Rubber Production in Indonesia: Extending the Slump
Rubber production in West Java continues to decline each year as ageing rubber trees cause lower productivity. Jabar Iyus Supriatna, adviser to the Indonesian Rubber Farmers Association (Apkarindo), therefore requests the government to take action and increase support for Indonesia's upstream rubber sector. Reportedly, the average yearly rubber output in the province of West Java fell to below the 750 kilogram per hectare mark. Supriatna said production should be optimized to about 1.5 tons per hectare in this province (through the rejuvenation of the rubber trees).
Hermin Karlina, Head of the Center for Testing and Seed Quality Control (BP2MP) in West Java, said rubber production in West Java is also on the decline because local farmers have been shifting to other crops (such as coffee) amid a severe plunge in global rubber prices (touching the lowest level since 2009. Similarly, in North Sumatra there have been reports about local rubber farmers transforming their rubber estates into crude palm oil plantations in an effort to increase their earnings.
Indonesia as a whole has been plagued by weak rubber productivity. Whereas Thailand produces 1,800 kilogram (kg) of rubber per hectare (ha) each year, Indonesia only manages to produce 1,080 kg/ha. Also Vietnam (1,720 kg/ha) and Malaysia (1,510 kg/ha) have a higher rubber productivity rate.
As large private companies and state-owned firms play a minor role in the upstream rubber industry of Indonesia, most of the country's rubber output - approximately 85 percent - is produced by smallholder farmers. The problem is that these farmers usually lack the financial resources (and knowledge) to invest in quality seeds as well as other technological developments. Therefore, the government should take more effort to support this sector, according to Supriatna.
Rubber futures tumbled nearly 25 percent in 2015 - touching the lowest level since 2009 - as China (the world's largest rubber importer) and the USA are plagued by slowing manufacturing activity. However, given Indonesia's push for infrastructure development (which includes the development of various toll and non-toll roads), domestic rubber demand in Indonesia should be strong as this commodity can be used for rubberized asphalt concrete (RAC). RAC is a “road paving material made by blending ground-up recycled tires with asphalt to produce a binder which is then mixed with conventional aggregate materials."
Further Reading: Rubber Industry Indonesia: Challenges and Opportunities
In a bid to support rubber prices, the top rubber producers of Southeast Asia - Indonesia, Thailand and Malaysia - agreed to cut exports by 615,000 tons for six months starting from March 2016. Together these three countries account for about 70 percent of the world rubber output. Rubber futures immediately surged 2-3 percent on Wednesday (03/02) on this news. However, earlier attempts of joint efforts by the rubber producing countries in Southeast Asia only had a limited and temporary positive effect on rubber prices.