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Southeast Asia's Rubber Farmers Hope for Rebound

FILE - Roslai Hasan makes incisions on a rubber tree's bark to tap rubber at a plantation at Hulu Rening in the district of Batangkali, outside Kuala Lumpur, May 26, 2014.

A decrease in rubber imports by China and other countries is being partly blamed for a crisis in Southeast Asia's rubber industry. Prices have been falling below production costs.

For rubber farmers in Thailand, Malaysia and Indonesia - who supply two-thirds of the $36 billion annual market - this has been when their crop hit a dead bounce.

“They are suffering from too-low prices below cost of production because of the underprice from rubber futures or rubber exchanges,” explains Yium Tavarolit, chief executive officer of the three-country International Rubber Consortium.

Yium says that has forced some rubber farmers to put away their tapping knives.

“They have switched to other agricultural activities. Some are cutting down all rubber trees,” he said.

Supply and demand

The consortium contends that speculators are skewing prices and that the ratio between supply and demand does not justify such low prices.

But analysts contacted by VOA Monday say traders are taking a "wait and see" attitude because of a recent intervention in the market by Thailand’s government, under control of a military-led junta since a coup seven months ago.

Thailand is funding - to the tune of nearly $2 billion - programs that include purchasing rubber directly from producers as part of an $11 billion agriculture stimulus project.

A key industry broker in Tokyo, who did not want to be named because of his company’s business ties with the Thai rubber industry and government, says such market intervention by Thailand "has always failed.”

What the Thai government actually needs to do, he tells VOA, is “cut down rubber trees and control the supply. Otherwise they will keep on producing rubber, and the government is buying rubber, but the global market cannot buy such expensive rubber."

The global supply surplus for this year is estimated to total about 300,000 tons.

But the CEO of the International Rubber Consortium says Thailand and other governments have no choice but to aid their rubber farmers.

Helping farmers

“Immediate assistance is necessary," he said. "For a longer term there should be other sustainable measures to assist farmers to be more sustainable. But for the current situation there is no choice for the Thai government to do whatever measures to help rubber farmers who are suffering.”

In Japan, a five-year low for rubber was seen in early October.

The Thai government's support helped temporarily to boost prices, but they have sagged again this month.

China announced Friday it would double the volume of imports of agricultural products from Thailand next year, including rice and rubber.

The Oxford Business Group, in a economic update released Saturday, predicted reduced output and a likely increase in Thai domestic demand will help reduce stockpiles next year when some projections suggest the global appetite for rubber will increase, though still leaving a modest surplus.