pressure as the economy continues to grow. China and the USA are the two keading importers of rubber, followed by EU and Japan.
 
Rubber, in common with other commodities, has gone through a period of very high prices, now settling back to pre-speculative levels of 2007/08.
 
Going back to the period when Malaysia was by far the largest producer, standards on prices and trading conditions are still based on Malaysia. The country also has a very sophisticated regulatory structure much admired by others.
 
 
Over 6 million tons of rubber, nearly 7 nillion tons insome years, are imported with China and USA the largest importers, followed by Japan, Korea and Germany.
 
There is a system of certfication, it is important but its importance can be exaggerated. Basically, catagorisation is on the basis of purity. A modest premium is paid for assured prity to desired levels. It is important to avoid contaminants that are difficult to remove when processing the rubber.
 
The leading consumer of natural rubber is China since having overtaken the USA in 2001 and the lead is growing. Japan, as a major consumer is threatening to catch up with USA.
 
A typical value chain for rubber in Malaysia is given below, it was prepared in 2005. Malaysia has probably the most efficient rubber chain and the fairest returns for small farmers. Other countries often use the Malaysian formula and Malaysian prices as their benchmark.
 
 
Value Chain
MalaysiatonUS$/mt
FOB1,200.0
Processing157.9
Factory gate1,042.1
Cess36.2
Transport26.3
Farm gate979.6
60 DRC587.76
50 DRC489.80
In contrast with the above, farmers in Cambodia would only have received $264-380 and Indonesian farmers $501 officially but remote small farmers would have been lucky to get $350. One of the factors that analysts must take into account is that there can be wide difference between what is officially decreed and what happens in reality. Malaysia is indeed lucky in the two being almost allways the same. When all is said and done, farmers growing rubber in one of the leading producing countries using the Malaysian formula, get a relatively fair deal.
 
Processing
 
 
Rubber is a fairly profitable crop, it becomes really profitable once it has been made into products. The first products that rubber producing countries consider are gloves, condoms and cycle tyres.
 
Even more lucrative are coated fabrics and products and products like mattresses. Pure latex mattresses are considered premium luxury products. In the way of an illustration, rubber can be $2,000 per ton, latex foam 60% DRC would be $1,200 but as a latex mattress, admittedly including covers etc, it could be worth $ 15,000+ per ton.