Booming investments in overseas NR plantations

23 May 2012 06:30 pm Views - 5321

By Dr. N.Yogaratnam
The prevalence of high price of natural rubber, although very volatile, over the last few years, has stimulated many countries to show keen interest in investing in overseas rubber plantations, which is believed to be a safe move. But some pundits believe that the steady rise in NR which peaked in 2011 is in for a fall from 2012 onwards, mainly due to increased output expected to be contributed by new plantations across the NR producing countries.

 Indonesia, Cambodia, Laos, Africa etc are the preferred destinations of global investors. Recently, German entrepreneurs have expressed interest in developing rubber plantations and processing industry in Indonesia, particularly Bangka and Bangka Barat districts of Bangka-Belitung (Babel) province. A delegation from Germany will soon survey the location for rubber plantations in the districts because of the potential for the commodity to be developed in the province.

 The Indonesian government hopes that the presence of German investors in the rubber plantations and the rubber processing industry would raise the prices of the commodity in the local markets and encourage rubber farmers to work even harder. Vietnam is investing in rubber cultivation in other countries in a big way. The state-owned Vietnam Rubber Group has currently 24 ongoing projects to grow rubber trees outside the country. Of this, 15 plantations are in Cambodia and nine in Laos. Total investment in all the 24 projects comes to 20 trillion dong ($950.7 million). The Rubber Group is cultivating over 70,000 hectares (172,974 acres) and collected 297,624 tonnes of rubber latex last year.

 Olam International Ltd., the commodity supplier partly owned by Singapore’s Temasek Holdings Pte, has announced that it will invest in 28,000 hectares (69,000 acres) of rubber plantations in a venture with the Government of Gabon, a state in west central Africa. The total investment will be about $183 million. Planting will start in June 2013 and finish in 2019. The venture may expand to 50,000 hectares depending on the first phase.

Cambodia an emerging hotspot
The Government of Cambodia has clearly realized the importance of rubber as an agro-industrial crop in generating income for the agro-industry sector as well as for the rural farmers. Even though other crops such as rice have made considerable contribution to national income, natural rubber remains an important agro-industrial crop that provides employment for the locals in a big way.

In 2010, Cambodia produced 42,000 tonnes of natural rubber latex, which is 0.29% of the global natural rubber production and is ranked the 16th among other natural rubber producing countries. The country has of late come out with clear-cut strategies aimed at increasing NR plantation area to 300,000 hectares and raising output to around 290,000 tonnes by 2020.

The government of Cambodia has clearly realized the importance of rubber as an agro-industrial crop in generating income for the agro-industry sector as well as for the rural farmers. Even though other crops such as rice have made considerable contribution to national income, natural rubber remains an important agro-industrial crop that provides employment for the locals in a big way.

In 2010, Cambodia produced 42,000 tonnes of natural rubber latex, which is 0.29% of the global natural rubber production and is ranked the 16th among other natural rubber producing countries. The country has of late come out with clear-cut strategies aimed at increasing NR plantation area to 300,000 hectares and raising output to around 290,000 tonnes by 2020.

Incentives
To support the growth of natural rubber industry, the Government has laid down clear regulations, legal procedures, mechanism and other formalities on granting economic land concession with the sole idea of encouraging local and foreign investment in rubber cultivation. “The main goal of the Government’s open agriculture policy is to provide unused land for the development of the agro-industry, good crops or agro-industrial crops, plantations such as oil palm, teak, rubber, animal husbandry etc.,” says Yim Chhay Ly, the Deputy Prime Minister.

 Development plans
Between 2008 and 2009, the government privatised nine State-owned rubber plantations. Subsequently, it was decided to grant Economic Land Concession (ELC) of less than 10,000 hectares to local and foreign companies for rubber cultivation. Presently, Cambodia exports all of their raw materials. However, of late, added focus is being given to developing the downstream rubber industry

“We have not only increased the area for rubber plantation but also invested in the development of more productive rubber clones and implemented good agronomic management among smallholders,” it has been said. Efforts are also being made to strengthen rubber research in co-operation with regional and international research institutes and through the Cambodian Rubber Research Institute of the General Directorate of Rubber. According to the Director General of the Cambodian General Directorate of Rubber, the country’s rubber strategies are designed to guarantee quality of production and the planting material, encouraging smallholders, promotiing rubber estates to be a nucleus of the rubber smallholders, and developing and enhancing rubber value chain.

Challenges and opportunities
Recently, there has been a lot of interest among the NR growers and others worldwide in either expanding rubber cultivation or promoting new planting in the traditional and non-traditional areas due to the high rubber prices. Cambodia’s large area of basaltic red soil has encouraged the current Government to place the rubber sector among its top development priorities.

 Cambodia’s NR cultivation started back in the 1920s when it was a French colony. An old plantation is still being preserved as a testimonial of its vibrant past. “I would say that rubber is making resurgence in the agricultural sector of the country,” says the President, Association of Rubber Development of Cambodia. He adds that the Government has already concluded some Free Trade Agreements (FTAs) that give the country preferential access to major markets for rubber exports. “China, for example, is one of the largest markets for rubber. Lower tariffs on rubber products under the Asean-China Free Trade Agreement will stimulate greater export from Cambodia and thus boost domestic rubber production,” he points out.

However, the Cambodian rubber industry is still facing many challenges and constraints that hinder the sector’s development. The issues are more prevalent in the smallholding sector, particularly, in the usage of low-yielding clones, limited availability of plant material, inappropriate tapping techniques, unpopular credit facility and high interest rates charged by private financial institutions, low international acceptance of Cambodia-specified rubber and unexploited direct market access to the international markets. Despite these challenges, potential market opportunities for Cambodia’s rubber sector are immense.

 The steady growth of production in recent years is due to the rigorous land reforms and welcome investment policies of the Government of Cambodia that encourage Foreign Direct Investment, making rubber an increasingly attractive investment sector for local farmers and foreign investors. The Association for Rubber Development of Cambodia and the General Directorate of Rubber play an important role not only in promoting the rubber industry locally and internationally; but to remove constraints that hinder the sector’s development.

Profile of plantations
In Cambodia, rubber is mainly grown in Kampong Cham, Ratanakiri, Mondoldiri, Kratie and Kampong Chhnang provinces. Most of the rubber is grown by the State-owned plantations, the private-owned plantations and the smallholdings. Total harvested and immature areas surged from 80,000 hectares in 2007 to approximately 150,000 hectares in 2010. The total planted area of the estate-run plantations increased from 45,000 hectares in 2007 to about 70,000 hectares at the end of 2010. Despite the growth of the planted area in estate-owned plantations, its total share has dropped marginally compared to that of the smallholdings. Broadly speaking, the rubber industry in Cambodia accounts for only 4% of the country’s agricultural sector and employs approximately 40,000 people throughout the country. Over recent years, Cambodia has transformed from a land of crisis to a land of opportunity, and their boom days are just beginning.

Sri Lanka in Cambodia
Sri Lankan plantation company Kotagala Plantations plans to plant 20,000 hectares of rubber in Cambodia. The total value of the project is expected to be 70 million US dollars. The move comes at a time Sri Lankan rubber manufacturers have had to import rubber because of inadequate local production and rising costs.