May 8, 2024

The Malaysian Rubber Strategy : how the world’s largest producer became immune to price volatility.

Despite the world economic downturn and the oil price steadily decreasing, Malaysian rubber price has largely not been affected. While other countries, especially Thailand, have suffered the effects of falling rubber prices adversely impacting the livelihoods of local rubber producers.

So, how has Malaysia managed to rise above the rubber price crisis? The adoption of the Malaysian rubber strategy may be how Thailand and  other countries start to recover and grow its rubber industry sustainably.

What is “The Malaysia Model”? 

Malaysia is the world’s largest rubber products producer holding over 60% of the world’s market share. It is also ranked fifth in the world for highest rubber consumption, only behind China, North America, Japan and India, even though Malaysia has a total population of just over 30 million. These statistics show how Malaysia can consume 100% of its own raw rubber produce and still import even more raw rubber from other countries, including Thailand, to fulfill domestic demands.

The heart of “The Malaysia Model” is the processing industry or the transformation of raw rubber into value-added products such as condoms, rubber gloves, rubber thread, rubber hoses, sports equipment, medical equipment, car parts and rubber sheet. This allows Malaysia to sell rubber products for 10 to 15 times higher than selling or exporting merely raw rubber.

Why did Malaysia build the domestic rubber processing industry?

  1. Create domestic demand for Malaysian raw rubber.
  2. Add significantly more value to its agricultural products.
  3. Expand the domestic supply chain, creating jobs, increasing income and national development.

How did Malaysia develop the domestic rubber processing industry?

  1. Focused on improving the downstream operations dedicated to research and innovation of raw rubber processing production.
  2. Attracted foreign investors into the Malaysian rubber processing industry by head hunting potential foreign business to invest in Malaysia and taking over foreign business, such as Sime Derby of England.
  3. Established “The Malaysian Rubber Board” as the agency governing the entire rubber industry in a semi-private manner responsible for setting and enforcing Malaysia’s rubber strategy and policies.

What is the reason behind the success of The Malaysia Model?

Research was the heart of it all. Malaysia spent the last 70 years continuously developing the research innovation program for rubber processing. The program was intensified and emphasised more since the mid-1980’s while large players like North America and the United Kingdom have largely stopped their rubber research in the past. Nowadays, Malaysia’s rubber research center is considered to be the best in the world housing over 1,400 staff including 160 post-doctoral rubber researchers.

Is it too late for Thailand to follow the Malaysian rubber strategy?

Although it may take years for Thailand to follow in the footsteps of the Malaysian strategy and sustainably cope with the rubber price setbacks, there is no question that late is better than never.

In summary, to protect Thai rubber farmers from the world’s price volatility, Thailand must start at strengthening the rubber processing industry in order to create more domestic demand for raw rubber. This can be achieved if policy makers incentivize both local and foreign investors to enter the rubber processing space by putting in place good program structures, research personnels and proactively headhunt for the right investors.