The Rubber Sector Confronted With a Dilemma

Experts say companies must act responsibly to avoid social upheaval

siem reap city – Soaring rubber prices on world markets coupled with a strong outlook for demand from China and India had investors here yesterday eagerly discussing the prospects of healthy profits.

And with a rather scarce amount of land under cultivation, Cambodia is fast becoming a destination for potential growth.

By the end of 2010, there were a total of 181,450 hectares to grow rubber in Cambodia. Over the next decade, that number is expected to surpass 300,000, said Ly Phalla, di­rector general of the general directorate of rubber in the Agri­culture Ministry, while speaking at a rubber summit in Siem Reap yesterday.

“Economic land concessions have sharply increased,” he said to an audience of agribusinesses and ex­­perts from rubber producing countries like India, Malaysia and Thailand.

Indeed, the confidence flowing through the sector is catching on. In January, the Malaysia-based rubber glove manufacturer Top Glove Cor­poration Sdn Bhd an­nounced it would invest $52 million in an 8,000-hectare plantation in Cam­bodia.

But experts say the rubber in­dustry in Cambodia also threatens to displace thousands of families and cut down precious forestland unless new entrants into the sector act responsibly.

“The higher prices go, the more feverishly people will look for land. So, the less they will do the due diligence,” said John McClure, a research economist specializing in rubber for LMC International. “At this price, people do very stupid things.”

During mid-afternoon trading yesterday on the Tokyo Commodity Exchange, rubber sold for 524.9 yen, or $6.31, per kilogram, a 94 percent rise compared to January 2010.

Countries like Thailand, which had nearly 2 million hectares of rubber plantations last year producing 2.73 million tons of natural rubber, are taking full advantage. The country pulled in revenues of $7.89 billion in 2010, roughly two-thirds of Cambodia’s entire gross domestic product.

Still, Mr McClure said rising prices could easily spark a wave of speculative companies into the sector who are willing to bypass corporate responsibility in order to make a quick buck.

“Some of them have a long-term sustainable kind of view,” he said. “Other plantation companies are behaving more almost like investors or hedge funds, where they’re trying to find quick returns.”

Experts say one way of avoiding land disputes when investing in rubber is to support small landholders rather than investing in large plantations. That way, land rights are protected and farmers receive a higher degree of security. Ninety-five percent of Thailand’s rubber plantations consist of smallholders compared to 45 percent in Cambodia.

“Whatever the corporation judges to be available versus what someone who is actually living on the land judges to be available is a different thing,” Mr McClure said.

Rubber plantations are already increasing in Cambodia’s northeasterly provinces. And the effect on the local communities is starting to be felt. Earlier this month, ethnic Tampuon villagers in Ratanakkiri province raised fears when bulldozers arrived in the area and, according to witnesses, started to clear their farmland.

CPP Senator and agribusiness magnate Mong Reththy is also involved in a dispute in Mondolkiri province, where about 1,000 families claim part of the 5,000 hectares chosen for one of his plantations.

The two examples are by no means an exhaustive list. But that is not to say that Cambodia’s rubber industry is awash with irresponsible investors.

“As far as land disputes, we have a protocol that we follow,” said Daniel Mitchell, CEO of Grandis Timber Ltd, adding that his company was looking into Cambodia’s rubber sector following inquiries from a tire company, which he declined to name for commercial reasons. “We don’t move anybody. We work around them.”

Mr Mitchell said any potential conflict with locals could always be resolved as long as villagers are assured a land title and given the option of paid work.

He added that it was the responsibility of investors to make sure they did business ethically rather than the government’s for handing out licenses to irresponsible companies.

“I’m responsible for my investors. My investors say that this is the standard. That makes it my responsibility, not the government’s,” he said.

“Land conflicts you always have unless you are in a very, very remote area,” said Ekadharmajanto Kasih, president director of Sampoerna Agro, a company with more than 1.5 million hectares of rubber plantations across the world.

“You need to have a balance between buying a portion of land from them and retaining a portion still for them,” he said.

Though Ith Nody, under-secretary of state at the Agriculture Ministry in charge of economic land concessions could not be reached yesterday, officials at the ministry who spoke on the condition of anonymity said there were rubber companies with close ties to the government that operate outside the control of the general directorate of rubber and with little care for ethical practices.

“Some individuals dared not to report the truth because they have cleared state forest for rubber trees. They are concerned their land will be confiscated,” one official said. “When we control the private companies, we can generate a lot of money from this sector.”

Mr Phalla, referred all questions on the allocation of land to senior officials in the ministry and said he was not responsible for such matters.

Investors say that investing in rubber should not be seen as a short-term project as it can take more than a decade to make a return.

According to Faris Shukery, vice president for Sime Darby Plantation Sdn Bhd, which has rubber and oil palm investments in more than 20 countries, investors must accept a capital outlay of about $5,000 per hectare until the trees are mature enough to start producing.

On that account, Mr Reththy’s project in Mondolkiri province will cost him $25 million before any return is made.

It would seem, however, that investment in the sector is already under way.

“We started to look into this sector after the financial crisis in 2008,” said Ly Mavie, relationship manager for ANZ Royal Bank in Kompong Cham province.

For Wasim Shaik, general marketing manager for Vitex Industries Sdn Bhd, a firm that sells nutrients for rubber, fast growing economies particularly in India and China will ensure growth in the rubber market.

“You should go there and see the number of motorbikes that are made,” he said. “There is a price to pay with the environment, but I don’t think they care.”

 

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