Can Sri Lanka remain competitive in NR business?

Dr. N. Yogaratnam

Is Sri Lanka satisfied with the award winning NR productivity of about 1250 kg/ha, although the National productivity in 2011 had been 1558 kg/ha, research yields much higher this and Indian national yields is 1835kg/ha( See table 1). Are we not interested in boosting our productivity by year 2021 (10 years) to 2000 kg/ha? By this time India and even Vietnam and Cambodia would yield around 2250 to 2500kg/ha. Where have we gone wrong?

Cambodian initiatives

Dr. N. Yogaratnam

Cambodians have clearly realized the importance of rubber as an agro-industrial crop in generating income for the agro-industry sector as well as for the rural farmers. Even though other crops such as rice have made considerable contribution to national income, natural rubber remains an important agro-industrial crop that provides employment for the locals in a big way.

Cambodia produces about 55,400 tonnes of natural rubber latex, which is 0.29% of the global natural rubber production and is ranked the 16th among other natural rubber producing countries. The country has of late come out with clear-cut strategies aimed at increasing NR plantation area to 300,000 hectares and raising output to around 290,000 tonnes by 2020.

Initiatives

To support the growth of natural rubber industry, the Government has laid down clear regulations, legal procedures, mechanism and other formalities on granting economic land concession with the sole idea of encouraging local and foreign investment in rubber cultivation. The main goal of the Government's open agriculture policy is to provide unused land for the development of the agro-industry, good crops or agro-industrial crops, plantations such as oil palm, teak, rubber, animal husbandry.

Developments

Between 2008 and 2009, the Government privatised nine State-owned rubber plantations. Subsequently, it was decided to grant Economic Land Concession (ELC) of less than 10,000 hectares to local and foreign companies for rubber cultivation. Presently, Cambodia exports all of their raw materials. However, of late, added focus is being given to developing the downstream rubber industry

They have not only increased the area for rubber plantation but also invested in the development of more productive rubber clones and implemented good agronomic management among smallholders. Efforts are also being made to strengthen rubber research in co-operation with regional and international research institutes and through the Cambodian Rubber Research Institute of the General Directorate of Rubber.

According the Director General of the Cambodian General Directorate of Rubber, the country's rubber strategies are designed to guarantee quality of production and the planting material, encouraging smallholders, promotiing rubber estates to be a nucleus of the rubber smallholders, and developing and enhancing rubber value chain.

Opportunities

Recently, there has been a lot of interest among the natural rubber growers and others worldwide in either expanding rubber cultivation or promoting new planting in the traditional and non-traditional areas due to the high rubber prices. Cambodia's large area of basaltic red soil has encouraged the current Government to place the rubber sector among its top development priorities.

Cambodia's NR cultivation started back in the 1920s when it was a French colony. An old plantation is still being preserved as a testimonial of its vibrant past.

Rubber is now making resurgence in the agricultural sector of the country. The Government has already concluded some Free Trade Agreements (FTAs) that give the country preferential access to major markets for rubber exports. China, for example, is one of the largest markets for rubber. Lower tariffs on rubber products under the Asean-China Free Trade Agreement will stimulate greater export from Cambodia and thus boost domestic rubber production.

However, the Cambodian rubber industry is still facing many challenges and constraints that hinder the sector's development.

Challenges

The issues are more prevalent in the smallholding sector, particularly, in the usage of low-yielding clones, limited availability of plant material, inappropriate tapping techniques, unpopular credit facility and high interest rates charged by private financial institutions, low international acceptance of Cambodia-specified rubber and unexploited direct market access to the international markets.

Despite these challenges, potential market opportunities for Cambodia's rubber sector are immense. The steady growth of production in recent years is due to the rigorous land reforms and welcome investment policies of the Government of Cambodia that encourage Foreign Direct Investment, making rubber an increasingly attractive investment sector for local farmers and foreign investors. The Association for Rubber Development of Cambodia and the General Directorate of Rubber play an important role not only in promoting the rubber industry locally and internationally; but to remove constraints that hinder the sector's development.

Plantations

In Cambodia, rubber is mainly grown in Kampong Cham, Ratanakiri, Mondoldiri, Kratie and Kampong Chhnang provinces. Most of the rubber is grown by the State-owned plantations, the private-owned plantations and the smallholdings. Total harvested and immature areas surged from 80,000 hectares in 2007 to approximately 166,000 hectares in 2011.

The total planted area of the estate-run plantations increased from 45,000 hectares in 2007 to about 70,000 hectares at the end of 2010. Despite the growth of the planted area in estate-owned plantations, its total share has dropped marginally compared to that of the smallholdings. Broadly speaking, the rubber industry in Cambodia accounts for only 4% of the country's agricultural sector and employs approximately 40,000 people throughout the country. Over recent years, Cambodia has transformed from a land of crisis to a land of opportunity, and their boom days are just beginning.

Thailand's example

Blessed with natural and man-made advantages, Thailand has developed into the world's largest producer and exporter of natural rubber. The country turns out more than 3 million metric tons of natural rubber annually, and progress in the industry remains vigorous.

Perfectly positioned to lead, Thailand rose to prominence because of its abundant resources of natural rubber, cost- effective workforce, and strategic location in the Asia-Pacific region. According to the Thai Rubber Association, the Asia- Pacific currently accounts for 57% of global rubber demand and will remain the world's strongest growth area through at least 2013. This represents continued lucrative opportunities for Thai rubber businesses. Besides a prime location, Thailand offers rubber investors an ample water supply, a low incidence of power outages, and a reliable transportation infrastructure for smooth operations.

Moreover, Thai rubber businesses are flourishing because of solid government policies promoting the industry. This includes the lower tariffs resulting from the country's free trade agreements with trading partners such as China, Australia, New Zealand, and ASEAN states. In addition, Thailand is a member of the Association of Natural Rubber Producing Countries, which also consists of Indonesia, Malaysia, Vietnam, China and Sri Lanka. All of this is conducive to increased business in the region, with Indonesia being the world's second-biggest rubber producer, followed by Malaysia, India and China. Many considerable developments enriched the Thai rubber industry in 2010. Of major importance was the Thai government's announced plans to launch the next phase of its initiative to expand rubber plantations nationwide. An initial budget of 11.42 billion baht will create new plantations of rubber saplings in the northern, eastern and central regions, with the southern area long well-established. More than 100,000 planters are expected to benefit from this expansion, which aims to increase Thailand's natural rubber supply by an additional 250,000 metric tons per year from 2017.

The first part of 2010 also saw several new projects in the country's growing tire sector, a vital cog in the Thai rubber machine. Thai Bridgestone Co., Ltd. unveiled plans for a US$25 million retread plant. Goodyear (Thailand) Public Co., Ltd. is also investing in a radialization project for airplane and automobile tires, and Dunlop Tire (Thailand) Co., Ltd. has launched a plant featuring an innovative production system.

In other major industry developments, condom manufacturer Thai Nippon Rubber Co. is spending 600 million baht to build a large production facility in Chonburi Province. The plant will increase the company's capacity by 75% from the current 800 million pieces. Moreover, the Sri Trang Group said it will double its annual capacity within five years to 20 billion gloves and 160,000 metric tons of other products such as block rubber and technically specified rubber.

As another forward step taken in 2010, the Thailand Board of Investment (BOI) organized a mission to Chennai and Mumbai to strengthen investment and business collaboration with India. Rubber products and automotive parts were high on the agenda.

The BOI classifies the manufacture of natural rubber and rubberwood products as a priority activity. Eligible investment projects in the industry can therefore receive benefits such as tax breaks and exemption from duties on imported machinery.

As the world's leading producer, Thailand attracts substantial investment by foreign, joint venture and domestic manufacturers in the rubber industry and related sectors. The top rubber exporting companies in Thailand are Von Bundit, Sri Trang Agro- Industry, Thai Hua, Thaitech Rubber, Southland, Bridgestone Natural Rubber, B.Right, Teck Bee Hang, Tavorn, Hadsyn, Siam Indo, A One, Numhua, and Thai Rubber Latex.

Major rubber products manufactured in Thailand include gloves at 10.93 billion units in 2010, inner tubes at 58.76 million, motorcycle tires at 19.95 million, passenger car tires at 19.58 million, bicycle tires at 18.29 million and rubber bars at 800,759 units.

Based on statistics from the IRSG, in 2011 the country's rubber exports reached over 3.00 million metric tons and domestic consumption totaled 480,000. By material type that year, standard Thai rubber output was 1.06 million, ribbed smoked sheet was 837,294, concentrated latex was 703,817 and crepe was 487,160 metric tons.

The country now exports about 90% of production, or US$4.26 billion worth in 2009. The Thai rubber industry is clearly on a growth path, and the Office of Industrial Economics projects export value hitting US$6.6 billion in 2012.

Thailand is also a significant importer. In 2009, inbound shipments of rubber products, scrap, and rubber materials were worth US$1.12 million.

The heart of Thailand's rubber production remains the area in the south from Chumpon Province all the way to the border with Malaysia.

A monsoon climate helps Thai farmers achieve high yields of about 1700 kg/ha. Small landholders with four hectares or less, represent 95% of cultivation in the country. The industry, however, is mainly controlled by large processing plants that purchase the material through local dealers.

With manufacturing sectors such as the all-important automotive industry recovering from the global downturn, rubber output is expected to continue growing steadily in coming years. Demand is also on the upswing in sectors such as rubber gloves and condoms because of greater consumer concerns for good hygiene.

In fact, some industry experts predict that non-tire rubber demand will outpace that for tire rubber due to expanding industrialization in developing countries.

This involves products such as moldings, gaskets, cushioning, adhesives, padding, belting, wire and cable sheathing, roofing and adhesives. Thailand rubber is also used to make balloons, rubber bands, pulleys, toys, sports and leisure goods, medical devices and carpet underlay.

Along with being the number one exporter of high-quality rubber, Thailand is also a trendsetter as a leading R&D center for the material. The country's 100,000 science and engineering graduates annually fuel local innovation.

Added product value and greater environmental sensitivity are two trends emerging with the Thai rubber industry seeing steady advancement. Of all rubber produced for domestic consumption in Thailand, 65% is now processed into value-added goods such as better tires, gloves and elastic.

Work is also accelerating on popularizing rubberwood as an environment-friendly alternative to hardwood timber.

Solid Support Amid Challenges

Thai natural rubber is prized in markets around the world. The top destinations in terms of export value are China, Malaysia, Japan, South Korea, the United States and the European Union. According to the RRIT, China absorbed the lion's share of exports in 2009 at 42%.

Support of rubber businesses in Thailand is resolute, with policies in place for continued development.

Government bodies, trade associations and R&D institutions are all active in promoting the industry's competitiveness. In addition to the BOI and the RRIT, these include the National Science and Technology Development Agency, Department of Industrial Promotion, National Metal and Materials Research Center (MTEC), National Center for Genetic Engineering and Biotechnology (BIOTEC), Research and Development Institute of Industrial Production Technology at Kasetsart University, Prince of Songkla University, Thai-German Institute, Rubber Estate Organization and Polymer Society.

Challenges

But the industry still faces growth challenges amid its stable development. For one, the market price of rubber has been fluctuating, threatening the margins of suppliers.

Sales of smoked rubber sheets, a major product line in Thailand, are also showing uncertainity. This is putting pressure on some operators to undergo an upmarket shift to higher-quality products such as rubber blocks and concentrated latex. However, such a move will require spending on new advanced technology. Value-added production will play a key role as companies, institutes and the government look at ways for the Thai rubber industry to evolve while maintaining its leadership position.

In conclusion, all concerned can be reasonably proud about the progress achieved in rubber development in their country; yet they say, still have miles to go and many more goals to reach.

Countries like Vietnam are also marching forward in rubber development with its currently second position in productivity. What are our strategies?