Navigating the peaks and valleys: Malaysia’s rubber industry outlook

The rubber industry weaves a narrative of challenges, triumphs and the delicate dance between global demand and local dynamics.

During a recent seminar at the Rubber Industry Smallholders Development Authority (RISDA), Malaysian Rubber Board (LGM) Policy and Operations deputy director Hairul Irwan Jamaluddin shed light on the challenges facing local rubber industry, emphasising three critical aspects.

“One of the major challenges involves planters, particularly those managing small areas with ageing trees. The industry grapples with a shortage of tappers and a reluctance to adopt new technology, resulting to untapped rubber areas, escalating production costs and diminished productivity.

“For processors, they face low-capacity utilisation, relying heavily on Standard Malaysian Rubber (SMR). Unattractive prices for farm and latex contribute to insufficient supply, fostering dependence on imports and diminishing competitiveness against other rubber-producing nations,” he said.

Meanwhile, manufacturers confront issues such as the dominance of latex-based products, meagre market share for dry rubber goods and sustainability concerns. This reliance on latex-based exports results in declining competitiveness in certain sectors of the rubber product market.

Hairul Irwan highlighted pivotal factors driving fluctuations in rubber prices, encompassing prolonged periods of low prices, speculative influences in the futures rubber market, prices dropping below production costs and the omission of sustainability costs from pricing considerations.

“In terms of pricing, processed rubber prices based on SMR and bulk latex grades serve as a reference. Conversely, price agreements are subject to negotiation between buyers and sellers,” he added.

He also highlighted a significant drop in rubber prices, with rates in February 2021 and 2022 hitting RM7.60 per kilogramme (kg), in stark contrast to RM10.59 per kg on Jan 31, 2017, and RM17.17 per kg on Feb 18, 2011.

The intricate dynamics of rubber prices are attributed to global supply and demand factors. Supply is influenced by rubber plantation area, tapping area size, technology adoption, weather conditions and plant diseases. On the other hand, global demand is affected by the world economy, economic conditions in rubber-consuming countries, the rubber product industry and competition from synthetic rubber.

Future Projections and Govt Initiatives

LGM outlined the positive and negative prospects for rubber prices in Malaysia for 2024. Positive factors include a forecasted decrease in world supply, a rise in crude oil prices, increased sales of light and electric vehicles (EVs), and various flagship projects in 2024. Conversely, negative influences encompass slow global economic growth, tightening US Reserve monetary policy, geopolitical tensions, and speculative activity in the regional rubber market.

In response, the government has launched various initiatives to support small rubber planters, promoting value addition, sustainability and competitiveness. Initiatives such as the Rubber Production Incentive (IPG), Insentif Pengeluaran Lateks (IPL), New Model Pilot Project, National Rubber Company Transformation Programme (TARGET) and Sustainable Natural Rubber Malaysia (MSNR) aim to enhance the well-being of small rubber planters.

Internationally, LGM collaborates with major rubber-producing countries to address rubber price issues, focusing on sustainability. Mechanisms like the Livelihood Rubber Price Mechanism and Sustainable Price Mechanism are implemented. Malaysia engages in international collaborations through associations like the International Tripartite Rubber Council (ITRC), the Association of NR Producing Countries (ANRPC), Indonesia-Malaysia-Thailand Growth Triangle (IMT-GT), Asean Rubber Business Council (ARBC) and the International Rubber Association (IRA).

Rubber’s Vital Role for Small Planters: Navigating Challenges and Ensuring Sustainability

Rubber stands as a cornerstone for small rubber planters in Malaysia, playing a pivotal role in the nation’s economic landscape. As a member of the ITRC, Malaysia contributes significantly to the South-East Asian rubber industry, securing its place as the sixth leading producer of natural rubber in the Asia-Pacific region. This dynamic sector contributes over RM2 billion to the country’s gross domestic product (GDP).

Universiti Putra Malaysia’s (UPM) lecturer Prof Norsida Man said Malaysia’s rubber sector has successfully evolved into a vital supplier of high-value-added products.

The downstream segment, encompassing rubber and rubberwood products, commands an impressive annual value of between RM30 billion and RM35 billion and experiencing continual growth.

However, natural rubber exports, though still valuable at RM6 billion-RM10 billion annually, show signs of decline. Examining the market’s performance, January to September 2020 witnessed a surge in total exports of natural rubber (NR) and rubber products, reaching RM38.4 billion compared to RM29.73 billion in the same period in 2019. For rubber commodities, exports soared to RM25.88 billion from RM17.25 billion, driven by the robust performance of rubber products.

Malaysia, ranking seventh globally in natural rubber production in 2020, recorded a production of 469.7 thousand tonnes in 2021 — a decrease of 8.7% from the previous year. The nation’s NR production has faced a declining trend, with an average annual growth rate of -6.9% from 2015 to 2021.

The country’s NR exports, totalling 653.2 thousand metric tonnes in 2021, are influenced by various factors, including production, domestic consumption and stocks. Despite holding the seventh position in global rubber production, Malaysia’s contribution accounts for only 4% of the world’s total rubber output. This limited share restricts its capacity to independently exert significant influence on international rubber prices.

The sector contends with challenges such as competition from synthetic rubber products, adversely affecting the demand for NR and smallholder farmers’ profitability. Global economic factors, concerns about US-China trade relations and uncertainty from the Russia-Ukraine conflict further complicate the movement of rubber prices.

Price Dynamics and International Comparisons

Norsida added that tubber prices are subject to diverse influences. The encouraging price expectations are buoyed by high world crude oil prices, increased global vehicle production, a shortage of rubber supply and the weakening of the ringgit against the US dollar.

However, the World Bank Commodity Price Data reveals fluctuations. TSR 20 (Technically Specified Rubber) prices increased by 9.5% compared to the same period in the previous year, while SGP/MYS type rubber (Singapore/Malaysia) exhibited a decrease of 17.4%. Thailand remains a significant supplier to Malaysia, contributing 39.1% and 42.5% in 2020 and 2021, respectively.

Furthermore, the rubber industry grapples with multiple challenges, including weather patterns, climate change, pests and diseases. Changes in rainfall patterns, extreme weather events and pests such as mites, mealybugs and scale insects pose threats to rubber trees, affecting growth and yield. Diseases such as Corynespora leaf fall and Southern American leaf blight further impact global rubber production.

Insufficient access to finance impedes small-scale farmers from engaging in commercial rubber production. Low compliance with global exports restrictions, lack of national price incentives and the absence of import regulations contribute to persistently low rubber prices, affecting smallholders’ profitability.

Despite challenges, Norsida said the rubber industry remains vital for many rural communities in Malaysia. Innovative approaches, including intercropping with crops such as cocoa and coffee, present opportunities for maintaining productivity while diversifying income sources. Exploring non-farming industries like ecotourism or forest conservation can further bolster income streams and promote environmental sustainability.

The Future of Malaysia’s Rubber Industry: Challenges, Opportunities and the Road Ahead

In a landscape marked by forecasts and major industry insights, local rubber industry stands at a crossroads, grappling with pertinent challenges while navigating opportunities for growth. The global demand for rubber across various industries signals a positive trajectory for the industry.

However, economist Dr Zulkufli Zakaria raised questions about RISDA’s strategic direction and the overall relevance of rubber cultivation for the nation’s economy.

Zulkufli emphasised that RISDA’s plans lack alignment with global economic dynamics, regional shifts and Malaysia’s agricultural contribution to GDP, which hovers around 1.5% – 1.8%. Despite RISDA’s attempts to address poverty among small-scale rubber planters, concerns persist about the sector’s ability to compete, especially given inflationary pressures and regional economic trends.

As a significant player in the Asia-Pacific region, Malaysia faces challenges such as declining rubber production due to leaf diseases, climate uncertainties, low fertiliser inputs and increased costs. The shift to other crops has resulted in a 30% income loss for planters.

The shrinking rubber cultivation area, now at 7,200 hectares (ha) in 2022, raises questions about the industry’s relevance. However, in October 2023, RISDA identified 500,000ha of untapped rubber plantations, presenting a potential avenue for revitalisation. The decline in cultivation areas is attributed to changing land status, property development and the rise of oil palm cultivation.

Global Industry Dynamics and Opportunities

Nonetheless, Zulkufli identified that the tire industry emerges as a critical player, with major companies such as Michelin, Bridgestone and Goodyear announcing substantial investments and collaborations. He also highlighted the potential for Malaysia in the aircraft tire manufacturing sector, pointing to the significant cost associated with aircraft tires for models like A320, B737, B777, B787, A380 and B747.

To overcome these challenges, Zulkufli suggested RISDA utilise IT and technology, engage with the tire industry, boost investment, enhance fertiliser inputs and encourage smart farming practices. RISDA’s involvement is crucial, with proposed collaborations with international companies, participation in global symposiums, and investment in technology implementation. He also recommended that Malaysia diversify into aircraft tire manufacturing, latex rubber gloves and technology adoption, including robotic tapping.

For sustainable growth, environmental considerations are paramount. Zulkufli recommended a focus on green processing, collaboration between producers and the government, process improvement, as well as a commitment to environmental wellbeing.

“When the rubber industry is robust, sustainability is not only for the country but must be shared with small rubber planters as well,” he added.

Smallholders’ Plight

For more than 120 years, Malaysia’s economic growth has been intricately tied to the rubber industry, with smallholders at the core of rubber cultivation. They play a vital role in supplying the raw material that drives the entire industry value chain. However, their path is riddled with challenges, including low yields, price fluctuations and fragmented supply chains, all of which have a direct impact on their incomes.

As the industry grapples with the imperative of environmental sustainability amid changing market dynamics, it becomes increasingly important to enhance productivity and uplift the livelihoods of smallholders.

The smallholders led a humble, hard life, usually tucked away in a plantation or small cultivation area far from the city.

Meor Harun Meor Osman, one of the typical smallholder rubber tappers, shared his experience, noting that rubber tapping starts before dawn, while most other workers are still in bed. He inherited a smallholding among the undulating emerald hills of northern Perak.

“I face challenges from planting through prices,” the 63-year-old explained.

Meor Harun’s narrative aligns with that of numerous smallholders in the country, representing the challenging livelihood inherited from preceding generations, where they extract latex flowing beneath the bark throughout the night.

Volatile prices often dash hopes of profits matching long hours training vines, collecting coagulate or fleeing elephant raiding bordering reserves.

“When prices were high, we worked more. Now with low prices, we still must work for income,” he added.

Meor Harun attended the seminar leading the National Association of Smallholders (NASH), addressing uncertainties that the community faces, which has been plunged into poverty.

Engaging in a daily and meticulous harvest amid hundreds of trees on his five-acre (2.02 hectares) land, he embodies the resilience that forms the core of an industry established before independence.

However, this industry is now under threat as the younger generation abandons the relentless toil, seeking opportunities in urban pursuits.

RISDA DG Datuk Abdullah Zainal summarised the seminar by highlighting RISDA’s ongoing efforts to monitor the situation of the smallholder community with the aim of enhancing their prosperity and wellbeing.

According to him, this includes when growers face challenges such as unstable rubber prices, diseases and unpredictable weather.

RISDA is also aware of the declining interest among young people in venturing into the rubber industry.

“The smallholder rubber sector contributes about 86% of the country’s total NR production at the moment,” Abdullah said.

RISDA’s commitment was further demonstrated through collaboration with various expert institutions in the rubber industry during the three-day seminar.

Abdullah added that this initiative, led by the Rural and Regional Development Ministry (KKDW) through RISDA, aims to revitalise the country’s natural rubber (NR) production. It considers the current factors and challenges faced by the industry.

“RISDA currently offers assistance programmes to smallholders, with the Replanting Programme as the primary initiative, complemented by various support programmes aimed at economic improvement.

“It is to ensure RISDA’s main objective, which is that small rubber farmers earn RM4,500 a month per family by the year 2025, can be achieved,” he said.

The capacity of smallholders encompasses the proficiency to effectively manage rubber plantation operations and maintain financial stability. According to a 2013 census report by RISDA, 58% of Malaysian small rubber farmers are aged 51 and above, making it challenging for them to optimise the management of their rubber plantations independently.

To address this issue, smallholders often hire rubber tappers to tend to their plantations. However, the wages of these tappers tend to be relatively low, contingent on the financial capabilities of the smallholders.

Consequently, securing labour assistance for their rubber plantations becomes a formidable challenge for smallholders.

RISDA faces the task of attracting the interest of the younger generation, specifically those between the ages of 18 and 40, to cultivate their own rubber plantations and provide much-needed labour support to the elderly smallholders.

Read more at The Malaysian Reserve