By TBY | Malaysia | Dec 11, 2015
Since 2012, palm oil and rubber have been identified as one of the 12 National Key Economic Areas (NKEAs) under the government's Economic Transformation Programme (ETP).
Realizing the potential of the rubber industry, the government has embarked on a number of strategic policies aimed at spurring growth in both the upstream, midstream, and downstream rubber sectors and maintaining Malaysia’s clout in this lucrative export. Ensuring sustainability and boosting productivity are the two policy focus areas for the upstream rubber sector. Today, total rubber plantations covers 1.2 million ha, out of which 1 million will be harvested; this is to be maintained through new planting and replanting schemes across Peninsular Malaysia, Sabah, and Sarawak. An annual target of 1,800kg per ha by 2020 has been set for national rubber productivity. If this is to be achieved, it must ensure only high yielding and quality planting materials are provided to smallholders, who own the majority of rubber plantations. A number of courses and training programs have been deployed across the industry to raise the level of competency in the industry, with a target of 10,000 competent rubber workers to be trained by 2020 under the NKEA initiative.
To encourage production in the face of falling rubber prices, the government introduced the Rubber Production Incentive (RPI) in 2014, which received an initial allocation of $22.97 million. Although to date this has not been activated, the RPI will guarantee a minimum price for smallholders when SMR20 FOB natural rubber falls below $1.06 per kg, thus sustaining standards of living and creating production incentives. Boosting local demand for rubber, for example by constructing rubberized roads from June 2015, is one of the means by which the government aims to boost prices.
Moving towards vertical diversification has been at the top of government’s agenda for a number of years. Today, Malaysian companies lead the global market in rubber products. Malaysia represents 62% of the world market share in latex rubber gloves and exports them to over 160 countries. In 2014, rubber products continued to be the major contributor to the industry’s earnings, with exports valued at $3.49 billion, equivalent to 49% of total industry. Rubber wood, natural rubber, and other rubber contributed $1.69 billion, $1.04 billion, and $890 million, respectively. Under the NKEA initiative, the government is targeting 65% world market share in rubber gloves by 2020.
In light of increasing competition from neighbouring Thailand and Indonesia, initiatives to modernize the industry include investment in new technologies to increase efficiency in manufacturing. Adoption and commercialization of these new technologies remains the major challenge and uptake of new methods is limited by the dominance of inveterate smallholders, small farms, and depressed prices.
Malaysia is also focusing on entering new market spaces, developing new products from advanced materials, and developing its own brands to increase export value. “The direction is very simple: if you want to be competitive you should not be in the same bandwagon as all the other countries. You need to get out of that cocoon, create new products, bring new players into this business,” explained Dr. Mohd Akbar Md Said, Director General, Research and Innovation of the Malaysian Rubber Board (MRB). A shift in consumer preferences towards natural and renewables has prompted Malaysia to pioneer the production of new forms of rubber, such as Ekoprena and Pureprena, to be used in green tyres and high-performance engineering products. A trial project using Ekoprena rubber on public buses in Greater Kuala Lumpur began in 1Q2015 and further efforts to commercialize these new products are underway.
As a whole, the rubber industry is targeted to contribute $12.15 billion in incremental Gross National Income (GNI) in 2020. Rubber production, which fell in 2014 due to heavy rains and slumping prices, is expected to increase 4.7% in 2015 to 700,000 tons, according to the Malaysian Rubber Board (MRB). Prices of SMR 20 natural rubber, which fell from $1.78/kg in 2013 to $1.27/kg in 2014, are expected to hover around $1.75/kg, affected by external economic conditions and falling demand from major importers in the Eurozone and China.