Will natural rubber business bounce back by 2010?

Dr. N. Yogaratnam, Chairman, Tree Crops Agro Consultants

The International Rubber Study Group (IRSG) in its revised estimates for the global rubber industry, based on an IMF report and other sources, says that world rubber consumption growth which was estimated to slip to - 3.1 percent (22,179,000 tonnes) in 2008, and to slip further to 4.4 percent (21,2009,000 tonnes) in 2009. It is also estimated to be in for a turn around to 7.6 percent (22,823,000 tonnes) in year 2010.

Figure 1: Total Production Trends in NR

Long term forecasts for rubber industry’s consumption growth indicates that it would dip to 3.5 percent (27,140,000 tonnes) in 2015 and further down to 1.7 percent (28,540,000 tonnes) by 2018.

Natural Rubber (NR) consumption is forecasted to emerge from a negative -0.09 percent growth in 2009 to recover to 5.6 percent growth in 2010 followed by 4 percent and 2.4 percent growth in 2015 and 2018.

Although recent developments have confirmed the general belief that world rubber economy always depends heavily on the global economy, yet the unexpected worldwide recession in such a magnitude has made all such forecasts undependable, NR market dip, from boom to doom; from over U$ 3 per kg to around U$ 0.7 per kg was unexpected and is unimaginable.

NR Production/ Productivity

The production trend in NR in 2008 indicated that the Asia Pacific region has continued to dominate with 88 percent share of global NR production with Sri Lanka’s share still around one percent (Figure 1).

Production in Thailand increased by 0.8 percent only, even after expansion in mature area by 32,000 ha Indonesia’s rate of growth has come down to about 3.6 percent in 2008, from 16 percent in 2006 and 4.5 percent in 2007, despite the expansion in mature extent by 17,000 ha.

Malaysian NR production, dipped by 4.7 percent, possibly due to a decline in mature area by 173,000 ha in 2008. Production trend in India, however, regained it’s normal level after a drastic fall in 2007.

According to IRSG, India consumed 1,141,000 tonnes of rubber in 2007 with a share of 5 percent of the total global consumption. The Indian demand for rubber is projected to exceed 2,188,000 tonnes by 2020 and the share is likely to go up further by 7 percent of the global demand.

It is forecasted that India may be the only nation that is likely to consume rubber at a faster rate. U$ consumption is likely to dip in the short and long run, while Japan and Germany are expected to remain flat, China, the largest consumer will slow down in the near future but will still remain on top in respect of consumption.

Policy changes

Policy changes on choice of perennial crops and other recent developments in three major NR producing Thailand, Indonesia and Malaysia - may preclude them from playing a large role with regard to meeting the expected rise in global demand for NR. Hence, India as the world’s fourth largest producer of NR and ranked as No. 1 in terms of NR productivity, has a potential role in an environment of increasing global demand for NR, forecasted by year 2010 and after.

Vietnam increased its NR production by about 8.1 percent, which was supported by the expansion in mature area by 35,000 ha.

In Sri Lanka, the rate of growth increased to 9.9 percent from 7.3 percent in 2007 although the expansion in mature area had been marginal. Productivity (Yield/ha/yr) has shown an increasing trend, yet it is still much lower than what had been recorded in India, Thailand and Vietnam (Figure 2)

Options

Available options for enhancing yield from the existing yielding trees have been almost fully exploited during the period NR prices have been, consistently high prior to mid 2008. Further scope for significant yield increase is therefore very limited until the new/replanted areas reach the peak productive stage. Postponement of replanting induced by high NR prices in the past, is also a matter of concern. As and when NR prices rebounce, productivity of ageing trees can still continue to be low.

Forecasts

IRSG forecasts that the global NR production would touch 13.7 Mn tonnes by 2020 as against a prospective consumption of the same amount or even more. The production projections for NR are however dependant on the planting policies of the rubber growing countries.

The share of NR in total rubber consumption had been 43.3 percent in 2005, but was down thereafter to slightly over 42 percent in 2007. IRSG estimates that this will touch around 44 percent or a little more by 2020.

Limitations

Figure 2: Productivity of NR ; (Kg/ha) 2002 - 2008

Mature rubber area is likely to decline or at least stagnate at the present level, as replanting have been postponed to take advantage of the high rubber prices in the past. At global level, there had been a decline of 1.3 percent in 2008, from 5942,000 ha to 6631,000 ha in 2007 and then 6545, 000 ha in 2008. In Sri Lanka, there had been a marginal change in the extent of mature areas (Figure 3).

A policy shift in favour of food crops in NR planted/potential area is likely after the global food crisis that was experienced in early 2008. Moreover, three major rubber producing countries e.g. Thailand, Indonesia and Malaysia have already initiated action to regulate NR supply under the aegis of IRCo to minimize the impact of the current NR market slump.

Thailand is moving towards converting the traditional NR growing areas in the south of the country to oil palm. Malaysia is also going for large scale conversion to oil palm and for rubber wood production. Recent planting trends in Indonesia show massive planting of oil palm by large multi-nationals, while rubber is mostly confined to smallholdings with low yield potentials.

Increasing shortage of skilled labour may compel rubber growers to shift to crops having relatively less labour inputs.

Diminishing availability of skilled tappers, in the estates and smallholdings is of grave concern. The changing weather patterns with prolonged monsoon and exceptionally high rainfall which interferes with tapping operations in also of concern. Tapping and collection operations are labour intensive and there is no sight at least in the short/medium term, of mechanization/ automation of tapping and collection operations.

Rubber planting in non-traditional areas has not been fully achieved as desired, possibility due to several limitations in technical and non-technical issues in initiating and completing such programs.

Strategies

In Sri Lanka, however, there is ample scope to increase commercial productivity at least to a level somewhat close to the research yield of 3,000 to 3,500 kg/ha/yr.

It is known to the industry that crop productivity in terms of kg./ha/yr, is a function of tree productivity per tapping (g/t/t), tapper productivity per tapping, the number of trees tapped, stand per hectare and number of tappings per year. If all these variables can be done in an effective manner, the industry should be able to achieve at least 75 percent of the research yield.

Fertilizer

Fertilizer to mature rubber had long been a much debated subject, possibly due to lack convincing research evidence to support such programs. Application of fertilizer to yielding trees through out the mature phase is not the answer.

Yield profile of clone indicates that yield, increases with age from the time of commencement of tapping and reaches the peak level in year 07/08 from the commencement of tapping. Yield in the early stages of mature phase is comparatively much lower. The demand for added nutrients would there fore arise from say year 5/6 of the mature phase.

It is, therefore, logical to start applying fertilizer from year 5/6 and continue until year 12/13,under a soil and foliar survey program, after which fertilizer may be discontinued. Trees are known to have adequate nutrient reserves by the time they reach the productive phase, if effective soil management practices are adopted during the mature phase.

Besides the applied fertilizer, the decomposing leguminous ground covers are also known to contribute a significant amount or nutrients due to effective recycling during this period.

From the foregoing, it is clear that the limiting factors of rubber productivity are not nutritional. It is possible that the mature yield (and harvest index) may be increased by methods related to exploitation rather than continued manuring practices.

Consolidation

In Sri Lanka, like many other NR producing countries, the bulk of NR is produced from uneconomic - sized holdings of 0.5 ha or less in the traditional rubber growing areas.

The size of the holding does not have the economy of scale for effective operation and successful transfer of technology, a structural weakness in the NR industry.

Although productivity in the smallholdings is the highest in the world but domestically (in Sri Lanka) it is lower than that achieved by the estates. Therefore, consolidation of uneconomic sized holdings appears to be an effective strategy.

This would also to some extent overcome skilled tapper shortage problem in smallholdings. For example, groups of 9 to 12 small holdings in a given locality should engage the contract services of a common tapper to tap 3 holdings in a day with 9 holdings tapped over three days on d/3 frequency or 3 holdings a day with 12 holdings tapped over 4 days d/4 frequency.

However, the mode of payment for contract tapping will have to follow the system practised in Thailand and Malaysia where the contract tapper shares the crop with the owner at a 50: 50 ratio or 60: 40 ratio in favour of the owner.

In view of the acute shortage of tappers in estates, the Regional Plantation Companies (RPCs) can also adopt such contract tapping systems to minimize the impact of the skilled tapper shortage in plantations.

CDM/Carbon Credits

In the absence of large extents of additional lands suitable for NR cultivation in Sri Lanka, the RPCs should, like China and Vietnam, explore the possibilities of off-shore NR cultivation in counties such as Myanmar, Kampuchea, Papua New Guinea, Indonesia, and several West African countries having abundant land suitable for NR cultivation.

These countries can comply with the criteria required for CDM funding through sale of CERs, since cultivation of new plantation will be accepted under the process of a forestation and reforestation.

The RPCs can enter into three-way partnerships with the host country and tyre manufactures from Europe and Japan who need to purchase the CERs from cultivation of new rubber plantations to off-set their GHG emissions.

It is projected that a hectare of rubber can generate 605 CERs which, at current prices of US$30 per tonne of CO2, can generate an income of US$ 18,150, which may be adequate to plant approximately 4 ha of rubber.

NR prices

Figure 3: Trends in Mature NR Areas (’000 ha)

The factors that influence NR prices are known to be (1) Fundamentals of Demand / Supply (2) Speculative fund (3) Crude oil prices (4) Currency movement.

In mid 2008, prices in the commodity markets suffered a decline of, between 30 percent to 40 percent. This bearish sentiment resulted in the market loosing confidence and creating uncertainties. The continued global economic crisis and slow down in the automotive industry will continue to affect demand for NR and will have an impact on the upward price movement in short/medium terms.

In any case, if the forecasts of IMF, IRSG and other sources are realistic, with the trend in NR consumption beginning to pick up in 2010, NR prices would also be expected to stabilize at a reasonably attractive level.

To summarise, the challenge to the Sri Lankan rubber industry is, therefore, to transform the developing favourable features of the rubber industry to a sustainable long term growth through creation of a perfect business environment and culture to address the deficiencies in the plantation systems through human and technological upgradation, land and crop strategies for the rubber industry to contribute their share as a partner to attain macro-economic stability in the country.