Phlau Bek Kang Lek (Cambodia), 26/12/2000. Children collecting rubber on the plantation. (Photo: John Vink / Magnum)19-12-2008
By Ros Dina
Ka-set in English
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Click here to read the article in Khmer
Cambodia's rubber producers broke the news in November at the Forum gathering Government representatives and private investors: the plummeting of latex prices makes them fear the worst for the rubber industry. In a matter of weeks, pressurised by the world financial crisis, the prices of certain raw materials derived from rubber trees have collapsed and reached a value that is now three times cheaper than before, forcing producers to sound the alarm and demand a rebate on export fees imposed by the state. For the time being, the government do not wish to accede to the request, when observers have advised that the situation of the main Cambodian rubber tree growers, although not as juicy as it was a few months ago, is far from being desperate.
Plummeting latex prices
Mak Kimhong, director-general of the Chup rubber plantation in the province of Kampong Cham, quoted figures to illustrate the downturn that has recently taken place on the latex market in just a few weeks: in October, the price of a tonne of solid rubber amounted to US$3,300; the second week of December saw it go down to US$900. Cambodia, just like the rest of the world, owes this decrease to the repercussions of the global financial crisis and its first negative consequences on consumers' buying power. To Mak Kimhong, if the situation keeps worsening, entrepreneurs linked with the rubber market will definitely not be able to cope.
“The buying price of concentrated rubber latex is already fluctuating , with a tonne selling between US$1,200 and US$1,300. Despite the decrease in oil prices and general costs, our company's profit is already melting down”, the director complained, adding that he did not “dare” cutting the wages of some 4,400 people working on his plantations. The company's wage bill represents a monthly total of US$500,000 (i.e. an average salary of US$113 per month and per employee, according to him). “If we cut down salaries, workers will refuse to work for us. And this will lead the company to suffer even more losses. Therefore, we do not have any other choice, in these circumstances, than to lose money”, he explained, before acknowledging that his firm could afford to act so, “because we have earned a great deal of money in the past”...
Export fees: from 10% to 30 dollars per tonne?
Reacting to price drops and anticipating the crisis' repercussions on the rubber industry, rubber tree growers and Cambodian latex producers formulated a “proposition” to the government at the end of November and backed it up with a line of argument, so as to obtain a rebate on export fees applying to rubber by-products. They are asking for the fees to be cut down from 10% of the selling price of concentrated latex – approximately US$100 per tonne – to a fixed amount of US$30 per tonne. Mak Kimhong, for his part, asserted that for every tonne sold, his company was currently losing US$200 to US$300, and that considering production costs, cutting export fees would be an effective measure to relieve the sector from the glue it is stuck in. He put forward what is to him evidence: other governments of ASEAN country-members, like Thailand and Malaysia, have decided to enforce similar measures.
Oknha Mong Reththy, vice-president of the Cambodian Chamber of Commerce but also chairman of the agriculture and Agro-Industry Private Sector Working Group , mentioned the demand to the head of government on November 21st. However, the powerful Cambodian businessman's request was not met straight away, unlike the case of garment sector representatives, who were granted a 10% rebate on export fees after having requested a 30% cut.
The director of the Chup company Mak Kimhong continues for his part to argue in favour of the rebate since, according to him, the state has already and largely benefited from the bonus that export fees on rubber-related products currently represent. In the most prosperous times, he added, each tonne of concentrated latex brought in about US$300 in export fees for the government. And according to the director, the Chup company alone exports some 9,000 tonnes of concentrated latex every year.
Income cut by 60%
But Vannak, who owns a 30-hectare rubber tree plantation in Chamka Leu in the Kampong Cham province, also reckoned a state intervention would be useful since the price drops have led him to lose 60% of the company's income compared with August this year. “Today, I almost have no money to bring to my family. A 30-litre drum of latex only brings in 20,000 riels (US$5) when not so long ago this price went as high as 90,000 riels (US$22). What we earn at the moment is just enough to pay for workers' wages”, he complained, adding that the company had already had to wait 6 years for the plantation to actually produce rubber latex.
The crisis also affects the extraction sector
The decrease in rubber prices does not just affect rubber growers but also workers in charge of extracting and collecting rubber latex, like Seiha, who works on a family rubber plantation in the village of Ta Ong, in the Chamka Leu province. He earns a fixed income of 200 riels per litre of latex, which allows him to earn an average of 10,000 riels (US$2.50) per day. He tops up these meagre savings by collecting the dried latex stuck on utensils and around the rubber tree cuts in his free time, before the start of the early afternoon collection. “My employer told me to do this, and he takes half of it for himself. Ten kilos of dried latex used to sell for 40,000 riels (US$10), which meant 20,000 riels for my employer and 20,000 for myself. But today, the same quantity of product only sells for 6,000 riels (US$1.25), that is 3,000 each”, he deplored, arguing that above this, increasing everyday living costs were not here to help.
No bankruptcy for rubber producers?
An expert in Cambodian rubber industry, who wished to remain anonymous, rejected for his part alarmist stances. With a tonne of concentrated latex selling for about US$1,000, to him, the sector seems far from going bankrupt and companies are unlikely to close down... According to him, rubber investors are still earning money even though the income at stake is far from being what it used to be. The expert used his own experience in that matter as an argument: in 1998 and 1999, facing the collapse of rubber prices, when an oil barrel sold for an average of US$65, he still managed to make a profit of 2% to 3% . The return on investment was definitely much less important than the interest rate of a placement on an interest-bearing account, he said, but still allowed to a certain activity in the company without major difficulties. Nowadays, considering production costs and the fact that oil prices have dropped to nearly US$45 a barrel, investors in the sector can generate profit that would almost be equivalent to bank interest rates, the expert concluded.
The Minister of Agriculture Chan Sarun made a similar calculation on the situation. On Monday December 15th, after a seminar on rural training, he estimated that the plummeting of rubber prices did not threaten Cambodian companies and also gave the example of the 1998 crisis, which the sector strongly resisted. “The way is not blocked. Latex will keep running inside the trees, even if we don't cut them open. We know that the situation is hard for investors at the moment, because of the world crisis. But I reckon the price of rubber will go up again, simply because this raw material is needed every day in the world”, the Minister declared, without yet setting aside the possibility of a rebate in export fees. Indeed, Chan Sarun explained he was willing to discuss the matter more deeply with the Minister of Economy and Finance, who is “responsible” for that.
With or without a fee rebate, there is still a market for Cambodian concentrated latex, especially in the region. According to Mak Kimhong, China is one of the Kingdom's main customers, followed by Vietnam, Malaysia, Singapore, and, to a lesser extent, European countries like Germany and Belgium. “Khmer rubber latex ends up being exporter to China anyway”, he analysed. “Even when we sell our production to Vietnam, they transform it and export it to China themselves... China is the biggest rubber consumer in the world...”
In order to take advantage from the the growing appetite of the Chinese mammoth and be less vulnerable to price fluctuations, the Cambodian rubber sector might have to jump onto another phase, like its neighbouring countries: transforming rubber latex into products involving a high profit margin. According to the Minister of Agriculture, Cambodia might soon benefit from the technological help and advice of two foreign companies, a Chinese one and a French one, Michelin. According to the Minister, they expressed their interest in Cambodia and are actually studying the possibility of establishing tyre production facilities in the country. These projects should come as a bonus for the Cambodian rubber sector.
Plummeting latex prices
Mak Kimhong, director-general of the Chup rubber plantation in the province of Kampong Cham, quoted figures to illustrate the downturn that has recently taken place on the latex market in just a few weeks: in October, the price of a tonne of solid rubber amounted to US$3,300; the second week of December saw it go down to US$900. Cambodia, just like the rest of the world, owes this decrease to the repercussions of the global financial crisis and its first negative consequences on consumers' buying power. To Mak Kimhong, if the situation keeps worsening, entrepreneurs linked with the rubber market will definitely not be able to cope.
“The buying price of concentrated rubber latex is already fluctuating , with a tonne selling between US$1,200 and US$1,300. Despite the decrease in oil prices and general costs, our company's profit is already melting down”, the director complained, adding that he did not “dare” cutting the wages of some 4,400 people working on his plantations. The company's wage bill represents a monthly total of US$500,000 (i.e. an average salary of US$113 per month and per employee, according to him). “If we cut down salaries, workers will refuse to work for us. And this will lead the company to suffer even more losses. Therefore, we do not have any other choice, in these circumstances, than to lose money”, he explained, before acknowledging that his firm could afford to act so, “because we have earned a great deal of money in the past”...
Export fees: from 10% to 30 dollars per tonne?
Reacting to price drops and anticipating the crisis' repercussions on the rubber industry, rubber tree growers and Cambodian latex producers formulated a “proposition” to the government at the end of November and backed it up with a line of argument, so as to obtain a rebate on export fees applying to rubber by-products. They are asking for the fees to be cut down from 10% of the selling price of concentrated latex – approximately US$100 per tonne – to a fixed amount of US$30 per tonne. Mak Kimhong, for his part, asserted that for every tonne sold, his company was currently losing US$200 to US$300, and that considering production costs, cutting export fees would be an effective measure to relieve the sector from the glue it is stuck in. He put forward what is to him evidence: other governments of ASEAN country-members, like Thailand and Malaysia, have decided to enforce similar measures.
Oknha Mong Reththy, vice-president of the Cambodian Chamber of Commerce but also chairman of the agriculture and Agro-Industry Private Sector Working Group , mentioned the demand to the head of government on November 21st. However, the powerful Cambodian businessman's request was not met straight away, unlike the case of garment sector representatives, who were granted a 10% rebate on export fees after having requested a 30% cut.
The director of the Chup company Mak Kimhong continues for his part to argue in favour of the rebate since, according to him, the state has already and largely benefited from the bonus that export fees on rubber-related products currently represent. In the most prosperous times, he added, each tonne of concentrated latex brought in about US$300 in export fees for the government. And according to the director, the Chup company alone exports some 9,000 tonnes of concentrated latex every year.
Income cut by 60%
But Vannak, who owns a 30-hectare rubber tree plantation in Chamka Leu in the Kampong Cham province, also reckoned a state intervention would be useful since the price drops have led him to lose 60% of the company's income compared with August this year. “Today, I almost have no money to bring to my family. A 30-litre drum of latex only brings in 20,000 riels (US$5) when not so long ago this price went as high as 90,000 riels (US$22). What we earn at the moment is just enough to pay for workers' wages”, he complained, adding that the company had already had to wait 6 years for the plantation to actually produce rubber latex.
The crisis also affects the extraction sector
The decrease in rubber prices does not just affect rubber growers but also workers in charge of extracting and collecting rubber latex, like Seiha, who works on a family rubber plantation in the village of Ta Ong, in the Chamka Leu province. He earns a fixed income of 200 riels per litre of latex, which allows him to earn an average of 10,000 riels (US$2.50) per day. He tops up these meagre savings by collecting the dried latex stuck on utensils and around the rubber tree cuts in his free time, before the start of the early afternoon collection. “My employer told me to do this, and he takes half of it for himself. Ten kilos of dried latex used to sell for 40,000 riels (US$10), which meant 20,000 riels for my employer and 20,000 for myself. But today, the same quantity of product only sells for 6,000 riels (US$1.25), that is 3,000 each”, he deplored, arguing that above this, increasing everyday living costs were not here to help.
No bankruptcy for rubber producers?
An expert in Cambodian rubber industry, who wished to remain anonymous, rejected for his part alarmist stances. With a tonne of concentrated latex selling for about US$1,000, to him, the sector seems far from going bankrupt and companies are unlikely to close down... According to him, rubber investors are still earning money even though the income at stake is far from being what it used to be. The expert used his own experience in that matter as an argument: in 1998 and 1999, facing the collapse of rubber prices, when an oil barrel sold for an average of US$65, he still managed to make a profit of 2% to 3% . The return on investment was definitely much less important than the interest rate of a placement on an interest-bearing account, he said, but still allowed to a certain activity in the company without major difficulties. Nowadays, considering production costs and the fact that oil prices have dropped to nearly US$45 a barrel, investors in the sector can generate profit that would almost be equivalent to bank interest rates, the expert concluded.
The Minister of Agriculture Chan Sarun made a similar calculation on the situation. On Monday December 15th, after a seminar on rural training, he estimated that the plummeting of rubber prices did not threaten Cambodian companies and also gave the example of the 1998 crisis, which the sector strongly resisted. “The way is not blocked. Latex will keep running inside the trees, even if we don't cut them open. We know that the situation is hard for investors at the moment, because of the world crisis. But I reckon the price of rubber will go up again, simply because this raw material is needed every day in the world”, the Minister declared, without yet setting aside the possibility of a rebate in export fees. Indeed, Chan Sarun explained he was willing to discuss the matter more deeply with the Minister of Economy and Finance, who is “responsible” for that.
With or without a fee rebate, there is still a market for Cambodian concentrated latex, especially in the region. According to Mak Kimhong, China is one of the Kingdom's main customers, followed by Vietnam, Malaysia, Singapore, and, to a lesser extent, European countries like Germany and Belgium. “Khmer rubber latex ends up being exporter to China anyway”, he analysed. “Even when we sell our production to Vietnam, they transform it and export it to China themselves... China is the biggest rubber consumer in the world...”
In order to take advantage from the the growing appetite of the Chinese mammoth and be less vulnerable to price fluctuations, the Cambodian rubber sector might have to jump onto another phase, like its neighbouring countries: transforming rubber latex into products involving a high profit margin. According to the Minister of Agriculture, Cambodia might soon benefit from the technological help and advice of two foreign companies, a Chinese one and a French one, Michelin. According to the Minister, they expressed their interest in Cambodia and are actually studying the possibility of establishing tyre production facilities in the country. These projects should come as a bonus for the Cambodian rubber sector.
3 comments:
This is Ah Scam Rainxy's typical conspiracy to make Khmer people suffer for his own political gain.
Nop. People are now starting to recycle plastic material more ever before. Some have droped rubber all together. Forget about the rubber tree. Plant babana instead or if you're smart.
What's fucken relevant to the topic two dickhead about? You're completely dump and idiot. The topic is about rubber, but neither politics with Sam Rainsy nor plastic recycling.
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