World Rainforest Movement

Thailand: Rubber prices fluctuate, how can farmers benefit?

Rubber is one part of life of the people of the South, related both to the culture and economy of the last 108 years. The monoculture production system has replaced a traditional system of rubber forests, where rubber used to be grown in amongst fruit orchards and natural forests known as a suan somrom or “integrated garden”. Rubber plantations have been promoted through the government’s Welfare Fund for Rubber Plantations. The promotion of the expansion of the rubber area by the Rubber Welfare Fund Office, an increasing price for rubber, and the strong global market demand for natural rubber for industrial processing into a variety of industrial rubber goods has led to the expansion of the rubber plantations area and an encroachment into the forests of the South and also into the woodlots of the North Eastern region which make up a large part of the natural forest of the East. Rubber is a non-native species which the government has promoted, and both the Royal Forest Department and the Forest Industry Organisation aim to generate economic income to the organisation from commercial plantations of rubber.

What factors are involved in setting rubber prices in Thailand? Certainly, the demand of the market for rubber and global production output are core factors. The price of rubber is also linked to the fluctuating price of oil which is a major factor in the production of synthetic rubber. When oil prices are high, the production costs and price of synthetic rubber will also increase, which leads countries to switch to use more natural rubber. However, if the natural rubber price rises too high for the various industrial producers, they will return to using more synthetic rubber which will lead to a downward adjustment of the price of natural rubber.

However, prices are also set by a number of hidden hands. The rubber market in Thailand is controlled by Singaporese and Malaysian investors, and also by Thai investors. The rubber goods industries on the other hand are dominated by industrial countries such as Germany, Italy, UK, and USA, whose trading chain then doubles back to link with industrial traders in Thailand.

Currently, the price of rubber is also subject to intervention by the global rubber stock controllers. If too much rubber is accumulated in the warehouses, countries will sell their stocks to rubber product producers and will buy up less of the rubber which has been produced in that year. This affects the price of rubber. If there is a phenomenon of excessive demand for rubber over a long time, the rubber producing countries will pressure for a concerted reduction in the quantity of production.

The speculation in the futures market is another factor in the rubber price. The markets with the greatest influence are the Japanese and Singapore markets. Ninety percent of the Japanese market transactions (Tokyo and Kobe) can be described as speculative dealings, the remainder are trade deals for importers and middlemen.

Likewise, 80% of the trading in the Singapore market are dealings in the futures market, the rest based on physical transfer of goods. The Singapore market is a long established market, it is a transport hub, and a financial and banking centre amongst other things. It is close to the three most important sources of production of rubber in South East Asia, ie Thailand, Malaysia and Indonesia. These three countries together produce approximately 70% of global production.

Thailand is the world’s biggest rubber producer. However, prices are determined in the Singapore and Japanese markets. The Thai government has never developed Thailand’s role in influencing prices of the global rubber markets. The government administers and controls the rubber price bending to pressure from foreign countries and international agencies. The government regularly uses a domestic interventionist approach to keep prices stable as a means to gain votes from the rubber farmers. For example, in the successive governments of Chuan Leekpai and General Chavalit Yongchaiyut, there were interventions in the rubber prices 6 times, buying a total of 1.3 million tonnes, for a total of 25,394 million baht. One result of this action was to bring the government budget into deficit of 6,267 million baht, mostly as a result of Ministerial corruption. They used methods of lobbying, hoarding, misappropriating, price-smashing as well as mis-selling, that is, for example, where contracts were made to sell the same stock of rubber over 50 times without ever making delivery.

Furthermore, the government passed a law to control the rubber price, limit the areas where rubber could be grown, and place controls on the varieties grown. Farmers were not allowed to develop the production of rubber themselves. These controls were put in place to enable Thai rubber to be competitive in the world market. However, structural problems mentioned above led to the monopolization of the market by investors who control the production and marketing of rubber, while the farmers became orderlies supplying rubber to the internal and external markets.

It is clear that the rubber farmers are only upstream suppliers of the rubber produce, who do not have any influence in setting the price of the rubber. In 2007, the production costs of raw rubber sheets and fresh latex of the Thai farmers averaged at around 35 baht per kilo, not counting land or labour costs. Thus, while the prices of raw rubber sheets and fresh latex fluctuated around 50-100 baht per kilo, the rubber farmers had a relatively good price.

Certainly, when comparing the local prices of raw rubber sheets with the marketplace, the provincial market prices are higher. Last year, the local price of the raw rubber sheets were 47.14 baht per kilo, while the price in Had Yai was 73.05 baht per kilo and the auction price was 74.57 baht (19 October 2007). This year, smoked rubber sheets grade 3 were priced at only 35.73 baht per kilo at Hat Yai (4th December 2008).

The question is therefore, now that the price has fallen again this time, will the government use the old interventionist methods to resolve the problems at the downstream end, and to use the taxpayers money to do nothing more than “row a boat in a bathtub”?

Meanwhile the rubber farmers try to find their own way out of the problem. In the case of Mai Reang community, farmers have
developed a community industry network with 11 neighbouring villages to process rubber. At the same time, rubber farmers carry out diversified farming to prevent them facing problems of relying on the rubber cash crop only. They farm both rubber and fruit trees, they have paddy fields and they do a variety of small-scale businesses. For the rubber producing areas, the growing of other plants as well as rubber is one way to improve the ecology of the soils. Farmers in the group use biological instead of chemical fertilizers which reduces their household expenses. They also have a variety of food to eat. This mixed solution has been put forward by the families which have to practice self-reliance as well as work within the capitalist system.

By Sayamol Kaiyoorawong, Environment Awareness Building Project, email: noksayamol@yahoo.com