Gaining traction: The rubber industry is on the move

Rubber production in Malaysia is set to double by 2020, provided the government’s ambitious development plans for the industry come to fruition. In 2011 the country produced nearly 1m tonnes of rubber, according to statistics from the Malaysian Rubber Board (MRB). Under the Economic Transformation Programme (ETP), production is expected to reach 2m tonnes per annum by the end of the decade, boosting the sector’s contribution to gross national income (GNI) to RM52.9bn ($17.06bn), up from RM18.5bn ($5.97bn) in 2011.

HURDLES: However, the sector will have to overcome a number of obstacles. Around 95% of annual production comes from smallholders. Encouraging these farmers to adapt new techniques and technologies to boost yields and general production is a major challenge. According to the MRB, over the past decade a substantial percentage – from 30-40% on an annual basis – of Malaysia’s rubber trees have gone untapped, as smallholders have concentrated on more lucrative crops, such as oil palm. Other challenges include climate change; a general lack of land for new plantings; and rural flight among younger generations of farmers which has led to a labour shortage. (see analysis) “The way forward involves improving productivity by accelerating replanting initiatives as well as tapping into niche markets as first movers,” said Salmiah Ahmad, director-general of the Malaysian Rubber Board. Continued efforts and collaborations between the government and the private sector will be vital to ensure that the four entry point projects (EPPs) for the rubber sector stay on track to meet the GNI target. So long as the EPP goals are met, the production of natural rubber has the potential to jump substantially.

HISTORY: In the 1870s British traders shipped nine Brazilian rubber seedlings from London’s Botanical Kew Gardens to what is now Malaysia. Within a few decades, rubber had become British Malaya’s staple export, fuelled by high demand in Europe and the US and declining production in Latin America. By the time Malaysia achieved independence in 1957, it was a major rubber producer, with one-third of the national workforce employed in the sector. The industry maintained international dominance for the next few decades, even as the use of synthetic rubber expanded. In the 1980s low international rubber prices led to the government launching a large-scale initiative to build up the palm oil industry instead. Over the next decade the national rubber industry shrank substantially, as smallholders removed rubber trees to make room for oil palm in an effort to take advantage of new state-sponsored subsidies and investment incentives. During this period Malaysian rubber production was surpassed by nearby competitors Thailand and Indonesia, which continue to occupy the top two spots today.

FACTS & FIGURES: In 2011 Malaysia produced 996,210 tonnes of natural rubber, according to the MRB. This is a slight jump on both 857,019 tonnes in 2009 and 939,241 tonnes in 2010. From 2004-08 the country produced more than 1m tonnes annually. Production dropped by nearly 300,000 tonnes in 2009, primarily as a result of the 2008-09 international economic downturn. Malaysia consumed around 401,923 tonnes of natural rubber in 2011, in addition to exporting 946,081 tonnes. In 2011 total Malaysian rubber exports were valued at RM39.83 ($12.85bn), according to the MRB, up substantially from RM33.85bn ($10.92bn) in 2010 and RM25bn ($8.06bn) in 2009. The industry was responsible for nearly 6% of Malaysia’s total exports in 2011. China purchased 408,597 tonnes of Malaysian rubber in 2011, which equalled just over 43% of total rubber exports. Other major export markets include Germany (around 12% of total 2011 rubber exports), South Korea (4.6%), the US (3.6%) and Iran (2.9%). The export market is set to benefit substantially from rapid economic expansion in China in the coming decade.

The majority of Malaysia’s rubber is exported in the form of rubber products, which include pneumatic tyres, inner tubes, gloves, catheters, condoms, footwear, rubber bands and rubber sheets. Malaysia is the world’s largest producer of latex gloves. In 2011 the country was home to 350 rubber manufacturing companies, including 58 dedicated solely to producing latex gloves and 13 condom manufacturers. According to the Malaysian Rubber Export Promotion Council, the country is the world’s largest supplier of surgical and examination gloves, condoms and Foley catheters.

RECENT DEVELOPMENTS: The sector is poised to benefit from four EPPs under the ETP. The first EPP aims to increase average national rubber productivity by boosting the use of technology and high-yield varieties among smallholders. The second EPP is meant to ensure the upstream segment’s sustainability by increasing replanting and greenfield planting activities. The third EPP sets the target of increasing Malaysia’s global market share of latex glove production from 62% in 2009 to 65% by 2020. According to the MRB, the country is on its way to meeting this goal, with 30.89bn pairs of latex gloves produced in 2011, up from 23.13bn pairs in 2009. The fourth EPP aims to commercialise Ekoprena and Pureprena, specialty “green” rubbers that are produced from renewable natural sources. In March 2011 the government announced that two Malaysian firms were selected to lead the commercialisation drive for new rubbers. The Natural Resources and Federal Land Development Authority (Felda) Rubber Industries and Mardec Processing are aiming to produce 300,000 tonnes of specialty rubber on an annual basis by 2020.

The government’s replanting programme is being implemented by the Rubber Industry Smallholders Development Authority (RISDA), which is overseen by the Ministry of Rural and Regional Development. The authority has a mandate to modernise the smallholder segment during the replanting process. In conjunction with the Malaysia Administrative Modernisation and Management Planning Unit, RISDA recently launched the e-Kabun (e-Plantation) project, a computer-based application that uses geographic information system technology to survey rubber plantations.

On the other side of the spectrum, the International Tripartite Rubber Council (representing Malaysia, Thailand and Indonesia) announced in August 2012 that it would withhold supply in a move to boost prices.

PRIVATE SECTOR INVOLVEMENT: The government’s ambitious plans for the sector in the coming years have resulted in increased interest from private sector players. A number of mid-sized plantation companies are working to expand into the rubber sector.

In 2011 United Malacca, a mid-size palm oil producer, announced it was planning to convert 30% of its oil palm plantations to rubber by 2020. Similarly, TSH Resources, another local agricultural company, recently announced that it plans to plant 1000-1500 ha of rubber on an annual basis through 2015. Furthermore, a number of international rubber firms are also looking at setting up shop in Malaysia or in conjunction with Malaysian companies. In 2012 Guangdong Guangken Rubber, a Chinese firm, announced that it planned to plant 10,000 ha of rubber in Sarawak.