5. OUTLOOK

This section discusses the potential of rubberwood to continue the trend exhibited during the last ten years. The speed at which it has established itself as an important wood product in international markets is indeed remarkable. Many of the factors that have contributed to this have been outlined in the foregoing sections. Because of these factors, it is safe to say that rubberwood will continue to play an important role in furniture, furniture parts and wood-based panel industries.

The present report has also highlighted some of the obstacles to increased rubberwood utilization, chief among them the difficulty to access smallholder resources. Some of these difficulties will probably be overcome in due time. In order for this to happen, however, policy environments will likely have to be streamlined to make rubberwood utilization more attractive. In order for governments (and the private sector) to pay increased attention and allocate appropriate resources, in turn, rubberwood will have to continue to capture increasingly competitive world markets.

The paucity of data, particularly on the demand side, renders the development of sound projections a difficult task. Success stories, such as that of the Malaysian rubberwood industry, can underline the importance of more concerted efforts to mitigate the prevailing information scarcity. The socio-economic difficulties encountered by the large majority of rubber smallholders, as well as the environmental benefits of rubberwood compared to timber harvested from natural forests, would certainly justify the undertaking.

5.1 Rubberwood availability

An appropriate starting point in determining the outlook on rubberwood availability is a look at current projections concerning rubber prices. After the decades-long decline of natural rubber prices to historic lows, international rubber bodies have recently made more optimistic assessments. In 1998, the Association of Natural Rubber Producing Countries (ANRPC) reported production in Malaysia, Sri Lanka and Papua New Guinea would decline, but output in India, Indonesia, Thailand and Vietnam was expected to expand (Koetsawang, 1998). In 1999, the International Rubber Study Group (IRSG) announced that world production of natural rubber would fall short of consumption in 2000 for the second year in a row, leading to a further reduction of stockpiles. The Secretariat of the International Natural Rubber Organization (INRO) has warned of a shortfall in natural rubber supply within ten years unless current trends are reversed.

The International Rubber Research and Development Board has also argued ahead of its 2000 annual meetings that emerging into the new millennium there should be no cause for pessimism in the global natural rubber business. Competitive pressure from other crops may force rubber cultivation to shift into other areas. The Economist Intelligence Unit expects prices to double in 2001, partly because of the current surge in crude oil prices which is leading to higher carbon black prices in the USA. Nonetheless, rubber prices may continue to hover at lower than expected levels, at least until INRO releases its stock of 140,000 tons, which is supposed to be completed by June 2001, as part of its dismantling process.

These expected world demand and price developments, at the very least, should signal to rubber growers that the crop is worth maintaining. On the other hand, the prospect of higher rubber prices, similar to the Asian financial crisis, may induce rubber growers to hold off on replanting while the higher prices last.

The following sections review information on outlook studies that have been done, primarily for Malaysia and Thailand, the two producers with the largest stake in rubberwood supply and demand trends. For selected countries, quantitative assumptions found in the literature are used to derive rough estimates for rubberwood availability.

5.1.1 Malaysia

The Malaysian government has recently confirmed rubber's designation as a strategic commodity. As outlined earlier, the main agencies responsible for coordinating smallholder activities have similarly drawn attention to a strong policy in support of the maintenance of rubber plantations. In spite of these declarations, replanting rates have fallen short of planned and targets, casting doubt not only on the possibility that the decline in rubber plantation areas can be reversed, but also on the long-term projections made during the early part of the 1990s, when replanting rates were considerably higher than they are now. Current replanting rates need not concern us for the moment, however, since trees felled until 2010 were planted during the 1980s.

Table 30 Projected total wood production from rubber plantations in Peninsular Malaysia from 1996-2012

Source: Arshad & Othman (1996).

The replanting rates reported for 1971-87 translate into projected total rubberwood production indicated in Table 30 (Arshad & Othmar, 1996). To derive these, the authors assumed yields of 190 m³ and 180 m³ of greenwood up to 8 cm diameter for estates and smallholdings, respectively. Assuming 57 m³ of usable logs and 18.1 m³ of sawnwood from estates and 54 m³ of usable logs and 10.8 m³ of sawnwood from smallholdings, in turn, produced the outlook on rubberwood logs and sawnwood illustrated in Table 31.

A more conservative assessment was made by Ismariah & Norini (1994). In their projections, they assumed gross yields of 180 m³ and 100 m³ (branches above 5 cm) and net volumes suitable for sawnwood processing of 20 and 15 percent for estates and smallholdings, respectively. While the outlook was more sober, the declining trend in rubberwood availability was confirmed.

Table 31 Projected log and sawnwood production from rubber plantations in Peninsular Malaysia from 1996-2012

Source: Arshad & Othman (1996).

What both of these outlooks appear to leave out is the fact that a considerable share of resources is economically unavailable, estimated to be as much as 20 percent (ITC, 1993). Subtracting this from smallholder plantation areas where trees reach 25 years of age (according to the age distribution data reported in Section 3.1.2 on page 14) and using conversion rates averaging those used by the two outlook studies quoted above generates the projections illustrated in Figure 10 and Figure 11.

The graphs in Figure 10 and Figure 11 corroborate the trends indicated by Arshad & Othmar and Ismariah & Norini. First, an increasingly larger share of total rubberwood production will be available from smallholder plantations. Second, rubberwood log and sawnwood availability will decline steadily until 2004 and bottom-out in 2010 after a short recovery around 2007. These projections may yet prove to be too conservative, in large part because smallholders may chose to postpone replanting if rubber prices increase as expected during the early part of this decade.

Figure 10 Adjusted outlook to 2016 for rubberwood log availability in Malaysia

Note: amounts are in thousand cubic metres.

Figure 11 Adjusted outlook to 2016 for rubberwood sawnwood availability in Malaysia

Note: amounts are in thousand cubic metres.

5.1.2 Thailand

The outlook for Thailand is in some ways similar to that of Malaysia. Both countries have well established, high quality rubber plantations dominated by smallholders. Both countries have made significant inroads into downstream rubberwood processing. Yet the rubber growing sectors in both countries are beginning to show signs of saturation and moves into other crops, though more so in Malaysia than in Thailand. There are also some important differences. Most significantly, Thailand's rubber sector has been expanding throughout the 1990s and is developing a new rubber growing stronghold in the northeast, whereas Malaysia's sector has been contracting. In addition, rubber replanting programs have been more successful in Thailand, providing a more stable long-term outlook to potential investors.

In the projection illustrated in Table 32, the authors assumed that total rubber plantation areas would remain stable at 1.89 million ha; 90 percent of the total area can be economically accessed; sawlog yields are 55 m³ per ha after a 25-year rotation; and logs can be processed into sawnwood with a 30 percent recovery rate (Promachotikool & Doungpet, 1996).

Table 32 Outlook for rubberwood availability in Thailand

Source: Promachotikool & Doungpet (1996).

Compared with data from other studies, this projection is somewhat on the optimistic side with respect to economic availability (ITC in 1993 estimated only 80 percent to be economically available) and with respect of annual felled areas (average areas felled in 1986-1990 and 1991-1995 were 38,300 ha and 33,077 ha, respectively; Paechana & Sinthurahat, 1997). Even so, potential rubberwood and sawnwood availability in Thailand compares very favorably with that of Malaysia.

5.1.3 Indonesia

Indonesia is at present the world's second largest producer of natural rubber after Thailand. Despite acute price fluctuations in the past several years, Indonesia's production volume and exports of rubber have not been significantly affected. From 1993 to 1997, Indonesia's rubber production rose by 1.3 percent on average, from 1.48 million to 1.55 million tons. In 1997, Indonesia exported 1.43 million tons of processed natural rubber, but exports declined by 19.2 percent in 1998, as importers were reluctant to purchase this commodity from Indonesia due to its uncertain political situation. Rubber experts predict that this decline is only temporary and that the annual global demand growth of 2.1%, mainly from the tire industry and other downstream industries, will cause Indonesia's future production and exports to rise again. Rubber estates have gradually been converted to oil palm plantations as the obtained revenue from palm oil has been shown to be at least double to rubber.

The implications of these developments for rubberwood availability are threefold. First, since estates in Indonesia are most likely the main source of rubberwood, availability will gradually decline as larger plantations switch to crops that are more profitable. Economically available plantations have been estimated as low as 45 percent (ITC, 1993).

The lack of information on rubber tree age distributions makes projections difficult. At best, the following rough calculations can provide a point of departure using 1998 as a base year. Assumptions include that rotations are 25 years for estates and 35 years for smallholdings; that all estates qualify as economically available areas; sawlog yields are 36 m³/ha for estates and 15 m³/ha for smallholdings (using the estimates of Ismariah & Norini for Malaysia); recovery rates for sawnwood are 20 percent. These assumptions give the estimates of potential production shown in Table 33.

Table 33 Potentially available rubberwood logs and sawnwood in Indonesia in 1998

This very rough estimation would indicate a level of potential sawnwood production in 1998 that is about 10 percent higher than the conservative estimate for the same year by Ismariah and Norini (1994) for Malaysia.

5.2 Rubberwood demand by processing industries

Potentially available rubberwood need not find an outlet concerned with producing finished rubberwood products. As has historically been the case, a substantial share of harvested rubberwood is either burned at the site or used for fuelwood or charcoal. The increasing use of rubberwood in furniture, furniture parts and panel products suggests, however, that a growing share of available rubberwood finds its way to primary and secondary processing industries.

The momentum that has been created by Malaysia and Thailand will likely encourage other rubber producing countries, particularly Indonesia, to promote more rubberwood utilization. Information on future developments in processing capacity is typically scarce, with the exception of information for Malaysia and Thailand. Table 34 to Table 36 present some forecasts for these two countries.

A number of points are of particular interest in the information provided in these tables. First, the data for Malaysia reveals that significant supply shortfalls are expected for rubberwood sawlogs during the years 2002-06 and again from 2010 and for rubberwood chip logs during the years 2004-06 and again from 2010. These expectations will likely translate into higher prices paid to rubber farmers in close proximity to processing centers.

The second point to note is that, in contrast to Malaysia, Thailand is not expected to face a similar shortage (compare Table 32 with Table 36). For each of the years reported, potential sawnwood supply is at least 300,000 m³ greater than projected demand.

Table 34 Supply and demand of rubberwood sawlogs in Malaysia in 1996-2012

Source: Arshad & Othman (1996).

Table 35 Supply and demand of rubberwood chip logs in Malaysia in 1996-2012

Note: chiplogs have diameters below 8 cm. Source: Arshad & Othman (1996).

Table 36 Outlook for demand for various wood products in Thailand

Note: all amounts are in thousand cubic metres. Source: Promachotikool & Doungpet (1996).

5.3 Export potential of rubberwood furniture

This section addresses the export potential of rubberwood in its two most important forms: furniture and sawnwood. The export potential of rubberwood-based plywood, particleboard and particularly MDF is not assessed in this study because it would be necessary to undertake a more in-depth analysis. It should be noted, however, that if rubberwood processing into panels was to increase dramatically this could limit the availability of rubberwood for the two uses examined here.

To ascertain the likely future demand for rubberwood furniture it is necessary to place trade and consumption of rubberwood furniture in the context of overall furniture trade and consumption. Table 37 shows the relative importance of rubberwood furniture and wooden furniture imports in the main import markets.

Table 37 Relative importance of rubberwood in imports of wooden furniture in 1991

Note: this table includes imports of parts (1) and imports that are subsequently re-exported (2). Imports are measured in US$ million. Source: ITC.

The share of the wooden furniture market held by imports is increasing in the United States of America and Japan. In particular, imports to Japan are increasing rapidly. The recent trend in Japanese imports of wooden furniture is shown in Table 38.

Table 38 shows that Japanese imports from Asian countries increased by 48 percent from 1989 to 1993, while the overall increase was only 17 percent. The formidable growth of Japanese imports of wooden furniture from the main rubberwood producers Thailand (170 percent), Indonesia (241 percent) and Malaysia (671 percent) is evident.

Table 38 Japanese imports of wooden furniture by source (Million yen)

Note: all amounts are in million Yen. Source: MOF.

It is estimated that two thirds of the world market for furniture is made up of industrialized countries (Europe, the United States of America and Japan). There are several factors that explain the growth of wooden furniture imports by the main consuming areas. This trend is likely to continue and probably accelerate in the short and medium term. The factors in favor of wooden furniture imports include:

· increasing production costs in the furniture industries of the main consuming countries;

· low cost of imported furniture parts, which furniture producers can use in the manufacturing of their products;

· increased demand for low to medium priced wooden furniture;

· demographic changes (younger buyers no longer see furniture as once-in-a-lifetime purchases and tend to buy cheaper furniture); and

· increasing demand for fitted furniture, which can be produced on an industrial scale and is easily transported in knockdown form.

Global furniture imports and exports are shown in Table 39 and Table 40. The percentage of total furniture imports accounted for by wooden furniture is not available for all countries, but it is estimated to be between 40-60 percent. Table 39 shows the recent strong growth of furniture imports to the United States of America and Japan (the main markets for rubberwood furniture) and Table 40 shows that in recent years, exports of furniture from the main rubberwood producing countries have grown strongly (61 percent in Malaysia, 56 percent in Thailand and 76 percent in Indonesia).

The trends in furniture imports and exports support the conclusion that rubberwood furniture has become increasingly accepted in recent years. The upward trend in international demand for rubberwood furniture is likely to continue in the future in view of the high level of imports and preference for low and medium priced wooden furniture in large consuming countries such as the United States of America and Japan.

Table 39 World furniture imports in 1992-1995

Note: all amounts are in million US$. Source: CSIL processing of UN data.

Table 40 World furniture exports in 1992-1995

Note: all amounts are in million US$. Source: CSIL processing of UN data.

The prospect for rubberwood furniture demand is less favorable in Europe because of competition from low-priced furniture from Eastern Europe. In this area, rubberwood imports are mainly confined to rubberwood flooring (Netherlands and Germany). In addition, European imports of furniture, although the largest in terms of percentage of consumption, tend to be mainly from other European countries.

In Table 41, strong growth of imports from Eastern Europe can be observed. Imports from Asia grew strongly at the beginning of the 1990s following the dislocation of industries in Eastern Europe but has since slowed down considerably.

Table 41 The sources of European Union furniture imports 1990-1995

* All major producers/exporters. Denmark not included because data not available. Source: CSIL

The Chinese furniture industry produced US$ 8.8 billion worth of products in 1997, competition is increasing and supplies of some varieties are outstripping demand. Domestic producers are facing increased competition from imported products for which tariffs have been cut. Imported furniture in 1997 was worth about US$1 billion. Domestic demand has increased at about 10 percent a year. While preferences in the North are for darker woods, southern China's trend is towards the use of lighter species such as beech, birch, maple and pine. Many of these are imported from the U.S. and Europe. (FDM Asia, 1998)

At the global level, markets will not be an obstacle to growth for rubberwood furniture and furniture parts. Wooden furniture markets are receptive to new products and new designs using rubberwood. In addition, there is a current positive perception about rubberwood. The positive perception among many buyers in Europe, Japan and the United States is the fact that rubberwood is obtained from a renewable resource. Furniture retailers may use this argument to point out the advantage of utilizing a hardwood that is not endangered and is being replanted. Furthermore, its extraction causes little threat to wildlife and, combined with latex production, it represents an efficient type of land use. This has become a distinct advantage for the marketing and acceptance of rubberwood products, especially in countries where environmental lobbies are strong.

5.4 Export potential of rubberwood sawnwood

Malaysia was the first countries to utilize rubberwood at an industrial scale, starting with the production of sawnwood (mainly for export), which stimulated the development of the larger rubberwood industry. Some technological adjustments were needed in order to process rubberwood sawlogs, which tend to come in smaller sizes and shorter lengths. The peak of rubberwood sawnwood exports from Malaysia was reached in 1989 with 221,000 m³ exported, as previously discussed in the footnotes to Table 18.

After the imposition of an export levy and quota in 1990, exports of rubberwood sawnwood from Malaysia decreased rapidly. Rubberwood sawnwood exports were completely banned in 1994. The levy and subsequent ban were certainly successful in encouraging the further processing of rubberwood. An analysis of export statistics, post levy and quota imposition, revealed that export earnings from value added activities, particularly furniture exports, increased significantly. More recently, sawmillers and rubberwood suppliers have lobbied for the reinstitution of an export quota, claiming that stocks in excess of 140,000 m³ were a heavy burden on cost structures. In 1999, customs seizures of sawn rubberwood bound for Hong Kong and Taiwan were frequently reported in the news.

The potential of sawnwood exports to Europe and the United States of America is relatively low, since further processing is relatively intensive-intensive, requiring a high degree of visual grading, collection of off-cuts and residues and sorting them for further processing in order to maximize the yields. This makes it very expensive to process rubberwood in these countries. Rubber producing countries with nascent rubberwood industries, however, may be expected to make inroads into international sawnwood markets in the short to medium term. As the example of Malaysia shows, however, government policies to encourage domestic processing may well curtail such trade.