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Asian rubber farmers switch crops as prices dive

* Rubber market in fourth consecutive year of glut

* Drop in output unlikely to happen overnight

* Farmers switch crops, find other jobs, reduce tapping

By Lewa Pardomuan and Anuradha Raghu

SINGAPORE/KUALA LUMPUR, May 29 (Reuters) – A slump innatural rubber prices to multi-year lows is spurring SoutheastAsian farmers to turn to other crops and tappers to look forother jobs, potentially chipping away at a chronic supplyoverhang.

Any crop shift won’t lead to a rapid drop in output, sayanalysts, but along with threats of an El Nino weather patterncould start to halt production growth as tumbling prices take atoll on the region’s five million-plus rubber farmers.

Output growth in top producer Thailand could halve thisyear, while in neighbouring Vietnam, which recently overtookMalaysia as the world’s third-largest producer, farmers have cutdown trees and reduced tapping.

Asia accounts for about 90 percent of the world’s naturalrubber output. The tyre-making industry makes up about 60percent of global rubber consumption, and the commodity is alsoused to make gloves and condoms.

“Supplies are increasing at a time when demand is relativelysluggish,” said analyst Abah Ofon at Standard Chartered inSingapore, who said output would need to fall to have someimpact on prices.

“A 3-5 percent reduction in global supply will be tangibleenough for the market to take note,” he added.

Rubber prices have sunk more than 25 percent this year andhit 4-1/2 year lows on persistent worries about slower economicgrowth in main consumer China and oversupply.

Global supply is forecast to exceed demand by 241,000 tonnesin 2014 for a fourth year of glut, according to theInternational Rubber Study Group, which rules out any near-termrebound in prices.

However, traders said the low prices meant some farmerswould switch to quicker growing palm oil trees, while rubberyields would falls as trees were neglected and farmers could notafford to replace old stock.

“The bull may return in 2017 when the market feels theimpact of the low prices as farmers cut back on fertiliser andtrees suffer,” said a dealer in Singapore, who trades Indonesianrubber. “There will be no new planting and farmers will switchcrops for better returns.”


Frustrated by the sagging price, farmers in Malaysia andsecond-largest producer Indonesia have begun switching to palmoil or finding jobs in factories and mines, say dealers andindustry groups.

“I have given up on rubber. A lot of other farmers havestarted planting other crops like oil palm,” said 62-year oldRoslai Hasan, who owns six acres in Malaysia’s Selangor state.

It takes six years for rubber trees to mature and producelatex, while palm trees begin to bear fruit within three years.

“You are now approaching levels where you are having animpact on production,” said Michael Coleman, managing directorof RCMA Asset Management, who helps manage the $140 millionMerchant Commodity Fund in Singapore.

“Clearly at $1,700 FOB (a tonne), which is $1,500 at thefarm gate, that’s beginning to affect people in areas wherethey’ve got good employment opportunities elsewhere, and that’sMalaysia.”

A lack of action by the International Rubber Consortium(IRCo), which groups Thailand, Indonesia and Malaysia, has alsoangered farmers and exporters, but the group appears hamstrungby a lack of funds and political will.

For many farmers in Indonesia, low rubber prices arebecoming unsustainable.

“Now, one kilo of latex gives you 4,000 rupiah ($0.34). Theprice of rice keeps rising, and it costs 10,000 rupiah to buyone kilo,” said Hambali Nasution, a 40-year old rubber farmer onIndonesia’s main growing island of Sumatra.

“We have to find other jobs to survive, such as working inpalm oil plantations. I have three children.”

($1=11,625 rupiah) (Additional reporting by Samsul Said in KUALA LUMPUR; Editingby Richard Pullin)

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