Print friendly

Economic policies

International Natural Rubber Agreements (INRA)
International Tripartite Rubber Organization (ITRO)
Socio-economic, environmental and policy aspects

Market regulation has been extensive in the natural rubber (NR) sector. It included the international buffer stock schemes envisaged under the 1979, 1987 and 1995 late International Natural Rubber Agreements (INRA). After the demise of the INRA, it is still embodied in collective attempts at managing production by the International Tripartite Rubber Organisation (ITRO).

International Natural Rubber Agreements

The first International Natural Rubber Agreement was signed in 1979 under the auspices of the United Nations Conference on Trade and Development (UNCTAD) and then renegotiated in the mid-1980s (1987 Agreement) and during 1994-1995 (1995 Agreement). The 1979 Agreement had as members seven exporting countries accounting for about 95% of world exports and 25 importing countries plus the European Community (three-fourths of world imports at the time).

The objective of the 1979 agreement was essentially to reduce excessive price fluctuations around the trend in rubber market prices. Exporting countries also stressed the need to support prices at levels considered remunerative to producers and to help to stabilise export earnings and increase these earnings based on expanded export volumes. Basic differences between importing and exporting countries in their conception of the role of a commodity agreement for NR led to wide divergences in negotiations, particularly as regards price levels. Both the 1987 and the 1995 Agreements maintained the same objective as in the 1979 Agreement.

The 1979 Agreement provided for a buffer stock of a maximum size of 550,000 tonnes (400,000 tonnes of normal buffer stock and 150,000 tonnes of contingency buffer stock) as the sole instrument of market intervention for price stabilisation (the Agreement therefore excluded export quota or production controls).
The scheme entailed the purchase and selling of the buffer stock when actual NR quotations (the daily market intervention price (DMIP), as defined in the Agreement) were outside upper and lower price bands in relation to a reference price. The reference price was initially set at 210 Malaysian/Singapore cents per kilo. The DMIP was a composite average of daily official current-month prices on the Kuala Lumpur, London, New York and Singapore markets (RSS1, RSS3 and TSR20 grades of rubber; all quotations converted to f.o.b. Malaysian/Singapore ports and expressed in a composite Malaysian/Singapore currency). Intervention price levels (where the buffer stock manager had discretion to act) were set at +/- 15% of the reference price level. The Agreement also established upper and lower trigger action prices at +/- 20% of the reference price, which the buffer stock manager was obliged to defend.

The buffer stock was financed by direct cash contributions by governments (although the contingency buffer stock could be financed by cash borrowed form commercial sources). The costs of the buffer stock were shared by importing and exporting countries (within each group, contributions were assessed in proportion of each members' share in NR trade). The Agreement was managed by the International Natural Rubber organisation (INRO), headquartered in Kuala Lumpur, Malaysia.
The main operational provisions in the 1987 and 1995 Agreements were much the same as those of the first Agreement. There were, however, several modifications to the provisions for the periodicity of reviews and size of revision of price levels triggering market interventions. The reference price on entry into force of the 1987 Agreement was set at 210.66 Malaysian/Singapore cents per kilo (206.68 at the entry into force of the 1995 Agreement).

In 1998 the exporting Member Countries of INRO asked for an increase of the reference price with 5% in relation to the economic / currency crisis in South-East Asia. The importing Member Countries rejected this proposal. Following the withdrawal of Malaysia, Thailand and Sri Lanka, in September 1999 the Council of INRO decided to terminate the third International Natural Rubber Agreement (INRO was liquidated in December of the same year). It was the last "survivor" of all stabilization commodity agreements.

It is generally recognised that the buffer stock operations under the 1979 and 1987 Agreements succeeded in their price stabilisation objective. As regards the achievement of prices at levels considered remunerative to producers, there was widespread criticism in the exporting countries of the low level of the reference price (set at 210 Malaysian/Singapore cents per kilo when the first Agreement entered into force in 1980; down at 206.68 fifteen years later).

For a review of the main features of the Agreements, please refer to this report (pdf, 1.10 MB) by the UNCTAD secretariat.

International Tripartite Rubber Organization

In 2001, the three most important producers, namely Indonesia, Malaysia and Thailand, established the International Tripartite Rubber Organization (ITRO) in order to manage rubber production in an effort to maintain orderly market growth and guarantee a minimum price to their domestic producers. Subsenquantly, with the entry of Vietnam, ITRO's members account for more than three-quarters of world exports of natural rubber.

To support NR prices ITRO's members agreed to reduce production (of 4%) and exports (of 10%). The reduction in output would reduce global stocks, which should, ceteris paribus, have a positive effect on rubber prices. At the same time they established an organizational structure, the International Tripartite Rubber Organization (ITRO), to collectively manage their production for the next few years. To stabilize world natural rubber prices, they launched in October 2003, the International Rubber Company Ltd (IRCO), sometimes know as "the rubber consortium", to pool resources of the three charter members. Vietnam was invited to joint this company and its membership could be further expanded (other countries that are on the invitation list are India, Sri Lanka, Papua new Guinea as well as Singapore). IRCO management would step in to buy rubber when prices declined.

Socio-economic, environmental
and policy aspects

A large number of rubber smallholders are subsistence farmers working in small family groups. They tend to face many disadvantages and problems, which minimise their chance of achieving good economic returns from their holdings. Key issues include the following:

1. They have little, if any, access to modern plantation materials and do not follow agricultural practices that maximise crop. Furthermore, they often lack sufficient funds to fertilize.
2. They are dependent on family labour, which limits the scale and productivity of the farming undertaken.
3. They tend to have poorer land and uncertain land tenure (early smallholders emulated activities on nearby estates and planted rubber trees on cleared forest land to which they did not have title). In subsistence agriculture, a formal title to the land may be rare, especially where the law refers to customs, and communities decide in practice on individual land occupancy (also, entitlement to land may be restricted by legislation).
   

Government programmes have evolved establishing group smallholdings and implementing land development programmes (please, refer to the marketing chain section). In addition, various price- and income-support mechanisms have been conceived at the domestic level. For instance, the objective of the Indian Price Stabilization Fund (PSF) is to provide income support to rubber growers when price of rubber falls below remunerative level. A price band of 40% has been adopted with a price spectrum band of +/- 20% from the reference price (the seven years moving average of international prices). When the price falls below 20% of the reference price, growers can avail themselves of the relief. If the price exceeds the 20% threshold, growers have to contribute. The Scheme is based on the principle of contributions from the growers and from the Government depending on normal/boom/distress periods. Each participating grower has to open an account with an initial deposit of Rs 100 and a non refundable contribution of Rs 500. When price remains within the band, the grower will be required to deposit Rs 500 each year to his account; the Trust Fund also will contribute Rs 500 as matching contribution to his account. When price falls below the lower bound of the band, the Trust Fund will deposit Rs 1,000 to his account and the grower need not make any remittance. The implementation of the scheme will be monitored by a high-powered committee leaded by Secretary/Additional Secretary (Plantations), Department of Commerce (Ministry of Commerce and Industry, Government of India).

Large quantities of water are required during processing of rubber (mainly for washing, churning and dilution). The factory effluent contains rubber particles and other substances which may give rise to serious oxygen depletion, if discharged into public water courses without preliminary treatment. In many rubber-producing countries, rubber factories are required to comply with the discharge standards laid down by the competent authority.