RI rubber trees face axe for oil palm

RI rubber trees face axe for oil palm

TEBING TINGGI, North Sumatra (Reuters): Security guards with automatic rifles patrol quiet forests of rubber trees on the island of Sumatra in the most stark reminder all is not well in Indonesia's rubber industry.

The gun-wielding guards are there to stop looters, many of whom have become impoverished in Indonesia's economic crisis, and emboldened by its political turmoil.

But plantation thieves are just one of the problems hitting Indonesia's rubber industry, the world's second largest after Thailand's, and fueling a rapid move out of rubber and into oil palm.

Soaring costs, partly triggered by the need for tighter security, weak prices, a shortage of latex and separatist violence in northern Sumatra, are the other woes of the embattled industry.

"Only 70 percent of our capacity is in use," said Jusnadi, the manager of a factory at one of northern Sumatra's biggest rubber processors, PT Adei Crumb Rubber Industry.

Jusnadi's factory, with a capacity of 3,000 tonnes per month, is in Tebing Tinggi, about 100 km (62 miles) south of Medan, the capital of North Sumatra province.

"We are experiencing a shortage in raw materials supply because small holders have converted to other products."

Industry officials say Adei is one of the many processors forced by a national latex shortage to shut down large parts of their operations.

While international rubber prices hover near 30-year lows, latex output has been cut by as much as a third because of overtapping during recent years as farmers and plantations struggled to ride out the Asian economic crisis.

Many rubber trees are suffering, especially as plantation owners have skimped on fertilizers during the financial crisis.

"Normally we get 1.4 tonnes per hectare (per year) on average. We now get only 800 kg (1,760 lb)," said Hakim Bako, marketing manager at the state-owned PT Perkebunan Nusantara II plantation.

To make up for the latex shortage Indonesia is now having to import some raw materials from Thailand, Vietnam and India, said Syarbaini, executive secretary of the Rubber Association of Indonesia, North Sumatra branch.

Looting has become a serious problem since last year's election, the country's first democratic polls in nearly 40 years, as many Indonesians scramble to grab the rewards they feel they were denied during decades of authoritarian rule.

Separatist violence in the island's northernmost Aceh province is also scaring tappers away from Sumatra, which accounts for about 40 percent of Indonesia's annual rubber output of about 1.5 million tons.

A global surplus in near-term stocks, including 140,000 tonnes held by the now defunct International Natural Rubber Organization (INRO), has dashed hopes rubber prices might pick up in line with Asia's economic recovery.

Raw materials are traded at around 4,500 rupiah (48 U.S. cents) per kg -- well below the 7,500 rupiah to 8,000 rupiah industry officials say is necessary for rubber plantations to break even.

"We made a loss of Rp 3 billion in our rubber business in the first four months of this year," said T.P. Panjaitan at PT Perkebunan Nusantara's Medan headquarters.

"Operating costs are rising," complained deputy plantation manager Agus Sularso at one of the firm's plantations near Medan.

"Prices for fertilizer are high. Security measures also cost a lot of money," he said.

More plantations and smallholders are now chopping down their rubber trees and planting oil palm which they say holds more promise, even though international prices for vegetable oil are now low.

Global consumption of palm oil will rise in line with the world's population, they say. Palm oil, the cheapest vegetable oil, is also used to make soap and detergent.

"Prospects are much brighter for oil palm ... World rubber consumption is unlikely to grow much," said Halomoan Siahaan, plantation manager at the PTPN II plantation.