Indonesia is the world’s second largest natural rubber exporter after Thailand, while having the largest area of rubber plantations. The sector has been revitalised since the beginning of 2010 as global demand has picked up dramatically. For 2011, demand for natural rubber worldwide is expected to reach 11.2 million MET, an increase of 6.6% from 2010 as stated by the International Rubber Study Group. This trend is predicted to continue into the future with consumption of natural rubber reaching 16.2 million MET by 2020 placing Indonesia in an optimal position to reap the benefits from one of its abundant natural resources.
Indonesia’s rubber plantations are mainly dominated by small hold farmers which make up for 86% of the 3.5 million hectares of land under cultivation, with the remainder split more or less equally between private companies and state plantations. The main sites of plantations are found in North and South Sumatra as well as Riau, Lampung and Java. Total production in 2010 reached 2.736 million MET with production targeted for around 3 million MET for 2011 and 3.6 million MET by 2015 according to the Indonesian Rubber Industries Association. The majority of production at approximately 90% is exported with the remainder used in the domestic automotive sector and other manufacturing industries.
Following the low pricing of natural rubber at $1.2 USD/kg at the end of 2008 due to weak global demand during the financial crisis, the industry has picked up with increased automobile sales in Asia and thus demand for tyres. At the beginning of Q1 2011, world rubber prices shot up to $5.75 per kg for technically specified rubber and $6.488 for ribbed smoked sheet rubber (Singapore Stock Exchange) due to adverse weather conditions that heavily impacted rubber supply from Thailand, Malaysia and to a lesser extent, Indonesia. The Japanese earthquake that slashed car output for the year saw prices fall in the immediate aftermath only to be again buoyed by persistent rain in Thailand and high demand for the commodity from China and India. Under the China-ASEAN Free Trade Agreement (CAFTA), Indonesia has been well positioned to serve China’s market of growing automobile owners which will soon make it the largest rubber consumer worldwide, overtaking America. China took the lion’s share of Indonesian exports in 2010 at 600,000 MET and imports of 800,000 MET forecasted for 2011, followed by the United States, India, Japan and South Korea. Domestic demand for rubber is also rising with an average increase of 23.2% a year since 2005 reaching 244,000 MET in 2010. With increasing car and motorcycle sales, Indonesia is expected to become a major consumer of rubber at an estimated 20% of total production over the next five years.
While having the largest area of rubber plantations in the world, low productivity has marred the sector and held it back from achieving the top spot as a global producer and exporter. According to the Rubber Association of Indonesia, GAPKINDO, plantations in Indonesia produce an average of 880 kg–1,000 kg per hectare, compared with up to 1,500 kg for Malaysia and Thailand. Productivity per hectare is closely related to the youth of the trees as well as the quality of the clone seedlings, both of which Indonesia is at a disadvantage. With most plantations being on family held, small hold plots that lack capacity for investment to replace older trees, the average age of the trees remains high and therefore less productive. Low quality seedlings are also in use at an estimated 40% of all small hold rubber plantations resulting in lower quality rubber that is sold at a lower price.
Rubber was one of the key crops to be concentrated on under the Ministry of Agriculture’s revitalisation program introduced in 2007. The program aims to address the issues of the low quality plants and expand the number of hectares under cultivation by up to 1.3 million hectares. Farmers also gained access to loans of up to 40 million RP per hectare of land to encourage replanting. By the end of 2010, this program had limited impact as only 6,000 new hectares had undergone rejuvenation according to GAPKINDO. Due to expire in 2010, the decision was taken to extend the project to 2014 which will see a replacement of up to 400,000 hectares of plantations with new trees as well as education of farmers in new technology and tapping techniques to boost output. Yet, to make the government’s financing programs really effective greater collaboration is required. The private sector alongside rubber producers need to take advantage of the research being undertaken by institutions such as the Bogor Research Station for Rubber Technology to improve output and competitiveness. The changes to the 2010 Negative Investment List that clarified foreign ownership restrictions in rubber plantations and the downstream crumb rubber industry will also see more investors come to the fore and greater competition in the sector.
The outlook for the rubber industry is positive and the days of low priced natural rubber seem unlikely to return. Demand from China and India will continue to grow as the ranks of car owners continue to swell and existing cars require tyre replacements. Indonesia’s own domestic consumption will also grow and places even more urgency on the need to revitalise existing plantations with younger trees that take 5-7 years to reach maturity for production. Indonesia therefore holds the potential to eventually become the world’s largest rubber producer should the key issues of productivity and land fragmentation be addressed. Moving up to higher value rubber will increase returns and allow small hold farmers to reinvest in new technology to increase output for the future as global demand continues unabated.
Global Business Guide Indonesia - 2012
Contribution to GDP: 13.70% (2016 including Fisheries & Livestock)
Number Employed in the Sector: 46 million (2016)
Main Products: Palm Oil, Palm Kernel, Rubber, Cocoa, Coffee, Tea, Tobacco, Rice, Sugarcane, Maize, Cassava, Tropical Fruits, Spices, Poultry, Fisheries.
Main Export Markets: China, USA, Japan, India, Singapore, Malaysia, Pakistan, South Korea, Italy, Netherlands, Bangladesh, Egypt.
Relevant Law: Presidential Regulation No. 39 of 2014 on the Negative Investment List imposes varying degrees of foreign ownership limitations in plantations depending on the crop type, and Government Regulation No. 98 of 2013 limits private plantations to 100,000 hectares.
digg
