Thailand is struggling from falling rubber prices. An industry that has been popular in the country since 1901, rubber has remained one of Thailand’s most profitable exports. Rice, teak and tin as well as rubber are the most exported items in all of Thailand.
Thailand, a latecomer to the rubber industry, is the leading producer and exporter of para-rubber. The country has also surpassed Malaysia, which is a part of the major three producers: Thailand, Indonesia and Malaysia (TIM). Rubber expanded as prices pushed above rice prices, especially in the Southern region of Thailand.
A once profitable business, rubber prices began to falter in the early 90s. In 1992, Thailand intervened in the rubber industry, and maintained their intervention from 1992 to 1999. The country lost 8.1 billion baht as they tried to stabilize the local rubber market.
TIM started the ITRC (International Tripartite Rubber Council) in 2001 followed by the IRCo (International Rubber Consortium, Limited) the following year. Established with the goal of helping to stabilize the rubber industry, the IRCo and the ITRC never had the funds needed to build a stock of rubber. These groups have had no real impact on the industry.
Measures were agreed upon to reduce production and exports as well as expand the usage of rubber.
Thailand’s rubber farmers have routinely called on the government to subsidize the industry. When prices are not high, farmers call for domestic production of rubber and blame low domestic usage for low prices. The answer for Thailand’s government is to purchase rubber at well above current market rates doing nothing to alleviate the root cause of the industry’s pricing issues.
Malaysia moved in a direction that Thailand has yet to do. Malaysia moved from a rubber producer to a rubber processing country. Half of the rubber in Malaysia is now processed in the country. In retrospect, Malaysia used to produce 1.66 million tons of rubber, and has now dropped production to 0.67 million tons by 2014.
Thailand, to its benefit, has tried to boost processing in the country. The issue is that domestic use has never been able to rise above 15% of its production. Rubber farmers are all but saying “no” to reducing production levels of rubber, with rubber production growing year-over-year.
Low processing of rubber in Thailand is not the issue for rubber prices. Thailand has never had an issue with pricing when the demand for rubber was high. Now that rubber prices are low, the rubber farmers in the country and many government officials are calling for higher rubber processing in the country.
The country needs to find a way to work within TIM to reduce total rubber production. Until prices of rubber have risen to acceptable levels, it doesn’t make sense for Thailand to continue its rapid production rates of rubber while subsidizing the industry through government purchase.
Rubber may be a dying industry in Thailand, and until major measures are taken to lower production and raise prices, the government needs to put an end to its rubber subsides and buying practices.