MANILA TIMES RUBBER INDUSTRY REPORT PUBLISHED ON JUNE
30, 2004 BY: MANILA TIMES RESEARCH DEPT.
(Edited Version by PRIA)
Rubber
Industry Stretches Viability
"It's
dead. How can you revive a dead duck?" said Elpidio Carlota,
president of the Philippine Rubber Industry Association
(PRIA).
Yet
his gloomy outlook could not hide the flicker of hope.
"Instead of just sitting and waiting for things to happen,
we have seen it fit to be proactive and directly involve
ourselves in finding the solutions to these problems"
Carlota said.
The
rubber farm operators are becoming more pessimistic as
they accused the government of remaining unresponsive
to their concerns. Citing a PRIA report, Carlota said
the Philippines placed sixth among top Asean producers
and exporters of rubber. Thailand ranked first followed
by Indonesia, Malaysia, Vietnam and Sir Lanka.
Last
year, however the Philippines was 12th among the world's
rubber suppliers, producing 69,000 metric tons of rubber
of 0.92 percent share of the world's demand. It exports
60 percent of its total production to Malaysia and Thailand,
while the remaining portion is sold locally.
Low
investments costly labor, high power rates and the potential
areas that remain unexplored for rubber tree planting
are some of the major drawbacks impairing the industry's
momentum to go head strong in the international market.
"We never had the momentum to grow" Carlota said.
After
years of frustration, rubber players have decided to initiate
their own move to prevent the Industry from further going
down the hill.
In
the last fifteen years, the government has attempted to
address the problem of agriculture Land redistribution
through Republic Act 6655 or the Comprehensive Agrarian
Reform Law (CARL).
However,
many agriculture experts consider the law as the wrong
prescription for the ailing Rubber industry because it
does not treat the rubber landowners or the farmer fairly
Since
the agrarian reform program dictates that land ownership
per farer is limited to five hectares Carlota blamed the
current legal framework as the impediment in tapping the
potential of 500,000 hectares of land that could be reserved
to rubber farming.
In
an effort to attract more foreign investors, PRIA has
been pushing the proposal to increase the land ownership
to a maximum 50 hectares since the administration of then
President Fidel Ramos.
Also
while tree cutting by the tenants was allowed, there were
no legislative measures directing the replanting. Neither
was there enough lobbying and political support to push
for its realization. "Because there were no backers in
the industry replanting was not done," Carlota said.
Since
a rubber tree takes six to seven years to mature it is
necessary to come up with projects that will focus on
replanting activities on rubber plantations If this issue
is not addressed the country will be a net importer of
rubber in the near future.
Wrong
remedy
"Curing
different sicknesses with the same medicine is not right
look at what happened? rubber plantation owner, asked
as he accused the government of buying his lands at an
unreasonable price. He said the government failed to take
consideration that the sale of rubber tree trunks alone
could generate P60,000.
For
every hectare of his 140-hectare rubber plantation in
Mindanao, Amado Dee was offered P14,000. Knowing that
the price was too low, he filed a case and fought for
14 years before getting an offer of P47,000 only this
year.
"That
was crazy. Those prices were too low but it takes too
long to fight so I compromised" Amado Dee said.
Amado
Dee stressed that landowners were not the ones affected
by CARL but also the farmers. He explained for instance
that corn and cocoa farms take only three months before
a farmer could harvest the produce. On the other hand,
a rubber tree takes six years before it can be of use.
Unlike other farmers who received daily wages from landowners
rubber farming becomes a more difficult option. "Six years
is too long for the farmers how can they eat?" Amado Dee
said.
In
order to survive the difficult years, majority of the
farmers either sold the land awarded to them or shifted
to planting other crops, which reduced rubber plantations.
"We are already short of plantation and still continue
to narrow down" Amado Dee said.
Senile
Trees
Mindanao
provides the largest tracts of land devoted to rubber
plantations. In 1997, total number of hectares was estimated
at 92,000 hectares. The cultivated areas, however, are
gradually diminishing. The Bureau of Agricultural Statistics
showed that in 2003 preliminary figures for the total
land area is 80,144 hectares compared with 81,087 hectares
in 2002. because no new investors came in, the senile
or unproductive trees were never replaced.
Out
of the total number of rubber trees in the country, 75
percent are 40 years old and above or those categorized
senile. To replace them, a cost of P140,000 for 400 seedlings
and other inputs is required for every hectare The amount
is exclusive of maintenance cost to be incurred in the
next 35 years. This is the average lifespan of a rubber
tree before it could be ready for replanting to keep the
desired quality of its latex.
Farmers resort to loans extended by the Land Bank of the
Philippines to meet the financial requirement of cultivating
rubber. However, with the farmers' limited management
skills and other everyday needs, the credit cannot guarantee
relief. On the contrary it has even aggravated their situation
because of the unpaid debts.
Several
unscrupulous traders are still take advantage of the farers'
woes. Farmers were reported to be selling their produce
at around two thirds of the production cost. "Their prices
are being manipulated by a group of traders, that made
them sell their product at a loss," said Landbanks's Mindanao
region head Edwin Pantaleta.
Lower
Tariffs
Although
bringing down the tariff help the purchasing power of
the domestic market, The government failed to forsee its
negative implications on the local manufacturers, particularly
the small ones. Carlota felt that the government should
have looked into the whole picture before bringing down
the import duties.
To
comply with the provisions of the General Agreement on
Tariffs and Trade (GATT), the government lowered the rubber
tariff by more than 30 percent. Current import duties
imposed on footwear and tires are pegged at 15 percent
and 10 percent, respectively. Previously, importers were
the corresponding 35 percent and 25 percent.
The
GATT also requires strict compliance with international
standards such as pricing of rubber. When this took effect,
more rubber companies stopped local operations.
"A
lot of businesses transferred (abroad). In Mariveles,
Bataan there used to be a lot of shoe manufacturers. They
went to Indonesia and Sri Lanka because of that problem.
They were minimizing on the cost of labor" Carlota said.
To
survive the stiff competition, a number of footwear firms
have already shifted to Importation. The more desperate
ones resorted to smuggling of low-quality rubber mostly
coming from China.
Badly
needed investments
Carlota
emphasized that if the country wishes to produce more
rubber the solution lies In attracting more investors
"Most of the areas for rubber fall in Mindanao. No one
would invest for security reasons." He is also worried
that there are more rubber companies closing down and
no investors coming in.
Carlota
recalled that in the mid-nineties, the investment of the
three international tire makers - Sime Darby, Firestone
and MSF - also known as the "Big Three" gave the industry
a major boost.
The
rubber crisis, however, dashed hopes of a promising future
and eventually the companies closed down and the output
of the Philippines further deteriorated. "From that point
onwards, it was downhill" said Carlota. "Other products
of rubber had never really taken off".
Dollar
receipts decreased by half to $18 million in 2002 from
$36 million in the late nineties Prior to the crisis,
rubber firms employed more than 22,000 workers, excluding
farmers. Because of the crisis only 15,000 workers remain.
"A lot of people lost their jobs, and it is us employers
who are taking the blame" Carlota said.
Todate,
Goodyear and Yokohama are the only major foreign automotive
tire companies active in the trade. Although an exporter
and importer of rubber, Yokohama avoids selling to the
local market as outward shipments are more profitable.
Rubber
products are classified as: industrial (conveyor belts,
rubber rollers); automotive Products (fan belts radiator
hoses); latex (rubber gloves baby feeding nipples, balloons),
and adhesives. Tire and footwear industries are the major
users of natural rubber.
Departure
of giant firms also contributed to the decision of farmers
to shift to other crops as local demand become unstable.
In the early eighties major tire manufacturers including
Goodyear, Firestones, BF Goodrich operated rubber plantations
ranging from 2,000 to 3000 hectares in the country "These
investors are the ones capable of sustaining growth in
the industry because they have the money", said Ernesto
Villafuerte head of the secretariat of rubber sub-committee
of the National Agriculture and Fisheries Council (NAFC).
In
a rubber industry roadmap released by PRIA early this
year, the organization stressed The plan to establish
a National Rubber Industry Development Board (NRDB) as
its final Goal. Unfortunately, this never materialized
because of insufficient funds. "The government really
has no money for this", Villafuerte said.
In
a limited capacity, PRIA members are focusing on trade
missions, forums and exhibit To further promote Philippine
rubber. The organization has also engaged the support
of foreign trade groups such as the Japan External Trade
Organization (JETRO) to improve processes and technological
knowledge in manufacturing of rubber products.
Small
Steps
Had
industry participants not initiated certain moves to perk
up their sagging enterprise their businesses could have
been totally wiped out earlier.
Amado
Dee spearheaded the establishment of cooperatives to guide
the farmers in making sound decisions on marketing and
other managerial undertakings. Small processing plants
for other cooperatives were also established to improve
the income of the farmers and add further value to farm
goods. "They will not make much money if they're going
to sell it raw" he said.
"Farmers
are beginning to make money, improve their lives and send
their children to school. They are already paying their
debts," Pantaleta said.
Data
from LBP's Basilan branch showed that outstanding loans
of rubber cooperatives grew 13.68 percent to 108 million
in 2003 from 95 million in 2000 with an annual Increase
of two percent.
"We've
got to help each other or we'll continue to suffer" Amado
Dee said.
Large
exports of rubber threaten local production
A
rubber trader warned that the current trend to mass export
natural rubber would effect production costs of the local
rubber-manufacturing in the country has been declining
since the past decade, the supply crunch is worsening
the situation for local companies.
"Right
now, the local market price is even better than the export
market because of the artificial supply shortage", said
Amado Dee of the rubber trading company Pioneer Enterprises.
However, he observed that majority of natural rubber farmers
still prefer to export abroad because of faster payment
schedules. He said the local producers sometimes take
120 days to process fund disbursement.
The
country's rubber produce goes straight to foreign markets
by the bulk while local manufacturers are faced with bloated
production costs. Increased rubber demand brought by the
giant strides of the Chinese economy pushed market prices
to five folds.
Dee
said natural rubber prices jacked up from P7 per kilo
two years ago to its present P35 per kilo tag. He noted
that Phlippine rubber is enjoying high demand abroad because
of its cheaper price compared to leading exporters like
Thailand and Malaysia, which have quality-monitored products.
"Our
price is lower than our competitors". They command almost
20 percent more than the price of Philippine rubber" Dee
said. He also observed that exporters capitalize on the
comparably lower- grade produce of the country that is
sold at a cheaper but still highly profitable price. Leading
destinations on top of exporters' list are Malaysian and
fast-industrializing Chinese markets.
Natural
rubber, or the dried sap of the rubber tree mixed in with
certain chemical compounds, is the semi-processed form
sold to manufacturers for commercial purposes. A significant
percentage of is used for tire manufacturing. It is also
utilized in the production of automotive rubber parts,
machine belts, shoe soles, garters and the like.
"We
export because the foreign market can buy our rubber at
a higher price," remarked Carlota. "Rubber (Processing)
is growing because there is a shortage worldwide."
For
his part, Dee is convinced that the local industry's future
is paved with better prospects for growth due to improved
dollar export receipts.
True
enough, foreign sales for natural rubber steadily climbed
up in the last couple of years. Latest figures from the
National Statistics office showed January to 'April foreign
receipts for natural rubber amounted to $11 million, a
43 percent increase from the $7.8 million same period
a year ago.
The
Department of Trade and Industry (DTI) also recorded a
gradual expansion of natural rubber shares in the country's
total foreign shipments. First quarter data showed natural
rubber shares pegged at 0.09 percent of total export,
up from the 5-year average share of 0.05 percent during
the same period.
This
may support the projection of the London-based International
Rubber Study Group (IRSG) that world rubber demand would
rise 3.3 percent this year and 5 percent in 2005.
Although
the economy of the main rubber importers - United States
and Japan improved with corresponding growth rates of
4.2 percent and 5.6 percent in the first quarter of 2004,
IRSG fears the impact of the oil price increase and the
tight credit policies of financial institutions on consumer
spending.
It
further warned of "possibility that the Chinese economy
is overheating and that any subsequent controlled soft-landing
could have an adverse impact upon her neighbors is fast
coming more concrete. All these factors make for a future
that is uncertain."
