The price of rubber fell 22 percent throughout 2017, and continued in 2018 with a decrease of 25 percent since the beginning of the year. This threatens national rubber plantations, 85 percent of which are owned by the people. The government has a solution similar to palm commodity, which is absorbing farmers’ production for domestic use. The rubber will be used as asphalt blend in road infrastructure projects.
When President Joko “Jokowi” Widodo visited South Sumatra, farmers complained to him that the price of their rubber had fallen to the range of Rp 6,000 per kilogram (kg). In the past month, the government reviewed various ways to save rubber farmers. The president then instructed the Ministry of Public Works and Public Housing (PUPR) to buy farmers’ rubber at a price of Rp 7,500 - Rp 8,000 per kg.
“I have instructed the Minister of Public Works to buy it directly from cooperatives or farmers,” Jokowi said in a handover ceremony for the Decree (SK) of the Social Forestry at Punti Kayu Eco-Tourism Forest Park in Palembang, Sunday (11/25).
The ministry acted quickly by stating that it is ready to carry out the president’s instruction. It plans to buy 150,000 tons of rubber directly from farmers. The amount to be absorbed is five percent of the total production of smallholder rubber plantations per year.
Purchases will run gradually in the next few years. For the initial phase, the government will start buying 2,600 tons in the middle of this month. The price promised is Rp 10,500 per kg, higher than Jokowi’s instruction. The international market price for raw rubber material from smallholders with dry rubber content (KKK) of 60 percent is currently in the range of Rp 9,000 - Rp 10,000 per kg.
Indonesia is the second largest rubber producer in the world. Based on data from the Indonesian Rubber Company Association (Gapkindo), Indonesia with a total plantation area of 3.6 million hectares is capable of producing 3.5 million tons of natural rubber per year. Domestic rubber production even outperformed Malaysia, India, and Vietnam. Indonesia only lost to Thailand, whose production reached 4.4 million tons. In total, Indonesia and Thailand account for 60 percent of world's rubber production.
In overcoming a drop in prices, the Thailand government offered 3,000 baths or around Rp 1.3 million per rai (1,600 square meters) for rubber farmers on the condition that they should not tap rubber in their plantations for three months. This program, which runs from November 2018 to April 2019, is expected to reduce Thailand’s rubber production by 200,000 tons.
How about Indonesia? National rubber production this year is estimated to be lower than last year. Indonesian Rubber Council (Dekarindo) Chairman Aziz Pane predicts this year’s rubber production will be below three million tons, missing the target of 3.7 million tons. Low production is caused by disease affecting part of national rubber plantations. Based on data from the Rubber Research Centre, rubber leaf drop disease was initially detected in North Sumatra in 2016 due to the use of low quality seeds.
This year, the disease has spread to six provinces: South Sumatra, Lampung, South Kalimantan, Southeast Sulawesi, Central Java, and East Java. As a result, rubber production in Banyuasin Regency, South Sumatra, fell by 13.8 percent in the first half of 2018.
With this fact, the production reduction program as implemented in Thailand is unlikely to be effective in Indonesia. On the other hand, exports as the main effort of absorbing production have even diminished. According to Aziz, the world’s rubber demand is also sluggish. The US and Chinese trade wars, the weakening of the rupiah exchange rate, and Indonesia's inability to intervene in the market are the factors causing the weakening of world’s rubber demand.
China and the US are the largest markets for Indonesia’s natural rubber exports. About 21.4 percent of the total 3.28 million tons of national rubber exports last year were sold to China, while 18 percent went to the US and the rest to Japan, India, Korea, Brazil, Canada, and other countries. Based on Gapkindo data, the import volume of Chinese natural rubber in September 2018 fell by 10 percent, which was also the same as the US.
There is no other way. Indonesia must try to boost rubber price through the increase of domestic absorption. The government will get around the drop in prices by boosting domestic absorption, one of which is through the use of rubber asphalt.
Henry Prastanto from PT Riset Perkebunan Nusantara’s Rubber Research Centre (PPK) has pioneering rubber asphalt technology since 2010. The rubber is used as road asphalt blend of around 5-7 percent. This technology had been tested in Lido, Bogor. In September 2017, the testing was continued in Sawangan, Depok.