Thailand: Rubber crisis calls for planning

The Prayut Chan-o-cha government has faced a rubber price crisis now each year for the past three years, with no lasting solution to this perennial problem in sight.

This year, the price of latex has fallen from 50 baht per kilogramme to 38 baht/kg, and last week was close to 33 baht/kg. It’s a sharp contrast to the past peaks when the price hit more than 100 baht/kg.

As usual, rubber farmers have threatened protests seeking state assistance which has come largely in the form of loan packages.

The Rubber Authority of Thailand said the government last month approved a budget of 10 billion baht to be lent to rubber traders at low interest rates to help improve their cash flow, enabling them to purchase rubber at higher prices.

In addition, a fund worth 1.2 billion baht, aimed at stabilising rubber prices, had been set up by the Rubber Authority and five key smoked rubber traders in Thailand to buy large volumes of smoked rubber.

We have seen this before. In April 2016, the Prayut administration approved a loan of six billion baht from the Bank for Agriculture and Agricultural Cooperatives to the Rubber Authority to buy rubber products to shore up prices.

The amount of money is different, but it’s the same goal: to bolster rubber prices. It’s known the fund is just a temporary measure to boost dwindling prices.

Like other commodities, rubber is subject to the law of demand and supply. When supply floods the global market, like this year, prices automatically tumble.

This year’s crisis is aggravated by a slowdown in imports by big consumers such as China and a move by some investors to suspend purchases in the hope of suppressing prices further.

In past years, the authorities have discussed many solutions to the rubber issue, including the need to add value to basic rubber products and increase local consumption, instead of depending solely on the export market.

A number of agencies have come up with noble plans to boost local consumption.

Among them is a plan to set up a rubber city in Songkhla province.

Under the plan, there will be further investments in projects to add value to products such as tyres, medical equipment and auto and aircraft parts.

One immediate use to which rubber can be put is including rubber latex in asphalt paving for roads.

It’s unfortunate that when the prices recover, those involved just return to business as usual which typically results in an annual price slump.

This has prompted desperate rubber growers to urge Prime Minister Prayut, who is head of the National Council for Peace and Order, to invoke the powerful Section 44 of the interim charter to mobilise state projects making use of rubber to combat the tumbling price of the commodity.

The latest crisis shows those involved just talk the talk and resort to the same solutions as they have in the past, which is not very helpful.

Indonesia, the world’s second-largest rubber producer, seems less worried about the price slump because, as the Indonesian Rubber Association (Gapkindo) recently put it, the country’s market fundamentals remain strong.

State agencies must be aware of a change in the world export scenario. China has invested in rubber plantations in some Asian countries which means the country will depend less on imports, a factor that will affect Thailand.

What is needed is good planning and area zoning to ensure a balance in demand and supply.

As one of the three biggest rubber-producing countries, we need more than a knee-jerk reaction to this price crisis.