An illicit cross-border rubber trade is thriving in Cambodia amid plummeting global prices and is threatening legitimate processing operations in the country, according to business owners and industry experts.
The first half of the year saw local rubber prices tumble by about 30 percent due to global pressures, leaving factories struggling to maintain their operations.
And while Cambodia’s natural rubber export tariffs are set at between 2 and 10 percent, Vietnam has moved to ease the impact on its rubber farmers, slashing export taxes from 5 to 1 percent last December before removing tariffs altogether on October 2.
Prachaya Jumpasut, managing director of London-based industry analysis firm The Rubber Economist Ltd., said Southeast Asia’s illicit rubber trade is particularly sensitive to export taxes.
“Smuggling [does] occur between border trading…. They tend to be more when there are changes to export taxes,” he wrote in an email.
Philippe Monnin, technical adviser for the French Development Agency, said many Cambodian farmers had been forced to offload their rubber to middlemen, as local processing factories cannot afford to buy it.
“Because the price has been down, the factories have had less cash to buy from the smallholders who…every day need to find someone to sell to and have been obliged to sell to middlemen who then sell to Thailand and Vietnam,” he said.
Though prices have begun to creep up after Asia’a major rubber producing countries agreed to set a floor price in October, factory owners say they still cannot compete with black market buyers looking to take advantage of Vietnam’s tariff removal.
Khun Meng, chairman of rubber manufacturer Khun Meng Group, said he had been forced to lay off 70 of his 100-strong workforce because he has been unable to source rubber.
“The smuggling of rubber to Vietnam…means our factory finds it difficult to buy rubber from farmers. We have gone from being in operation 24 hours per day to between five and eight hours a day,” he said.
Hin Pheka, the owner of Ly Sokim Rubber Manufacturing Factory in Tbong Khmum province, said she pays almost $100 in taxes to export one ton of rubber, preventing her from matching black market prices.
“We have to pay tax, while they don’t,” she said. “If we offer the same price to farmers, we will lose out.”
Even government officials admit that the rubber industry, a central part of its agriculture policy, is under threat.
Pol Sopha, deputy director-general of the General Directorate of Rubber at the Agriculture Ministry, said his department was unable to tackle the black market.
“The General Directorate of Rubber does not have the competency to stop those smuggling activities, but the provincial authorities are the persons who are in charge of taking action,” he said.
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