Rubber burden bounces right back
Jake van der Kamp
Get yourself ready for the last hurrah of one of the most classic sunset industries to be found in Asia. The International Natural Rubber Organisation (Inro), a price-fixing cartel that has finally had to admit it can no longer fix prices, is dead.
Thailand, the world's biggest producer, has pulled out of Inro rather than pay it yet more money to try propping up prices. Malaysia and Sri Lanka earlier refused to make payments.
Go back 60 years and rubber was the big export industry in Asia, principally through Malaysia. It was one of those crucial commodities that helped determine the ebb and flow of the Pacific War.
But for rubber, read tyres, and, unfortunately, small cars with radial tyres do not need much of the stuff these days. Synthetics work better for radials with light loads. This still gives you rubber for aircraft tyres, with high landing stresses, and for heavy mining equipment, but these are not huge markets.
Yet production has generally still risen over the years and the natural result is that the price has crumbled. From a last peak of US$1.86 per kilogram in early 1995 the price has fallen to below 60 cents and will probably go further down in the short term as Inro sells its buffer stock.
Malaysia, once the largest producer, has made a transition over the years to palm oil from rubber plantations, in part because rubber is much more labour intensive and Malaysian wage rates could not stand the competition.
But Thailand, with somewhat lower wages, has gone thundering in to the gap left by Malaysia and now stands to be hit the worst.
Will it mean that these countries rethink their strategies, stop trying to push up prices and let production find a natural level where supply and demand forces could support prices again? Don't count on it. The Thais talk of a switch to palm oil, but this will take years to achieve and they and the Malaysians face one big problem here.
Rubber is increasingly a smallholders' business. Only the rural poor with a little spare land find it worthwhile to get up early every morning and go through the laborious process of collecting the day's take from those little buckets on every tree.
That's one vote per smallholder, just as many as for a corporate chieftain, and there are hundreds of thousands of these smallholders who will vote on the basis of one issue alone should their livelihood be ruined.
Both Thailand and Malaysia now want to do Inro's job themselves. Inro, they say, should have intervened to buy much greater volumes (hmm . . . the money?) and now they want to take its place.
It is a sad fact of life in too many Asian countries that governments believe producers should have the right to dictate prices to their markets. They can do it for a while within their domestic markets but the rubber market is not one of them.
So just at a time when Thailand and Malaysia are still suffering badly from the two-year-old financial crisis they are about to inflict another headache on themselves. The more things change . . .