Saturday, May 18, 2024

Malaysian Rubber Board – Tapping the Rubber Gold Mine

The significance of rubber to Malaysia is difficult to put into words. It is a commodity interwoven into the history of our growth as a nation which has paved the way for Malaysia’s economic development for nearly 140 years. Central to that growth, lies the Malaysian Rubber Board (MRB) – custodian of the Malaysian rubber industry, on a journey today to monetise RM4.2 billion of untapped potential in the industry and usher in a new era of rubber for Malaysia – one branded on quality and sustainability.

MRB was established in 1998 to assist in the development and modernisation of the rubber industry through research and development (R&D) and technology transfer in the upstream, midstream and downstream segments. The research and support of MRB have allowed the Malaysian rubber industry to evolve and remain relevant throughout the different phases of the country’s development.

Once the number one rubber producer in the world, Malaysia now consumes more rubber than it produces. In terms of rubber production, the country is ranked seventh in the world behind powerhouses such as Thailand, Indonesia and Vietnam, and third for exports of rubber products. With declining rubber prices and intense competition in the region, the role of MRB is now more important than ever.

The Glory Days

Like many Malaysian children in the 1970s, MRB’s Chairman, Lee Chin Cheh, and Director-General, Datuk Dr. Zairossani grew up in rubber plantations, with a deep love for this commodity that gave life to their communities. Helping parents who were rubber smallholders, they more than most, understood first-hand the plight and hardships of rubber tappers in the country. So they probably are the two best people to transform the rubber industry from challenges to opportunities.

The research conducted by MRB have greatly contributed to the global rubber industry. Wherever you go, you can find our presence.

– Lee Chin Cheh,
Chairman of the
Malaysian Rubber Board

“Rubber tappers have to go out at wee hours in the morning to tap and they have to do it multiple times a day. “I would wake up at three in the morning to tap the rubber in my parent’s land in Segamat, Johor until around six before leaving for school,” Lee shares. This young boy who helped his parents tap rubber went on to become a successful lawyer and politician before coming full circle to helm an entity close to his heart, MRB.

Datuk Dr Zairossani though went straight from tapping rubber to joining the Rubber Research Institute of Malaysia (RRIM) where he received a scholarship to pursue his Masters and PhD in the research of his beloved rubber which led him to join MRB in 2015 as the Deputy Director-General for Research and Innovation. “I owe everything to rubber,” he tells International Business Review.

The model of smallholding is no longer relevant to the Malaysian rubber industry. We need to go back to the era of estates.

Datuk Dr Zairossani Mohd Nor,
Director-General of the
Malaysian Rubber Board

International Business Review sat down with Lee and Datuk Dr Zairossani to hear their exciting plans to address the most pressing issues in the industry today. And by doing so, build a new model for the rubber industry to drive value and sustainability across the supply chain. The passion was palpable, and if we can impart even half of that into this article, we would consider that a job well-done.   

A Century of Contributions

While MRB is only 23 years old, its legacy goes beyond that. When the Board was established, three agencies were merged, bringing the research, regulatory and management of the rubber industry under one umbrella. This consists of the Malaysia Rubber Research and Development Board (MRRDB), the Malaysian Rubber Exchange and Licensing Board (MRELB), and RRIM.

Source: Malaysian Rubber Board and Department of Statistics Malaysia

“MRB is the pioneer rubber research agency in the world,” Lee states.

“The research conducted by the Board through RRIM and our research outfit in London, the Tun Abdul Razak Centre – established in 1925 and 1938 respectively – have greatly contributed to the development of the rubber industry in Malaysia and the world.”

Throughout its years of R&D, the Board has introduced various products and technologies that help address specific issues experienced by Malaysian rubber producers.

For instance, MRB has over 20,000 acres of land purely for research, whereby clones that have high latex yield are cultivated, developed and researched upon. “Clones refer to variants of rubber trees,” Lee explains, “And those cultivated by MRB over the years were adopted in many rubber-producing countries.” Stimulants which were first developed by MRB to enhance latex production was also used in many rubber industries around the world.

Malaysia was also the first in the world to introduce its Technically Specified Rubber (TSR) known as the Standard Malaysian Rubber (SMR) in 1965. Lee reveals that this was emulated by other countries like Indonesia and Vietnam that developed their own TSR such as the Standard Indonesian Rubber, Standard Vietnam Rubber and more.

One of the most notable products developed by the Board in recent years is the Specialty Natural Rubber known as ecoprena and pureprena. These are chemically modified rubber with the properties of synthetic rubber. As such, they have a wide variety of applications but unlike synthetic rubber, are derived from renewable sources.

Lee refers to these achievements as MRB’s contributions to mankind. “Wherever you go in the world – Thailand, Vietnam, Indonesia and even Africa – you can find our presence,” he says with a smile.  

The RM4.2 billion Conundrum

The decline in natural rubber prices is one of the biggest challenges faced by the industry today. It brings into question the long-term economic viability of rubber production in the country which is reflected in a stagnant upstream sector, plagued by low productivity and output.

Source: Malaysian Rubber Board and Department of Statistics Malaysia

The acreage of rubber trees planted in Malaysia is similar to Vietnam, but the former falls behind in output. “Vietnam is producing 1.2 million tonnes of rubber annually, but Malaysia is producing only half that amount. This means a shortfall of 600 thousand tonnes per year,” Lee highlights. “If we convert this to SMR whereby one tonne is currently equivalent to RM7,000, this translates to RM4.2 billion of untapped potential in the rubber industry,” he points out.

For example, Malaysia accounts for 65 percent of global rubber glove production. Datuk Dr Zairossani reveals that 90 percent of latex used by the Malaysian glove industry however, are imported from Thailand because Malaysia is simply not producing enough.

Malaysia is therefore faced with a conundrum whereby it has the land and the trees, and the best quality latex (owing to inherently low levels of minerals in its soil), but we are literally not tapping into the potential gold mine. There are two main reasons for this – the first being the model of smallholding that dominates the local industry.

According to Datuk Dr Zairossani, there are over 1 million hectares of rubber plantations in Malaysia, and 95 percent are owned by smallholders. These refer to individual farmers that operate not more than 100 acres of rubber plantations. In Malaysia, 50 percent of these plantations are not being tapped.

“Smallholders in Malaysia are no longer dependant on rubber. As such, they are price-sensitive. There is no incentive for them to tap their trees if the rubber price drops,” Lee shares. This is in comparison to countries like Indonesia and Vietnam where rubber tapping will continue regardless of the weather.

Ekoprena is a sustainable specialty natural rubber for tyre applications. Despite carrying properties of synthetic rubber,
it is naturally sourced and has a low carbon footprint.

Low productivity is also due to the low number of tapping days. He explains that MRB generally recommends that rubber trees be tapped every three days. That comes to about 90 days in a year. However, the average tapping days in Malaysia stand at 40 to 50 days.

Secondly, smallholders in Malaysia prefer to produce cup lumps over latex. Lee explains that when rubber trees are tapped, the latex needs to be collected which means that smallholders need to make one more trip to the plantation. If the milk is left overnight, it will coagulate and turn into lump which can be collected and sold as cup lump.    

The massive mismatch in the supply and demand of rubber is staggering. As Datuk Dr Zairossani points out, “The industry wants latex, but we are producing cup lumps.” The only thing standing in the way is effort.

So, here we are.  

Malaysia is sitting on a RM4.2 billion rubber gold mine. What is the key to unlock that potential? If the Malaysian rubber industry continues to produce cup lumps and SMR, and remains unattuned to market demand, that gold mine is lost.  

The solution is two-pronged – incentivise the upstream while empowering the downstream.

Incentivising the Upstream

The biggest challenge for MRB is to incentivise smallholders and most importantly, increase their income. “In certain areas in Pahang and Kelantan, rubber smallholders are among the poorest in the country,” Datuk Dr Zairossani shares. “Ideally, they need to produce 2,000 to 2,300 kg per hectares per year to earn above the poverty line. Currently, they are only producing 1,400 kg per hectares annually,” Datuk Dr Zairossani highlights.

Therefore, MRB’s main focus within the next three years is to maximise Malaysian rubber production to 1.2 million tonnes and unlock export value worth RM100 billion. The Board knows that to achieve this, it needs to look past conventional methods and opt for a more focused approach.

Source: Statista

“The model of smallholding is no longer relevant in Malaysia,” Datuk Dr Zairossani explains. “We need to go back to the era of estates and consolidate smallholders to optimise their management and operations.”

This is the idea behind Target – the Rubber Industry Transformation Project (Projek Transformasi Industry Getah) which aims to raise the living standards of smallholders and also increase the supply of quality rubber to the downstream. The project was launched by the Ministry of Plantation Industries and Commodities (MPIC) last year.

Under Target, smallholders come together as a cooperation whereby their production is integrated. Cup lumps from individual farms will be processed as a thin layer of sheet known as crepe at a small processing centre. The selling price of crepe is 30 percent higher than cup lumps. Aside from the sale of cup lumps, profit from the crepe rubber sold will also be redistributed to the smallholders. 

Research conducted by the Malaysian Rubber Board (MRB), focused on innovation, sustainability, processing, crop management and more, has greatly contributed to the upstream, midstream, and downstream sectors of the Malaysian rubber industry and beyond.
Cuplumps form when uncollected latex from rubber trees coagulate into a cup. They are the preferred form of harvest for many smallholders in Malaysia, but sell at lower value compared to rubber crepe and latex.
Standard Malaysian Rubber (SMR) serves as a benchmark for other technically specified rubber in the market.

“There are many benefits to consolidating smallholders. Firstly, it builds a more conducive ecosystem for technology transfer and training to smallholders. Any assistance from MRB can also be communicated more efficiently,” Datuk Dr Zairossani argues. “Most importantly, it will encourage vertical integration, thus production can be increased and costs managed.”

Empowering the Downstream

Despite the reduction in upstream output, the rubber industry’s contributions to national exports have been on an upward trend. In June 2021, exports of rubber and rubber products stood at RM44 billion, a 150 percent increase compared to the same period last year. According to MPIC, this number is expected to reach RM80 billion in 2021.

Unsurprisingly, the rubber products industry thrived during the COVID-19 pandemic, driven by the high demand for rubber gloves. In 2020, the exports of rubber products increased by 75.6 percent to RM41 billion in 2021 compared to RM23.3 billion in 2020.

Source: Malaysia Timber Industry Board and Department of Statistics Malaysia

MRB’s role in the downstream segment has been to assist manufacturers in increasing efficiency through R&D. The focus is on further enhancing the competitiveness of Malaysian rubber to meet the demand for value-added and sustainable products. MRB aims to achieve this through the Kedah Rubber City (KRC).

KRC is envisioned to be a new industrial zone for rubber – the first of its kind in Malaysia.  The 1,224 acres of land will be allocated to the manufacturing of advanced latex products, tyre and tyre-related products, automotive and engineering rubber products, advanced rubber materials, as well as the development of biotechnology.

Designed to be a “Green Rubber City”, KRC is equipped with a centralised waste management system, thus facilitating more sustainable and efficient means of production and addressing the need for efficient environmental management in the rubber industry.

One for the books! An image taken in 1972 of Queen Elizabeth II tapping rubber in Sungai Buloh.

“With the existing infrastructure and resources available at KRC, as well as the support from MRB via our Research Station there, we hope that it will stimulate the downstream sector and at the same time, create demand for high-value and quality rubber, thus empowering the upstream and midstream sectors,” says Datuk Dr Zairossani.

Optimising the Supply Chain

Through these initiatives, MRB is laying the groundwork for supply chain optimisation. “The conventional approach of viewing the downstream, midstream and upstream as individual segments is no longer applicable. To optimise value, we need to look at how these segments interact with one another,” Lee highlights. The aim is to add value across the supply chain through R&D. 

According to Lee and Datuk Dr Zairossani, this is integral to differentiate Malaysian rubber and rubber products from its competitor. “We have limited land. We cannot compete in terms of volume, but we can compete in terms of value,” Datuk Dr Zairossani explains. Ultimately, this will materialise MRB’s long-term plan to drive sustainability, quality and transparency in the industry.   

Rubber is used in a wide range of applications including construction. The Second Penang Bridge is the longest bridge with high damping rubber bearings installed, designed to protect the bridge from structural damage during earthquakes.

The next step for MRB is to ensure that the right infrastructures are in place. In 2020, MRB developed RRIMniaga, a mobile application that leverages Big Data to improve, streamline and monitor rubber transactions at the farm gate level.

“Smallholders are provided with identification cards which are registered in RRIMniaga. When a sale occurs, it will be recorded and an electronic receipt will be issued,” Datuk Dr Zairossani explains. “The objective is to enhance transparency in the rubber supply chain and ensure that rubber products can be traced to legal and sustainable sources.”  

In addition, RRIMniaga facilitates monitoring as it provides MRB with real-time data on rubber production at the district and national levels. He shares that RRIMniaga was used by the Ministry of Finance to identify rubber industry players in the B40 bracket for the implementation of the Bantuan Prihatin Rakyat Stimulus Package during the pandemic.

The platform also complements the Rubber Production Incentive (Insentif Pengeluaran Getah – IPG) mechanism. IPG was designed to ensure that smallholders can generate a stable income despite fluctuations in rubber prices. It introduces an activation price, whereby should the price of rubber fall below RM2.50 per kg, MRB will pay smallholders the difference.

“Previously smallholders need to submit their IPG application manually. This requires them to travel to MRB in Kuala Lumpur. Now through RRIMniaga, smallholders will be reimbursed automatically as transactions are all done and recorded online,” Datuk Dr Zairossani highlights. This proves to be more efficient in encouraging smallholders to make use of the incentives provided.

MRB has also developed the e-Rubber Processor system that provides information on the raw materials purchased by rubber manufacturers. This ensures that traceability and sustainability can be reinforce transparency throughout the supply chain.

Rubber has been instrumental to the nation’s economic development and MRB is committed to see to it that only brighter days are ahead for the industry. By both incentivising the upstream and empowering the downstream, MRB aims to address the disconnect between what we have and what we are not utilising. MRB is building back better, with a vision that is focused on prosperity for the nation and the people, and a mission to usher in a new dawn for Malaysian rubber.  

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