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IMPERIAL INSTITUTE OF
HIGHER EDUCATION
Sri Lankan Export Rubber Industry
Module: PPEC 100 Managerial Economics
By
Chamara Peiris, Kapila Susantha, Piyajith Wijetunge, Rohithe Amarasinghe
IMPERIAL INSTITUTE OF HIGHER EDUCATION
Validated Centre for
UNIVERSITY OF WALES UK
Date: 30 January 2012
IMPERIAL INSTITUTE OF
HIGHER EDUCATION
TABLE OF CONTENTS
CHAPTER 01– INTRODUCTION ................................................................................. 1
OBJECTIVES
CONTEXT
METHODOLOGY
BACKGROUND
CHAPTER 02 – GLOBAL MARKET ............................................................................ 3
CHAPTER 03 – LOCAL (SRI LANKAN) MARKET ....................................................... 5
CHAPTER 04 – FACTORS INFLUENCING THE SL RUBBER INDUSTRY ........................ 6
GLOBAL SCENARIO
LOCAL FACTORS
GLOBAL WARMING
CHAPTER 05 – FUTURE TRENDS .............................................................................. 8
WHERE THE WORLD IS HEADING
SRI LANKAN CONTEXT
FUTURE FOR NATURAL RUBBER
CHAPTER 06 – MEASURES OF SUSTENANCE ........................................................... 11
CHAPTER 07 – CONCLUSION .................................................................................. 12
REFERENCES AND BIBLIOGRAPHY ......................................................................... 13
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LIST OF TABLES
Table 1.1: Association of Natural Rubber producing countries 2
Table 1.2: Volumes of Natural Rubber produced by Sri Lanka 2
Table 4.1: Local factors affecting Sri Lankan Rubber Industry 7
Table 5.1: Natural Rubber Consumption 8
Table 5.2: Cost Of Production & Extent 9
Table 6.1: Measures of sustenance 11
LIST OF FIGURES
Figure 1.1: Natural Rubber forms 1
Figure 2.1: Consumption of Natural Rubber by Countries 3
Figure 2.2: Progress of Natural Rubber Consumption by year 4
Figure 3.1: Natural Rubber forms 5
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CHAPTER 01– INTRODUCTION
OBJECTIVES
This report is intended to study and analyse the rubber production and related industries of
Sri Lanka, as a significance of the export industry.
CONTEXT
Rubber is produced in two sources; Natural Rubber (NR) and petroleum based Synthetic
Rubber (SR). Sri Lanka traditionally produces NR. The produce of rubber or latex is used
in many ways & purposes in Sri Lanka. This report focuses on the aspects of export
significance & value addition related to NR exports.
METHODOLOGY
This study is conducted using constructive analysis of secondary data from articles related
to the industry, research reports, journals, textbooks and online resources.
BACKGROUND
Rubber is a perennial crop, which was introduced to Sri Lanka around 1876 by the British,
(UNCTAD). Forms of natural rubber (NR) are described in Figure 1.1.
Figure 1.1: Natural Rubber forms (Source: UNCTAD secretariat)
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Sri Lanka is the 7th largest producer among NR producing countries, due to restricted
economies of scale mainly by the area available for cultivation.
Table 1.1: Association of Natural Rubber producing countries (Source: ANRPC)
Central Bank Annual Report states that ‘in 2010 rubber contributed to 0.3% of GDP as
agriculture produce (before value addition)’, which is the 2nd most significant agriculture
product of the country. On which, 54% of the cultivation is owned by small holders. As per
‘Rubber Research Institute statistics, rubber amounts to around 1% value addition to GDP
of the country’. The Volumes of NR production is detailed in the following Table 1.2.
Table 1.2: Volumes of Natural Rubber produced by Sri Lanka
(Source: Rubber Development Department data)
TYPE OF RUBBER PRODUCTION ( Mt) 2011 %
1. Ribbed Smoked Sheet rubber (RSS) 55,020 38.73%
2. Sole Crepe 6,232 4.39%
3. Scrap Crepe 1,711 1.20%
4. Latex Crepe 48,757 34.32%
5. Technically specified rubber (TSR) 7,746 5.45%
6. Centrifuged Latex & Other 22,604 15.91%
Total production 142,069 100.00%
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CHAPTER 02 – GLOBAL MARKET
Globally, the main product that consumes rubber is divided into general or industrial
products and tire production. The tire industry contributes to 70% of the demand and the
remaining 30% is for moulded, extruded products, belting, hoses, tubing, thread adhesives,
carpets, footwear, toys, sportswear and etc.
Figure 2.1: Consumption of Natural Rubber by Countries
(Source: therubberstudy.com/xxx and rubberworld.com/xxx)
*NA- North America, LA- Latin America, EU- European Countries
Asia being the leading consumer of rubber is due to several car tire manufacturing
industries, are located in this region. Outsourcing activities from the western countries have
caused this trend to arise. Since 70% of the demand is for tire manufacturing operations,
China and India have been consuming the majority of the rubber supply in the Asian
region.
Following Figure 2.2 shows that the rate of growth of the total consumption or demand of
NR is decreasing. The growth of demand between 2009 and 2010 was approximately 15%,
2010 – 2011 growth was 3.0% and the estimated growth for 2011 to 2012 is 5.4%. Factors
such as the rising demand for synthetic rubber, rising demand for NBR (Nitrile Butadiene
Rubber) and decreasing motor vehicle production has affected the demand.
9%
5%
12%
1%
73%
NA
LA
EU
Africa
Asia
Consumption by countries (000’s mt)
2009 2010 %
NA 790 1071 9.24
LA 488 613 5.47
EU 1006 1360 11.75
Africa 94 101 0.97
Asia 6984 7632 72.58
Total 9362 10777
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Consumption Natural Rubber (000’s)
Year 2009 2010 2011 2012
mt 9329 10778 11100 11700
Figure 2.2: Progress of Natural Rubber Consumption by year
(Source: therubberstudy.com/xxx and rubberworld.com/xxx)
*The 2012 demand for natural production is estimated
8000
8500
9000
9500
10000
10500
11000
11500
12000
2008 2009 2010 2011 2012 2013
00
0's
mt
of
nat
ura
l ru
bb
er
Year
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CHAPTER 03 – LOCAL (SRI LANKAN) MARKET
The rubber based local industries are booming in as the value added on the produce on
average 500% due to product development. There is a trend where the rubber exports are
diminishing while the domestic consumption is increasing due to the marked opportunities.
Year
Total Prod.
(000’s mt)
Export
(000’s mt)
Domestic usage
(000’s mt)
2006 109.2 46.3 63.1
2007 117.6 51.42 73.9
2008 129.2 48.6 80.1
2009 137 56 85
2010 153 51.5 101.5
2011 159 50 109
Figure 3.1: Local Rubber production distribution
(Source: http://www.rubberdev.gov.lk/xxx and http://slrubberindustry.com/xxx)
From the data above, it is clear that the domestic consumption is increasing rapidly since in
2009 the domestic usage has increased by 28% and only 32% of the total produce is being
directly exported. The reason for this rapid increase is due to a high internal industrial
growth and Sri Lanka is the leading suppliers of Dipped Products (Latex Gloves) and Solid
tires to the world. This value addition by creating a product out of the raw produce is
generating an input into the economy.
0
20
40
60
80
100
120
140
160
180
2005 2006 2007 2008 2009 2010 2011 2012
00
0's
mt
or
rub
be
r
year
Total Production
Exports
Doemestic Consumption
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CHAPTER 04 – FACTORS INFLUENCING THE SL RUBBER INDUSTRY
The Rubber Industry of Sri Lanka has grown, developed and survived 133 years (Sri
Lankan Rubber Industry forum, 2010). Despite the very impressive developments, the
industry is influenced over a series of vital factors and issues. These factors can be
categorized as global, local and even environmental.
GLOBAL SCENARIO
The volatile global market, over which Sri Lanka has very little control, has made the
global factors more critical. Recent global rubber market prices in 2011, at TOCOM in
Japan, price of RSS 3 rallied to US$ 6.00 a kg, shattered all previous records in price rise
(Sri Lankan Rubber Industry forum, 2011). Crude oil futures rebounding early from
February 2011 and the political chaos in Egypt resulted in further price rise in rubber.
The effect from China and Malaysia, who continue to seek quantum NR supply from the
world market, is considerable for NR producing countries like Sri Lanka. China already
possesses large rubber plantations in Cambodia and Laos and recently started negotiations
with the Malaysian Government for allotment of land for large rubber plantations in
Malaysia (Sri Lankan Rubber Industry forum, 2011).
LOCAL FACTORS
Dr. N. Yogaratnam (2011), Tree crops Agro Consultant has identified number of factors
and issues relating to the rubber industry in Sri Lanka. Some of which are described in
Table 4.1 below.
Further Sri Lanka has a unique issue regarding the local buyers of Sheet Rubber. At present
LOADSTAR is buying more than ¾ of the RSS (Sheet) Rubber manufacture in Sri Lanka
(UNCTAD secretariat). This gives LOADSTAR a monopoly over Sri Lankan Rubber
Industry.
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Factor Issues
Cultivation extent Inadequate, need Govt. intervention
Quality of product Quality of product must improve to protect the industry,
Unscientific harvesting practices
Productivity Less productivity due to poor fertilizer, erosion and
degradation of soil
Replanting Poor planning for re-plantation, lack of Govt. incentives
Skilled manpower Lack of skilled Tappers, Low Tapping efficiency
Cost of production Becoming high, Wage related issues
Table 4.1: Local factors affecting Sri Lankan Rubber Industry
(Source: http://slrubberindustry.com/page/36/)
GLOBAL WARMING
An article published in Daily News (2011) revealed the catastrophic potential of Global
warming over NR industry. It is said that during the past 50 years, the number of heavy
rainfall events has increased by almost 50% leading to severe urban flooding. SL is getting
uneven rains mostly to rubber growing areas like Kaluthara, Gampaha, Matara, Kegalle,
Galle and Ratnapura etc. Unpredictable nature of rain and drought affect tapping days and
disrupts harvesting. In addition, the higher temperature especially in the morning will affect
latex flow and as a result, the yield of rubber will be low.
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CHAPTER 05 – FUTURE TRENDS
WHERE THE WORLD IS HEADING
Rubber cultivation is one of the few industries, which actually protect the environment;
therefore its long-term sustenance is not threatened. Its main competitor is Synthetic
Rubber. However while Fossil fuel based synthetic rubber would replace a part of the
requirement, the demand for NR could never be challenged, not because it is renewable,
but due to its premium quality. The space shuttle lands on all NR tires because of the
superb performance of this 500-year-old polymer.
It is important to note that seventy percent or more of all NR goes into tires, mostly into
large truck tires, off-the-road giant tires and aircraft tires. Therefore the demand for tires in
closely linked with vehicle sales, which reduce in times of recession.
According to IRSG, global NR consumption (Table 5.1 below) reached 10.9 million tonnes
on a yearly basis in June 2011, up from 10.8 million tonnes over March 2011. IRSG also
predicts a possible surplus of NR in 2012 as consumption is expected to decrease due to the
world economic climate. Therefore it is possible that this may result in prices declining in
the shorter term. However a temporary excess supply to the market should not disturb the
market equilibrium by shifting the demand and supply curves, instead the prices will
decrease temporarily, until the situation returns to normalcy. The price of NR is closely
linked with crude oil prices in the world market; this also creates regular price fluctuations.
Region 2009 2010 Growth %
North America 790 1071 2.81
Latin America 488 613 1.25
EU-27 829 1132 3.03
Other Europe 177 228 0.51
Africa 94 101 0.07
Asia/Oceania 6984 7632 6.48
Total 9362 10777
Table 5.1: Natural Rubber Consumption
(Source: IRSG Rubber Statistical Bulletin October-December 2011)
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SRI LANKAN CONTEXT
The future of this industry in Sri Lanka depends on the careful management of two key
factors of production (Land & Labour)
Land As traditional rubber growing wetlands are already in short supply and
as weather conditions are not conducive anymore, the Sri Lankan
plantation ministry together with the Rubber research institute is
facilitating the expansion of rubber plantations into drier areas.
Replanting is also a vital area which the government needs to monitor
for the long term sustenance.
Labour Rubber tapping is a Labour intensive process and careful policies for
managing the workforce and improving productivity should be
considered so as to keep costs down. As shown by the table below
(Table 5.2), the COP is increasing over the years and this trend should
be reversed as soon as possible.
Year Extent
(Hectares)
Production
(MT)
Cop
(Rs/Kg)
1995 161,600.00 106,720.00 41.36
1996 162,000.00 112,490.00 46.93
1997 158,200.00 105,780.00 47.84
1998 158,670.00 95,710.00 49.57
1999 159,100.00 96,590.00 49.07
2000 157,100.00 87,640.00 51.72
2001 116,478.00 86,220.00 53.05
2002 116,478.00 90,520.00 55.74
2003 116,478.00 92,009.00 59.76
2004 116,478.00 94,700.00 65.98
2005 116,478.00 104,352.00 72.56
2006 116,478.00 109,135.00 87.65
2007 116,478.00 117,600.00 102.31
2008 116,478.00 129,243.00 119.89
2009 124,200.00 136,000.00 135.83 Table 5.2: Cost Of Production & Extent
(Source: Department of Census & Statistics Sri Lanka)
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FUTURE FOR NATURAL RUBBER
Over 70% of all rubber used is Synthetic. However with ever increasing volumes being
produced and demanded both locally and worldwide, the future looks bright. And its use is
ever increasing with diversification into new areas such as ‘Seismic Bearings’, which use
NR to prevent earthquake damage. From high-rise buildings to Nuclear reactors, NR
bearings will be used as protection from earthquakes. Powder-free surgical gloves, which
will eliminate allergy problems worldwide, will also be available soon. All predictions of
future cars see them continuing to use rubber tires. The use of NR is not dwindling, but its
increasing and as demand outstrips supply, the prices should continue to increase in future
especially since synthetic rubber is dependent on crude oil which is an exhaustible
resource.
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CHAPTER 06 – MEASURES OF SUSTENANCE
Following Table 6.1 summarises the measure of sustenance of the rubber industry in Sri
Lanka.
Table 6.1: Measures of sustenance
MEASURES FOR SUSTENANCE
Macro Level Risk
Concentration risk need to be diluted because Almost 80% of rubber crop in Sri
Lanka is consumed by less than 5 companies mainly for tyre & glove manufacturing
for exports to global brands who own factories in other competitive countries as well.
In adverse global market conditions or factory shifting to other countries there is a
significant risk to the whole industry. Measures should be taken to identify improved
value addition to a wide range of products to position Sri Lankan rubber and
competitiveness in viable sectors to fit the scale of operation.
Technology &
infrastructure
Government assistance should be extended to provide sustainable technology,
affordable mechanisation to complement and strengthen entrepreneurs to improve &
develop differentiation to compete with large producing countries having economies
of scale.
Quality Nearly 75% from the total production is deployed in tyre manufacturing which
requires RSS type rubber for which quality is not a major issue. Hence this
convenient low quality production should be encouraged to divert into high margin
areas to position Sri Lankan rubber as a quality input or finished industrial inputs.
ProductivitySri Lankan productivity is low compared to India, Thailand & Malyasia. Change of
practices need to improve tapping days & processing methods, such as seek ways to
tap during rainy season, use efficient processing methods; rain guards
Micro Lavel New
plantationsDuring the last two decades considerable area of suburban rubber plantations were
uprooted to avail land for other uses. Considering the prospects new cultivations are
essential to keep the steady supply and growth of inputs. However there is an
increasing trend for new plantations as a result of high prices prevailed during last few
years.
Re-plantation There are some large plantations which consists very old trees which gives a low
yield. These should be systematically uprooted and replaced with improved high-
yielding new clones considering the fact it takes generally 5-7 years to start initial
tapping.
Unconventional
areas Sri Lankan rubber production is affected by monsoon rains. Hence more cultivation
is required in non-conventional dry areas which would be a strenuous task, in order
to maintain a steady supply. In the recent past government has announced incentives
to assist cultivation in Monaragala & Anuradhapura & Jaffna areas but these have to
be actively promoted under a long term action plan.
Increase yield Measures should be taken to derive the optimum harvest from existing plantations
through proper maintenance by way of fertilizer usage and best practices in
plantation.
Skilled labour
Train labour, have a skilled workforce; critical for rubber tapping. Needs mastering
correct techniques of tapping to get proper yields and incorrect tapping damages to
trees which affect medium or long term harvest.
CATEGORY
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CHAPTER 07 – CONCLUSION
Without hesitation we can conclude that the demand for NR is not dwindling. In fact, if not
for the higher costs and the shortage in supply, this commodity will never outstrip demand.
However, as with any other commodity, there are market factors, which affect the demand
for NR. The law of demand states that when all other things are held constant, the demand
falls when price increases (Mankiw, 2006). This is true with NR as well, for example, the
reason people are compromising quality and comfort by using synthetic rubber for the
manufacture of tires, is due to cost.
Economic theory also states that the demand for normal or quality goods increase when
people’s income level rises and the demand for lower quality goods decrease (Mankiw,
2006). Once the global economy recovers from its current crisis, the demand for NR
products would also see an increase.
Demand for any product is closely connected with Supply. This is true for NR as well.
Factors affecting supply for NR are the price of NR in the world market,
The input prices, which include the cost of labour and all such inputs, required
producing NR - an area where Sri Lanka faces problems due to the poor
management of labour and related costs.
Technology is another factor, which affects supply - Sri Lanka’s cost of rubber
production is increasing. Closely connected to Labour issues, the use of out-dated
traditional rubber tapping methods is a key cause.
To summarise, the Sri Lankan rubber industry faces many issues due to internal factors.
However the demand for NR in the world market doesn’t show any signs of reducing in the
longer term. Even though the global market for NR has in recent times shown a dip, even
with a predicted global production surplus in 2012, there is little doubt that the long-term
health of this industry is good. Even with China and Malaysia the world’s biggest rubber
consumers expanding their own plantations, Sri Lankan can still expect a healthy export
market, if only the local issues are addressed in a timely manner.
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REFERENCES AND BIBLIOGRAPHY
Association of Natural Rubber Producing Countries (ANRPC); [Online], Available:
www.anrpc.org [retrieved on 28 Jan 2012, 22:00]
Central Bank: Agriculture Production Index-Annual (2002- 2010); [Online], Available:
http://www.cbsl.gov.lk/htm/english/08_stat/s_2.html [retrieved on 26 Jan 2012, 22:00]
Central bank Annual Report 2010, pp. 30-33
China Daily (2012), Sri Lanka's rubber traders face slow start in 2012; [Online],
Available: http://www.chinadaily.com.cn/xinhua/2012-01-06/content_4892049.html
[retrieved on 26 Jan 2012, 22:00]
Daily News (2011) Poor Replanting adds to short supply and high price; [Online],
Available: http://slrubberindustry.com/page/36/ [retrieved on 26 Jan 2012, 22:00]
published on February 24th, 2011 by Admin SLRI in Published Articles
Dr. N. Yogaratnam (2011) Linking performance to quell wage woes; [Online], Available:
http://slrubberindustry.com/page/36/ [retrieved on 26 Jan 2012, 22:00] published on
February 24th, 2011 by Admin SLRI in Published Articles
Gevers , Nico (ND) Natural rubber in tires: present status and future trends; [Online],
Available: http://www.eu-pearls.eu/NR/rdonlyres/E7706068-7726-4C87-A81A- [retrieved
on 26 Jan 2012, 22:00]
“Global warming threat to natural rubber”; Daily News, (January 19, 2011)
International Rubber Study Group; [Online], Available:
http://www.rubberstudy.com/documents/WebSiteData.pdf [retrieved on 28th Jan 2012,
22:00]
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IRSG Forecasts Rubber Consumption Growth; [Online], Available:
http://www.rubberworld.com/RWmarket_report.asp?id=660 [retrieved on 28th Jan 2012,
22:00]
IRSG Rubber Statistical Bulletin (2011); [Online], Available:
http://www.rubberstudy.com/documents/WebSiteData.pdf [retrieved on 26 Jan 2012,
22:00]
Mankiw, N. Gregory (2006) Principles of Economics, 4th edition, Thompson South-
Western Rubber Statistical Bulletin; [Online], Available:
http://www.rubberstudy.com/documents/WebSiteData.pdf [retrieved on 24 Jan 2012,
22:00]
NR production - The Rubber Economist Ltd; [Online], Available:
http://www.therubbereconomist.com/The_Rubber_Economist/NR_production.html
[retrieved on 28th Jan 2012, 22:00]
Rubber Asia (2012) ; [Online], Available:
http://www.rubberasia.com/v2/index.php?option=com_content&view=article&id=600:rubb
er-trends&catid=10:rubber-trends&Itemid=15 [retrieved on 25 Jan 2012, 22:00]
Rubber Manufacturers Association, (2012) ; [Online], Available:
http://www.rma.org/about_rma/rubber_faqs/ [retrieved on 26 Jan 2012, 22:00]
Rubber Research Institute of Sri Lanka statistics; [Online], Available:
http://www.rrisl.lk/sub_pags/statistics.html [retrieved on 27 Jan 2012, 22:00]
Sri Lankan Rubber Industry forum (2010) Impressive progress in rubber growing but
challenges remain; [Online], Available:
http://slrubberindustry.com/2010/07/30/impressive-progress-in-rubber-growing-but-
challenges-remain/ [retrieved on 27 Jan 2012, 22:00] published on July 30th, 2010 by
Admin SLRI in Published Articles
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Sri Lankan Rubber Industry forum (2011) Poor Replanting adds to short supply and high
price; [Online], Available: http://slrubberindustry.com/page/36/ [retrieved on 26 Jan 2012,
22:00] published on February 24th, 2011 by Admin SLRI in Published Articles
Sri Lankan Rubber Industry; [Online], Available:
http://slrubberindustry.com/2012/01/07/sri-lankas-rubber-traders/ [retrieved on 28th Jan
2012, 22:00]
Sunday Times (2011) ; [Online], Available:
http://sundaytimes.lk/110710/BusinessTimes/bt08.html [retrieved on 26 Jan 2012, 22:00]
The Rubber Development Department of the Ministry of Plantation Industries; [Online],
Available: http://www.rubberdev.gov.lk/web/index.php?lang=en [retrieved on 28th Jan
2012, 22:00]
UNCTAD Commodity Market Information; [Online], Available:
http://www.unctad.org/infocomm/anglais/rubber/characteristics.htm [retrieved on 26 Jan
2012, 22:00]
