Indonesia forges regional cooperation to stabilize rubber prices

Indonesian rubber farmers have been hit by falling prices since Q4 of 2018, prompting the government to find ways to stabilize rubber prices, among other things, by forging cooperation with neighboring countries.

The price of rubber decreased 3.80 JPY/kg or 2.10 percent to 177.40 on March 20 from 181.20 in the previous trading session, and reached an all time high of 526.40 in February of 2011 and a record low of 132.10 in November of 2018, according to information on tradingeconomics.com.

The biggest producers of rubber are China, Indonesia, Malaysia and Thailand. Others include Papua New Guinea, Philippines, Singapore, Sri Lanka, Thailand, Vietnam, Cambodia and India.

President Joko Widodo (Jokowi) has been concerned over the falling rubber prices, as they would affect the welfare of small farmers.

The government had approached Malaysia and Thailand to reduce the rubber supplies to the world's market, Jokowi told local rubber farmers in Lalang Sembawa Village, Sembawa Subdistrict, Banyuasin District, South Sumatra Province, recently.

Indonesia, Malaysia and Thailand held a Special Ministerial Committee Meeting (MCM) of the International Tripartite Rubber Council in Bangkok, on February 22, 2019.

The meeting was chaired by Grisada Boonrach, Thai Minister of Agriculture and Cooperatives, as the host, and attended by Darmin Nasution, Indonesia’s Coordinating Minister for Economic Affairs, and Teresa Kok, Malaysia’s Minister of Primary Industries.

The three ministers were accompanied by senior government officials and members of the Board of Directors of the International Rubber Consortium –a company established by the three members of ITRC.3.

The Special Ministerial Committee Meeting was held with the objective of exploring measures to address the prevailing depressed natural rubber price level.

At the meeting, the ministers shared views on the natural rubber market and discussed related issues and efforts to ensure balanced and healthy natural rubber fundamentals toward fair and remunerative price levels.

They reviewed the natural rubber market and price, which has been hovering at a low level throughout the year 2018 until early 2019.

The negative market sentiment and uncertainty in the global economy continued to influence the market, affecting the livelihood of millions of smallholders in this region, according to the ministers, in a joint communiqué issued at the end of the meeting.

The ministers, however, were encouraged with the improved global natural rubber price since the middle of December 2018, which provided relief to producers, particularly the smallholders.

The ministers expressed hope that the natural rubber price would improve and hence remain attractive for smallholders to plant and harvest.

The ministers looked at options to improve the price under the current market situation and to formulate action plans to ensure the effectiveness of relevant concerted measures under the Cooperation.

They reiterated the view regarding the importance of the Agreed Export Tonnage Scheme (AETS) as an effective instrument to address the transient stock imbalance from the global market.

In this regard, the three countries decided to implement the AETS in order to reduce exports from TIM countries in the amount of 200,000-300,000 MT. They tasked the Senior Officials of ITRC to discuss details of the AETS implementation within two weeks in Thailand.

In terms of each country's contribution of rubber production, Thailand's was the highest, with 52 percent; Indonesia, 38 percent; and lastly Malaysia, 10 percent.

The meeting also emphasized the importance of implementing projects under the Demand Promotion Scheme (DPS), which would increase the domestic consumption significantly.

As for Indonesia, for instance, the utilization of natural rubber is present in various infrastructure projects, such as provincial and district roads throughout the country, railroad track dampers, road separators, bridge bearings and tyre retreading.

In fact, to absorb more rubber from local farmers into the Indonesian market, Jokowi revealed that he had instructed the Minister of Public Works and People's Housing to use the commodity in combination with asphalt and make use of the rubberized asphalt for road construction.

The uses of rubberized asphalt had been tested in road construction projects in provinces such as South Sumatra, Riau, and Jambi. Although the price of rubberized asphalt was more expensive than that of the ordinary one, the results were remarkable.

Besides, Indonesia’s state-owned plantation firms have been instructed to purchase rubber from local farmers and maintain it as their stock, which could be released to the global market if the price of the commodity increased, Jokowi said.

Apart from the reduction of rubber exports, two other strategies that the ITRC has come up with are the DPS related to domestic consumption in each country and Supply Management Scheme (SMS) concerning the commitment to replant natural rubber.

The Indonesian government has committed to replanting 50 thousand hectares of natural rubber plantations per year, according to Darmin Nasution.

"Rubber has never been systematically replanted since its first cultivation 100 years ago. The government has prepared strategies to begin the replanting program. We will do it gradually to reach 50 thousand hectares," he said.

Nasution said the Agriculture Minister has conducted rubber replanting but it only covered an area of 6 thousand hectares, while the total rubber plantation area in Indonesia has reached 3.6 million hectares.

Therefore, the government would speed up the replanting program to reach 50 thousand hectares per year.

In addition to Indonesia, Thailand has also planned to optimize its replanting program to cover 60 thousand hectares per year, while Malaysia will replant 25 thousand hectares of rubber plantations per year.

The SMS would play an important role in reaching a balance on supply and demand by accelerating the natural rubber replanting.

In the short term, the countries would manage the supply of natural rubber. For the medium term, they would increase the domestic consumption of natural rubber, and for the long term, they will undertake natural rubber replanting.

Another agreement reached during the Bangkok meeting was the establishment of an ASEAN Rubber Council (ARC) as a platform for discussion on the development of the NR industry and cooperation with other ASEAN countries and ASEAN dialogue partners.