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Rubber Journal Asia Philippines Rubber Industry

Building a rubber nation The increasing usage of rubber is driving demand globally and this has encouraged expansion of rubber acreage of late. The Zamboanga region, with a total planted area of 79,138 hectares (in 2011) is the country’s leading producer of NR with Zamboanga Sibugay as the major producing province.

The Philippine economy has been hailed as a new Asian tiger, since it posted a 6.6% GDP in 2012. This success has spilled over to the rubber sector as well and though the sector still requires a lot

Coping with global demand onsidering that the Philippines is capable of producing sufficient rubber to meet global demands, the country’s production output remains minimal. Rhodora Medalla, President of the Philippine Rubber Industry Association (PRIA) told PRA that fostering “political will” is essential to achieving targets for the local industry. “Based on the data gathered and sectoral meetings PRIA has had with the Department of Agriculture (DA) and the Department of Trade and Industries (DTI), the local rubber industry needs not only political will, but also teamwork and determination within the government, farmers, traders and the private sector to focus on increasing productivity and upgrading the quality of natural rubber produced. It also has to be more cost efficient by adapting new technologies and good agricultural practices.”

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of spadework towards improving yields and implementation of modern planting/ tapping techniques, it is headed towards growth, according to Angelica Buan and Rhodora Medalla, President of the Philippine Rubber Industry Association (PRIA).

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n the first quarter of this year, the Philippines posted a 7.8% year-on-year economic growth, according to the National Statistical Coordination Board, and therefore has become Asia’s fastest rising economy to date. Ranked as the 40th largest economy by the International Monetary Fund last year, the country has outpaced other ASEAN economies based on Standard & Poor’s (S&P) upgrading following a GDP forecast of 6.9% this year. Hence, the country is now ahead of Indonesia (6.1%), Vietnam (5.3%) and Malaysia, (5.3%). However, success did not happen overnight for the country that has transitioned from an agricultural economy to a service and manufacturing base. Nevertheless, its natural assets – climate and vast acreage suitable for cultivation of crops – will continue to drive revenues for its economy. The Philippines has been cultivating natural rubber (NR) for more than a century now. Back then, three major US tyre companies, Goodyear, Firestone and Goodrich, set up their manufacturing plants in the country. Each company owned 2,000 hectares of plantations in the Mindanao provinces of Zamboanga Sibugay, North Cotabato and Basilan. During the ‘80s, at the height of the US economic recession and the Gulf war, the three foreign firms closed down their plants. The rubber plantations were also broken up into parcels and allotted to small holders during the implementation of the land reform programme of the ruling administration.

“The local rubber industry, from the upstream rubber plantations to the downstream rubber products manufacturing, is optimistic and promising,” says Rhodora Medalla, President of the Philippine Rubber Industry Association (PRIA)

Concerted effort to boost productivity relies heavily on the private sector, which owns a majority of the rubber plantations in the country. “About 90% are owned by small holders and 10% are owned by cooperatives and corporations,” says Medalla. She further notes that the country’s output is only 1% of the 92% overall output of the Association of Natural Rubber Producing Countries (ANRPC). Founded in 1979, when the two rubber associations, namely the Philippine Rubber Manufacturers Association (PRMA) and the Rubber Industries Association of the Philippines (RIAP) merged, the 51-member PRIA ensures that the local rubber industry remains competitive. 6

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Rubber Journal Asia Philippines Rubber Industry Medalla suggests that to boost domestic rubber production, the plan should include “promoting new rubber plantations and replanting schemes by using tried and tested rubber tree clones adaptable to soil and weather patterns in various areas in the Philippines.” Meanwhile, the Forest Products Research and Development Institute says that opportunities exist for the country to groom the rubber industry. For instance, Malaysia’s lower NR production is a signal for the Philippines to expand its exports. Foreign companies are taking the cue, with Yokohama Tyre’s production capacity expansion from the current 21,000 to 50,000 tyres/day by 2017 will make the Philippines-based plant the largest amongst Yokohama’s tyre plants worldwide.

Therefore, it is subject to international factors like fluctuating oil prices, unstable foreign currencies (US$ to Php exchange) and the financial crisis in Europe. Another factor is the lower demand from China, which is one of the major importers of our crumb rubber (rubber blocks) and cup lumps,” Medalla told PRA.

Supporting the workforce hether cartels exist or not, the lower rubber price was a harsh blow to farmers and processors who now have to make do with lower incomes. “Rubber tappers in the Philippines get 30-50% of their incomes from the harvest. Depending on the agreement between plantation owners/farmers and the tappers, some are paid a fixed daily rate. But there a r e only a handful of owners who practice this,” Medalla says. Myth or truth: rubber cartels push prices down eak global prices usually result in the setting Aside from meagre incomes, many farmers and up of illegitimate rubber cartels to shore up rubber tappers lack skills and techniques to properly prices, a strategy that has seen backlashes against tap rubber trees. several European companies. On the other hand, “Many will exploit rubber trees to the maximum, what has been deemed legitimate is the regional NR especially if the market price of cup lump is high. cartel formed in 2001. The International Tripartite But this practice may, in the long run, damage the Rubber Council (ITRC) comprises the top three rubber tree’s productivity life,” says Medalla, when rubber producers, Thailand, Indonesia and Malaysia, asked about the problems facing the rubber industry’s has strategised to stabilise prices by limiting NR workforce. She adds, “Increasing the incomes of production and exports of the founding countries. farmers and processors will prevent, if not eradicate, Legitimate or not, the corruption and unlawful rubber sector is indignant on business practices.” cartelisation and farmers in Medalla explains that “…..the rubber sector is the Philippines have recently government agencies indignant on cartelisation blown the whistle on the setare putting their heads up of a likely cartel. together to counter the and farmers in the In late July, an estimated problem of skills. “The Philippines have recently 5,000 rubber farmers from Agriculture Department and the Free Tappers Association the Technical Education blown the whistle….” in North Cotabato (a Central and Skills Development Mindanao province that is the Authority (TESDA) are country’s second largest rubber producer with 55,000 working together to formulate training modules to hectares) claimed that a cartel had been pushing the certify and upgrade the skills of tappers.” cup lump prices down. The farmers said rubber was Medalla also says that the country started its first sold at Php36/kg in July, lower than the Php 50.51/ rubber training centre in North Cotabato last year. It kg price in February. According to Anthony Bravo, is operated by the local government unit (LGU), which DTI Provincial Director, the lowest buying price per provides training on proper tapping methods and kg recorded in the province was Php19.23 in December new technologies without charging any fees, with the 2008. trainees mostly absorbed by the local rubber industry Consequently, the low prices have taken a toll in the area. Trainees from other areas outside North on farmers’ earnings. However, the local authorities Cotabato are also accepted for a fee. “It focuses on debunked these allegations, with the North Cotabato rubber plantation and production and is not related government attributing it to unstable rubber prices, to the downstream manufacturing of rubber products, lack of modern processing facilities in the province and which is what PRIA represents,” says Medalla, adding a shortage of latex and coagulated lumps. that other LGUs are encouraged to replicate the PRIA also confirms that there are no rubber cartels training centre in their areas. in the Philippines. “The reason for the low prices is The centre also extends training to ethnic that being an agricultural product, rubber is a globally minorities and recently concluded a rubber tapping traded commodity just like rice, sugar, corn and wheat. training course for a group of T’boli natives.

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Rubber Journal Asia Philippines Rubber Industry “Skills training forms part of the human resource development programme of the government and it is being conducted to increase the number of tappers and workers in the processing sector,” Medalla explains. While rubber processing and production are mostly male-dominated, according to Medalla, women are also contributing to the sector, mostly constituting the workforce in the bud planting segment and rubber nurseries owned by corporate farmers. Overall, the Philippines, in its journey to becoming a growth leader in Asia, is still contending with high unemployment rates. Medalla believes that the rubber sector can help address the scarcity of work, especially in rural areas. “In Mindanao, as well as areas where rubber planting is amenable, there will be a need for skilled tappers and workers, therefore the quality of lives of these people will improve,” she says.

The scheme is targeting to cultivate 200,000 hectares by 2016, or an average increase of 10,000 hectares/year. The DTI projected that the plantation target will create some 5,000 jobs per year, or a ratio of one job per 2 hectares. Not a sunset industry yet edalla envisions bright prospects for the local rubber industry and for it to grow at a steady pace. “The high confidence rating of the business sector in the Philippine government (under President Benigno Aquino Jr.) has created a wave of enthusiasm, optimism and faith,” she says. She adds that the country’s rubber sector has yet to tap its full potential, nevertheless, it already has taken bold steps to position itself strategically amongst its co-rubber producing ASEAN member countries. “Amongst our strengths is that we still have land to develop plantations. We can also adopt new rubber tree clones and modern agricultural technologies that have been proven effective through years of research by other NR producing countries. This can be enabled by technology transfers within the ASEAN group. Implementing these will prevent us from making costly mistakes,” she says. China’s increasing labour costs and the subsequent higher prices of finished products could also benefit manufacturers in the Philippines, says Medalla. “Customers will seek out more options and start buying Filipino products that are equally cost effective and of high quality,” she observes. As for the slowdown of global demand from the automotive sector due to the slower economies in Europe, US and China, Medalla says that the situation is short term. “The fact that transportation is a necessity is assurance that demand will pick up again in the near future.” According to Singapore-based International Rubber Study Group (IRSG) and the ANRPC, global market demand for NR was 10.974 million tonnes in 2011; and 10.9 million tonnes in 2012, versus the world market supply of 11.031 million tonnes and 11.383 million tonnes, in 2011 and 2012, respectively. Medalla says that though there was a surplus in 2011/2012, the demand, notably from the tyre industry, will be on an uptake in 2013/2014. In conclusion, Medalla adds that even though the automotive sector is the top consumer for rubber, other sectors like industrial, marine, construction, footwear and medical are potential and huge markets ready to be tapped by the Philippine rubber industry.

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Traversing the rubber road map for a clear path eanwhile, Medalla says the government has, for the past three years been working to draw up a road map with the assistance of agencies like the DA, DTI, Bureau of Investments (BOI) and the Department of Science and Technology (DOST) and its sub agencies. “The rubber sector’s involvement encompasses the upstream (rubber plantations and farmers), the midstream (rubber processors, traders) and the downstream sectors (rubber products manufacturers of tyres, footwear, industrial and automotive rubber parts, and latex products).” The road map, covering short to medium term plans from 2011-2016, focuses on the following: • Increasing productivity and cost effectiveness • Improving the quality and sustainability of rubber products • Establishing institutions to sustain, support and monitor the rubber industry from upstream to downstream • Focusing on human resource capabilities • Intensifying market connection, both domestic and global

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The manufacture of rubber products in the country needs to be increased

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RJA September 2013 Feature-Philippine rubber industry