Rubber farm economics in Thailand

A natural resource with an unloved past but a promising

Natural rubber, also called India rubber or caoutchouc is harvested mainly in the form of latex from rubber trees (Hevea brasiliensis, RRIT251, RRIM600) as a renewable natural source. As a general rule, rubber trees are tapped about once every two days, each time yielding about 50 g of latex. Rubber trees are no native inhabitants in Thailand. The first rubber tree in Thailand has been planted by a Thai-Chinese investor in 1899. That tree, respectively the great, great grandson of the original, is located in the town of Kan Tang, in the province of Trang, roughly 30 km west of the provincial capital of Trang city.


source: tradingeconomics.com

As of today, Thailand is head to head with Indonesia the world’s largest producer and exporter of natural rubber, accounting for about one-third of global supply. The country’s rubber production has more than doubled from 1.6 million to 3.8 million metric tons in the past two decades, about 90% of which is for export. The world’s third biggest player is Malaysia. Natural rubber is mainly used for tires, surgeons’ gloves, condoms, balloons and other relatively high-value products. Therefore the rubber price highly depends on world economic situation and petroleum price.

Rubber trees are cultivated in monoculture commercial plantations. Rubber plantations are actively managed for the commercial production of latex on a large scale. Rubber plantations are typically privately owned. Due to various success factors, a long-term growth cycle and a changing legal and business environment it has to be qualified as a high risk and high reward investment in a both valuable and volatile commodity.

In Thailand, rubber brings in more money from exports than rice. The export value of natural rubber between 2010 and 2013 averaged US$ 9.3 billion a year, compared with Thai rice at an average export value of US$ 5.3 billion a year, as statistics show. But more Thais are employed in the rice industry. An estimated 1.2 million Thai households have someone who works on a rubber plantation, which is only about one-third of rice-farmer households, according to government data.

 

Smart clearance of legal hurdles – learning from the mistakes of others

Any investment has to be carefully prepared for because Thailand is a highly regulated legislation and the land encroachments of the past will not be tolerated in the future. Each farm acquisition needs a comprehensive due diligence, and no investor should lay his trust alone on a proper registration at the local land office.

A complex legal framework and changing governmental policies for Thailand’s forest add additional complexity to the project. Apart from the primary forest legislation sources as

  • Forestry Act of 1941,
  • Forest Protection Act of 1992,
  • National Park Act of 1961,
  • National Forest Reserve Act of 1964, and
  • Conservation and Protection of Wildlife Act of 1992,

relevant forest authorities and their plans and policies are the Royal Forest Department (RFD) of Ministry of Natural Resources and Environment (MNRE), the National Forest Committee, the National Economic and Social Development Plan and the Policy and Prospective Plan for Enhancement and Conservation of National Environmental Quality (1997-2016).

However, it should be noted that foreign investments in Thailand rubber farming face certain additional legal and factual hurdles. These are, above all:

  • Foreign investment restrictions under the Foreign Business Act,
  • Restrictions in foreign land acquisition under the Land Code,
  • High dependence on local people and local knowledge,
  • Non-transparent calculation of profitability and financial forecast,
  • Lack of physical presence on site favors manipulations and theft of latex and trees, and
  • Limited financing facilities for foreign investments.

All in all a rubber farm investment has even in these times for the good advised investor attractive benefits to offer. The legal hurdles are tough, but experience shows that they are not at all insuperable.

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Acquisitions and sales of rubber farms


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