Where the rubber meets the road
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Where the rubber meets the road

When it comes to solving the rubber industry crisis, several argue it will take more than mere state intervention for low prices to bounce back

by any stretch: A rubber plantation in Kanchanadit district, Surat Thani province. Thailand is the world's largest rubber producer. However, the industry has struggled with price slumps over recent years. Photo: Patipat Janthong
by any stretch: A rubber plantation in Kanchanadit district, Surat Thani province. Thailand is the world's largest rubber producer. However, the industry has struggled with price slumps over recent years. Photo: Patipat Janthong

When one considers the life of a farmer, perhaps they picture peaceful, slow-paced living on a pretty rural property. But for many farmers, this serene image rests at odds with the daily struggles that they face.

The family rubber plantation of Preeda Panmueang, a 45-year-old farmer, has been saddled with problems over recent years. Born in Nakhon Si Thammarat, she is one of nine children in the family. Her parents own a 50-rai rubber plantation that is shared among her siblings. But the business is no longer profitable enough to support the family.

So Ms Preeda decided to move from the family farm over one decade ago to her current property in Phra Saeng district in Surat Thani province. There, she built her own rubber plantation on 5 rai of land. When rubber prices are up, she can enjoy life comfortably.

Thailand is the world's largest rubber producer, with 4.47 million tonnes of it having been produced in 2015 alone. The country is responsible for one-third of the world's total output.

Much of the industry's growth has happened over the last decade. The environment has felt the adverse effects of development, but rubber has also given farmers opportunities to invest in plantation land.

Much of the money earned will go towards purchasing pickup trucks and supporting children's higher education.

Despite these promising figures, however, the industry has shown to be unsteady.

Between January and February 2015, rubber prices plummeted to the lowest figure in the past 13 years -- 36.95 baht per kilogram of natural rubber sheets. By contrast, the highest rate recorded was 174.44 baht per kilo in February 2011.

Prices have failed to recover since. As of this month, prices remain between 50 to 54 baht per kilogram of natural rubber sheets. This might seem optimistic if it weren't for the fact that the cost of living across Thailand is increasing sharply, forcing the debts of rubber farmers to stack up.

Financial precarity forced Ms Preeda to send one of her children to live with another relative. She now takes care of only one child. She has tried to plant edible crops on her plantation, but still struggles to cover her own expenses, propelling her back in a cycle of despair.

Her plantation is now being targeted by a government land reform project aiming to manage and redistribute plots of agriculture land to peasants in order to improve their livelihoods.

A government official informed Ms Preecha that her land would be cut in half to be given to a landless farmer. But not far from her land sits a privately owned vast oil palm plantation. That land remains untouchable.

According to a study published in Rubber Asia, this year's natural rubber market is expected to benefit from growth in the crude oil market and commodity prices. However, the chance of rubber prices significantly rising from these changes remains small.

As prices continue to tumble, rubber farmers -- especially those from the South, where rubber production is concentrated and several supporters of the 2014 coup reside -- objected to the government's resistance to fixed prices.

Rubber farmers have routinely blocked the stretch of Phet Kasem Road in Nakhon Si Thammarat, a major route for transporting commodities from Thailand to Malaysia.

Tension has been rising in the province since last month when prices for concentrated latex fell to around 40 baht per kilogram, falling from around 80 baht in January.

Several farmers called for the implementation of Section 44 of the interim charter that lets the military government take dramatic measures in the name of national interests, with the hope of getting government officials to buy rubber from farmers.

However, when it comes to stimulating the rubber economy, there is no easy solution -- the price are not solely determined by the conditions of the domestic market, but other factors like the global economy, oil prices, currencies, the progressive development of synthetic rubber and rising competition in the rubber market.

Meanwhile, China has stepped up its rubber production rates. Since 2006, China has ramped up its investment in the expansion of rubber plantations in Cambodia, Laos, Myanmar and Vietnam, according to Krungsri Research. These markets have only emerged as regional competitors in the past one to two years.

Around 86 percent of natural rubber production in Thailand goes to export markets, according to a 2015 figure. Over half of this is purchased by the world's largest rubber consumer China.

The major export shares are held by five Thai companies known as the "five tigers" -- Thai Hua Rubber, Sri Trang Agro-Industry, Southland Rubber, Von Bundit and Thai Rubber Latex Corporation.

With global supply increasing and domestic economic slowdown, entering foreign markets is no easy take for small-scale rubber farmers in Thailand. So the government has opted to focus on increasing domestic consumption.

Still, there remains only a slim chance that farmers like Ms Preeda can start to feel secure again.

A PRICE TO PAY

"It's long been believed that farmers have an insufficient capacity for sustaining their livelihoods without the government's price intervention," says Viroj Na Ranong, research director at Thailand Development Research institute (TDRI).

"Policies are decided based on myths. The government feels that there is a need to cradle farmers."

Pricing intervention is a regular measure taken by political parties and governments, generally implemented with agricultural products ranging from rice, cassava to rubber.

The government has previously drawn from state budget to buy rubber off farmers with domestic prices higher than global ones. However, most of the rubber simply remains in storehouses.

This is like "throwing money into the sea", says Mr Viroj. This is especially the case, he says, when rubber stockpile cannot be released into the market due to a variety of factors. These include protesting rubber farmers who fear selling out their stockpile will deplete prices.

The military government has asked its ministries to consider how to integrate rubber in ongoing state projects, such as building rubberised roads. However, such changes won't be sufficient for making a large change in rubber farmers' increasingly dire prospects.

"It is a myth that increasing domestic usage will help elevate rubber prices," said Mr Viroj. "However, our production is so huge that even doubling our domestic use from 13.5 to 27% will hardly make a dent. As long as we depend on the export market, domestic prices for rubber cannot be made higher than global prices. But no government dares to not to cradle rubber farmers."

In a price intervention policy move, the state invested over 32 billion baht to purchase 1.35 million tonnes of rubber from farmers between 1992 and 2005. The policy backfired though, causing a 15.8 billion baht loss that was deemed a "loss for the benefit of rubber farmers".

At the time, Thailand was headed by former prime minister Chuan Leekpai of the Democrat Party, which has a long-standing stronghold in southern provinces.

In the wake of the 2007-08 financial crisis, rubber prices slumped from an average of 77.80 baht per kilogram of natural rubber sheets down to 30.71 by the end of the year 2008.

Former prime minister Abhisit Vejjajiva, also from the Democrat Party, spent around 8 billion baht back then to buy 200,000 tonnes of rubber that was turned into stockpile.

This figure is equivalent to roughly 6% of Thailand's rubber production.

The cabinet of Yingluck Shinawatra was again faced with slow global economic growth alongside severe flooding in 2011 that provoked instability in rubber prices.

Between 2012 and 2013, the average price of over 100 baht per kilo of natural rubber sheets fell to around 60 to 80 baht.

This led rubber farmers in the South to stage protests, including blocking Phet Kasem Road in Cha-uat district of Nakhon Si Thammarat, the gateway to Thailand's southern region.

The move was intended to pressure the government to intervene with the price.

Bowing to pressure, Ms Yingluck's cabinet approved a plan to purchase rubber from farmers costing 15 billion baht. The rubber was then relayed to a storehouse to await a price rise. >>

>> Several academic studies contend that price intervention policies do not increase or stabilise rubber prices as these prices rely more strongly on the forces of the global market.

These policies have been further deemed inaccessible for the vast majority of rubber farmers, while the state's quota for rubber purchase is reserved for only a select few.

According to the Rubber Authority of Thailand, almost 1 billion baht was paid by governments in the past five years to maintain rubber storehouse and stockpiles.

In April, around 310,000 tonnes of rubber has accumulated in the government's stockpile.

Gen Prayut Chan-o-cha's cabinet has pledged to promote domestic use of rubber in the public and private sectors, but he voiced an aversion to price intervention policies.

The Thailand Board of Investment has encouraged investment in the rubber industry in Thailand, offering incentives like corporation income tax exemptions.

The cabinet aims to buy 100,000 tonnes of rubber for various uses in government projects, including making tyres, tiles and health products.

This fraction of investment should constitute 2.29% of Thailand's natural rubber production, hardly the type of promising figure to resolve the chronic instability of rubber farmers' lives.

PRODUCING MIXED RESULTS

Although the output of Thailand's agricultural products have significantly increased over the years, the questions remains if this constitutes a healthy growth for farmers, says Mr Viroj.

In its climb to becoming the world's top natural rubber producer, the country's overall production has increased from 3 million tonnes from 2002 to 2003 to over 4.6 million most recently.

Rubber prices had a favourable look in the early 2010s, averaging about 106 baht per kilogram of natural rubber sheets in 2010. This drove several farmers to expand rubber plantations in the Northeast and the South.

More rubber trees across Thailand are expected to be tapped this year. It takes them five to seven years to produce rubber. But despite the ongoing production, its price remains low.

With the instability of rubber prices in recent years, several farmers have shifted to oil palm instead. However, this can also lead them to unstable financial status and state dependency.

The situation with rubber replays a similar scene to other agricultural products in Thailand, said Mr Viroj.

When Ms Yingluck's government implemented a controversial rice pledging scheme, farmers rushed to grow more rice and benefit from prices marked higher than the original market value. This led the price for renting rice fields to double as people rushed to capitalise on the new prices.

"If we want healthy growth, the government must not cradle [the market] because it will persuade people to remain [in the sector]," says Mr Viroj. "It's not always advantageous for governments to encourage farmers to grow any plants that have a higher price. It must learn to hold them back sometimes."

Smaller, more regional-based efforts have been made to stabilise rubber prices but with limited success.

In 2004, the world's top three rubber producers -- Thailand, Indonesia and Malaysia -- founded the International Rubber Consortium Limited (IRCo) to stabilise rubber prices.

But unlike the International Natural Rubber Organisation, which became defunct several decades ago, IRCo has little more than an office space and staff.

According to Mr Viroj, the organisation lacks the resources to stimulate change, likening it to a "tiger with no teeth".

Several analysts say the real tigers are the forces behind the global market.

"I think we passed the lowest point," says Vorathep Wongsasuthikul, the chairman of Thai Rubber Latex Corp, which buys 200,000 tonnes of domestic rubber every year.

"Rubber prices will only keep rising. With the world's population increasing, demands for rubber will only also go up, especially in the automotive industry. There's a bright future ahead."

The private sector holds the largest shares in the rubber export market, but local farmers still harbour dreams of "becoming a tiger" alongside them.

"We can be the sixth tiger," says Tanomkeat Yingchoun, secretary of the Rubber Network Council and Rubber Farmers Institute of Thailand that represents rubber farmers from all over Thailand. He is also the owner of a 40-rai rubber plantation in Trang.

"We have members from over a thousand rubber farming institutes which produce 1.2 million tonnes of rubber each year -- around 30% of country rubber production."

The network has proposed the creation of a sub-company under the Rubber Authority of Thailand, the government's main organisation for the management and administration of rubber production. The company would purchase rubber directly from farmers and contribute the company's shares to them.

However, such an idea remains a distant dream.

Questions of market management also remain.

The network needs access to loans and state budget to improve domestic production. These would let them reach export markets, a strategy similar to previous government policies.

Meanwhile, the military government's policy to increase domestic rubber use has not yet reaped benefits. Mr Tanomkeat says his group hasn't been approached by the government or private investors recently. It also likely won't affect prices, he adds.

"I believe that every agricultural product has problem when, due to a lack of decent management, farmers can't access market," he says.

"Farmers are fed to live. But they aren't allowed to grow, nor die. So they maintain life with little opportunity to obtain better financial status. It's like burying us alive."

taking a load off: Workers in Buri Ram's Khan Dong district unload rubber sheets from a farmer opting not to sell under the state purchase scheme. Photo: PATTARAPONG CHATPATTARASILL

sit and wait: A farmer by a fire as sheets of rubber dry in Rayong province. Global demand for natural rubber, used mostly in tyres, has slowed recently. Photo: Bloomberg

a new ball game: Raw rubber before it is shaped and turned into a pressurised core called a slug at a Wilson tennis ball factory outside Bangkok. Photos: © 2017 The New York Times

shaping up: Workers handle rubber sheets as they pass through a rubber sheet washing machine at the Thai Hua Rubber factory in Rayong province. Photo: Bloomberg

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