At one level, the recent protests by thousands of Thai rubber farmers demanding government subsidies for low rubber prices is simply a typical case of farmers suffering from periodic instability of global commodity prices.
Only two years ago, skyrocketing rubber prices prompted a rush to expand rubber cultivation beyond the traditional growing areas in the South to the East, North and Northeast. But global demand for rubber is expected to grow long term, especially from China, the world’s largest consumer. So what’s the worry?
The problem is that the unbalanced structure of Thailand’s rubber industry makes it highly vulnerable to persistent price instability, especially with global economic problems, the growth of rubber cultivation by Indonesia, Vietnam and India, and the ongoing threat of competition from synthetic rubber. That vulnerability can intensify the political instability and pressure for quick-fix solutions so common in Thailand, especially since the beginning of this century.
Rubber is, of course, one of Thailand’s great successes. Since the late 1980s, the country has been the world’s number one producer and exporter of natural rubber in its upstream, semi-processed form (as sheets, blocks and liquid latex). Around 1 million families are employed in producing rubber, which has become Thailand’s third-largest source of export revenue. This growth owes much to a vibrant set of private exporters and processors, but also to government institutions, especially within the Ministry of Agriculture and Cooperatives. The Office of Rubber Replanting Aid Fund helps farmers expand cultivation; the Rubber Research Institute of Thailand helps develop high-yielding clones; agricultural extension workers help farmers organise cooperatives and make more efficient use of inputs; and ministry-supported Central Markets improve farmers’ information and bargaining leverage.
The problem is that these upstream strengths have not been matched in the midstream and, especially, in downstream segments that “consume” rubber. Some 90% of Thai rubber is exported in semi-processed form rather than being used by domestic producers of rubber-based products, such as tyres, rubber bands, automotive hoses, shoes, seismic bearings, condoms and medical gloves. It is true that Thailand is a world leader in some rubber products, such as condoms and tyres. But studies have demonstrated a wide range of possibilities unexploited by Thai firms; and even in tyres, where half of the 15 producers in Thailand are Thai, but foreign firms generate 80-90% of the income.
In contrast, the overwhelming majority of Malaysia’s semi-processed rubber is used by Malaysian producers of rubber products, especially medical gloves, of which Malaysia is the world’s leading producer. In addition, Malaysia has been a global innovator in areas such as new forms of rubber processing and new rubber products, whereas Thailand has emphasised expanding volumes of semi-processed rubber.
Thailand’s rubber imbalance reflects institutional and political factors. The Ministry of Agriculture and Cooperatives, focuses on the upstream and is clearly the most influential player in rubber (and even the ministry has suffered from resource and personnel shortages in its key R&D agency, the Rubber Research Institute); the Ministry of Commerce cares about exports of natural rubber; and the Ministry of Industry, which in principle promotes downstream rubber products, has had limited interest and involvement in the industry. Support for a standards and testing centre to serve local rubber product producers has been lukewarm at best. Yet unlike in Malaysia, there is no effective, high-level oversight body capable of coordinating these agencies in ways that help promote mid- and downstream producers and which ensure financing for R&D.
Industry insiders deride rubber master plans as “dreams”. The resulting dominance by the Ministry of Agriculture and Cooperatives is mirrored in the private sector, where the upstream interests _ farmers, processors and exporters _ wield much more influence than local producers.
This focus on expanding rubber cultivation, especially with an eye on the Chinese market, has problematic consequences. It deprives the country of opportunities to develop more technical skills required for rubber products and reinforces the danger of falling into a “middle-income trap”. It leaves Thai farmers without internal consumers to balance out volatility in external markets. It opens up rifts within society that help fuel political fragmentation, especially when different crops have competing parties as their champions. It’s thus not surprising that many in the industry say that “rubber is a political crop”. And it leads political leaders into the temptation of addressing these problems with short-term solutions, such as subsidies.
Such solutions are problematic. Their expense undermines Thailand’s short-term fiscal health; and they do nothing to address the rubber sector’s underlying imbalance and vulnerability.
Source: Bangkok Post
