The Malaysian Rubber Board (MRB), the powerful arm of the Malaysian Rubber Industry, is currently engaged in a concerted effort to make the domestic rubber industry self-sustainable amid challenges aplenty such as steep fall in prices, labour shortage, climate change etc. In an exclusive interview to Rubber Asia, Dr Zairossani bin Mohd Nor, the new Director General of the MRB and a world-renowned rubber scientist, says that the Board has come up with a series of innovations as well as plans to consolidate smallholdings, project environmental sustainability and unite the industry together through a self-sustainable rubber industry. The ultimate goal of MRB is to produce high-value jobs and increase revenue in the rubber sector, Dr Zairossani says. EXCERPTS:

What are MRB’s main objectives for the next 5 years and how do you plan to achieve them?

Approximately 90% of all rubber plantations in the country are owned by smallholders and their farms are smaller than 40 acres; the average size of a Malaysian rubber smallholding, however, is slightly above 2 acres. In addition, Malaysia’s younger generation is not that keen to enter the upstream rubber industry owing to the perceived lack of socio-economic opportunities available.
To overcome these challenges, the MRB has come up with a series of innovations and also plans to consolidate smallholdings, project environmental sustainability, and unite the industry together through a self-sustainable rubber industry. The ultimate goal of MRB for the rubber industry is to produce high value jobs and increase revenues in the rubber sector. The innovations of MRB cuts across board, and include breakthroughs in planting and harvesting techniques, as well as technology – all of which are designed to help increase rubber yield.
The MRB realises that the introduction of technology is moot if the smallholders do not plant better-yielding clones and, to manage this problem, MRB engages in the transfer of technologies to implementing agencies that will introduce these technologies to smallholders to increase both their productivity and income. With the support of the Rubber Industry Smallholders Development Authority (RISDA) and Sabah Rubber Industry Board (SRIB) — both Government implementation agencies — Good Agricultural Practices (GAP) training is conducted for smallholders to ensure ongoing replanting and new planting activities.
To ensure that the industry remains competitive and moving towards the right direction, the Malaysian Rubber Board has played a significant role to enhance, revitalize and sustain the rubber industry. Among others, the MRB continues to intensify its R&D efforts to give emphasis to the downstream, value-added sector. Selected areas of R&D in the upstream will continue to be emphasized in order to maintain the industry’s competitiveness.
Today, the Malaysian rubber industry has been transformed into a world-class manufacturer of top quality medical latex gloves, catheters and latex thread in addition to a wide range of tyres and inner tubes, rubber footwear and products for industrial and general use. Malaysia continues to maintain its position as the world’s leading producer and exporter of medical gloves and catheters. Malaysia is also the major consumer of NR latex and the fifth major consumer of natural rubber. The sustained growth was achieved due to domestic measures aimed at enhancing quality, upgrading of manufacturing process, continuous R&D support, persistent market promotions, and increasing export demand despite competition from other rubber products manufacturing countries.
Appropriate programmes have also been drawn out by relevant implementation agencies for the smallholders who are the backbone of this industry to adopt the latest latex harvesting techniques and Good Agricultural Practices (GAP). In addition, the supply chain of rubber marketing system from farm to the rubber processing mills will be reviewed to improve the efficiency.
To accelerate growth and development of the downstream sector, apart from increasing global market share of latex-based products, emphasis will be given to diversifying activities through innovative products, especially for dry rubber goods. High priority will be given on R&D and manufacture of advanced technology and high value-added products. The Government and private sectors will work together for the success of all action plans and initiatives that have been stipulated for the development of rubber industry under the NKEAs.

What are MRB’s plans to protect the interest of smallholders in the backdrop of steep fall in prices?

The Government is concerned about the low rubber prices which have impacted the income of more than 300,000 smallholders nationwide. Among measures that have been implemented by the Government in response to this are as follows:
Beginning 2015, the Government had implemented the Rubber Production Incentive (IPG). RM200 million was allocated for this incentive. The Activation Price Level (PHP) to this IPG is at RM2.20 per kg of cup lump at 50% DRC. The IPG, a form of incentive that is tied to the rubber production, will be based on the differences between the PHP level and the average rubber price of the regions namely, Peninsular, Sabah and Sarawak.
The Government, during the 2017 Budget Speech, had announced a Monsoon Aid Payment (BMT) with an amount of RM 200 per month in November and December 2017 and January 2018 to assist 440,000 smallholders and rubber tappers nationwide. The objective is to ensure the welfare of smallholders and rubber tappers who are guaranteed this assistance during the monsoon season. An allocation of RM 261 million will be provided for the assistance.
The Government has also allocated RM6.4 million to cooperatives as working capital to engage in rubber trading activity. In this mechanism, the cooperatives will buy rubber from smallholders and sell direct to the rubber processor, which automatically shorten the supply chain and reduce the dealers’ margin that is currently practised on the field. To date, a total of 18 cooperatives are involved in this activity and offers higher prices ranging between RM0.10/kg to RM0.20/kg. Furthermore, this encourages cooperative be more active and get involved in supply chain in the industry to gain better margin.
The MRB is also developing technologies to address the low rubber prices through clustering and vertical integration. This model can provide high productivity and increase the income of smallholders.

Being a rubber scientist of international repute, what according to you are the main challenges being faced by the global NR industry, both upstream and downstream? What strategies do you have in mind to overcome these challenges?

Global rubber industry is well-developed with the demand for natural rubber and rubber-related products growing at almost 10% annually from the year 1990 to 2016. Global demand for NR and rubber products in 2016 amounted at USD 135 billion.
Despite the favourable development globally, there are challenges faced by the industry stakeholders. Particularly in Malaysia, Indonesia and Thailand, smallholders are the backbone of the rubber upstream sector while a small portion was produced by the estates. Low rubber prices are the main challenge to the industry as it affects the ability of the smallholders to continue tapping. Smallholders will tend to move to other economic activities to earn income and, if the prices prolonged at low level, then the sustainability issue will turn out to be a major concern.
In this regard, at national level, the MRB and the Ministry will continuously involve and work closely with other countries under the framework of the International Tripartite Rubber Council (ITRC) through its mechanism namely, Supply Management Scheme (SMS), Agreed Exports Tonnage Scheme (AETS) and Demand Promotion Scheme (DPS), to stabilize rubber prices and ensure smallholders to get a fairer price.
In the rubber downstream sector, the tyre sector continues to be the major user of NR, consuming 75% of the total. The NR to SR uptake ratio of 75 : 25 remained as it is for consecutive years. The uptake of NR for non-tyre rubber products is still at a low level. In Malaysia, the industry is dominated by the latex-based products sector. The worldwide usage of NR is still narrow and should be diversified to other products, particularly for industrial and general purposes. As has been mentioned above, DPS is aimed at increasing rubber usage in the three countries by development and commercialisation of new rubber applicants.
On the other hand, the new development of nitrile rubber gloves is also another challenge to the NR industry. In Malaysia, the NR to SR ratio has changed rapidly from previous 80 : 20 in 2005 to 52 : 48 in 2016. Recently, one of Malaysia’s major glove manufacturers planned to introduce the world’s first non-leaching antimicrobial nitrile examination gloves which, I strongly believe, would increase the SR uptakes.

You are an expert in specialty rubber production and green rubber products technology. Could you elaborate on your research and development initiatives in these specific areas as well as on the prospects and challenges facing speciality rubber production and green products technologies, especially Ekoprena and Pureprena?

The MRB has driven the domestic natural rubber industry to stay one step ahead of regional competition by capitalising on growing environmental awareness that has created consumer preference for natural and renewable materials over synthetic products. This spurred Malaysia to produce specialty rubber such as the epoxidised natural rubber (Ekoprena) and deproteinised natural rubber (Pureprena) that can be used in green tyres and high-performance engineering products.
Ekoprena and Pureprena are established specialty rubbers produced through modification processes to enhance technical properties of natural rubber (NR) while still maintaining the inherent advantageous properties of NR. These rubbers are produced from NR as a renewable source to be in line with the global trend towards sustainable and environment-friendly rubber products. These specialty rubbers would expand applications of NR beyond conventional rubber products including tyres, hoses and fenders.
To boost the uptake rate for Ekoprena, the MRB is initiating a trial project on Prasarana Bhd’s Rapid Buses in the Klang Valley using Ekoprena tyres. The road trial commenced in 2015 and the success of the green tyres will be based on parameters including fuel consumption, tyre abrasion and number of passengers.
The development of Ekoprena by the MRB is the result of comprehensive R&D programmes to further enhance value-addition of NR by improving properties and expanding applications for niche and advanced applications, particularly for green rubber products manufacturing. More importantly, Ekoprena is introduced to address growing global concerns on sustainable development and environmental protection.
Applications of Ekoprena are primarily targeted for tyre manufacturing and advanced rubber engineering products. In particular, the use of Ekoprena in the production of green tyres improves fuel efficiency and wet grip, reduces the percentage of non-renewable petroleum-based components and increases re-cycleability of used tyres. All these factors lead to lower carbon emission which ultimately contributes to controlling the greenhouse effect and global warming.
The commercialisation of Ekoprena from a pilot scale to commercial scale requires full commitment from the MRB, industry and also strong support from the Government. The National Key Economic Areas (NKEAs) was introduced as a driver of economic activity that has the potential to directly and materially contribute a quantifiable amount of economic growth to the Malaysian economy. One of the programmes under NKEA for rubber is the commercialisation of Ekoprena and Pureprena which is being coordinated by the Performance and Management Unit (PEMANDU) under the Prime Minister’s Department.
Under the commercialisation of Ekoprena, Felda Rubber Industries Sdn Bhd (FRISB) was licensed by the Malaysian Rubber Board to produce Ekoprena and Pureprena. This is to capitalise on the growing preference for natural and renewable materials over synthetics.
In addition to having advanced properties desirable for most of the applications for rubber products, Ekoprena is responsive to the latest global trends towards environment-friendly or green rubber products and sustainable development. This is achieved through efficient use of natural resources and energy to improve carbon life-cycle of rubber products. These criteria readily qualify rubber products developed from Ekoprena to implement eco-labeling programmes worldwide.
The MRB and NADICORP Holdings Sdn Bhd signed an MoU for research on commercial applications of environment-friendly tyres based on advanced natural rubber on December 30, 2015. This agreement is for a joint research project between the MRB and NADICORP Holdings to commercialise Pureprena and Ekoprena which is EPP 4 in the NKEA. The MRB-NADICORP cooperation projects will be implemented over three years from 2016 to 2018.
On August 14, 2015, a memorandum of agreement (MoA) was signed between Prasarana Berhad and the MRB for a research collaboration project for use of environment-friendly Ekoprena tyres in six bus routes in the Klang Valley. Ekoprena retreaded tyres will be manufactured by Sun Tyre Industries Sdn Bhd and will be mounted on the rear wheels of the bus. This project will be implemented over three years from 2015 to 2017.

What would be short-term, medium-term and long-term impact of the inroads being made by nitrile latex on the NR glove industry?

The fast development in the nitrile gloves sector is a challenge to NR industry. However, the demand for these two types of gloves has its own market. The increase demand of nitrile gloves is believed not to slow down the current demand and production of NR gloves. The current demand for both nitrile and NR gloves is robust. In early 2017, we noted that several coal-based vinyl glove factories were forced to shut down due to the environmental pollution issues and this has lowered down the supply of vinyl gloves from China. In first quarter 2017, Malaysia’s glove export volume jumped 19% year-on-year, significantly higher than global glove demand growth of 6% per annum. It is believed that Malaysia has gained market share year-to-date (2016: 63% of global market share) for both NR and nitrile gloves.

It is heartening that Malaysia’s leading glove makers are in the process of expanding capacities and facilities, as well as investing more into R&D. What drives these expansions?

Malaysia is the world’s largest manufacturer of medical rubber gloves and condoms. Malaysia supplies 63% of the global needs. Driven by the global consumption of medical examination and surgical gloves from the healthcare industries as well as the greater demand of clean-room gloves from manufacturing industries, Malaysia led the global rubber glove production in 2016, manufacturing around 133.6 billion pieces. Rubber glove exports were worth RM 13.3 billion, continuing the country’s streak as the world leader in rubber glove production for over two decades running. This is a great market opportunity for the Malaysian glove companies. Along the time, these companies are expanding to increase capacity in meeting escalating demand.
A major consumer of the product is the healthcare sector where demand growth continues, driven by healthcare awareness and the rise in spending in both the public and private sectors along with increasing regulation of the sector. Furthermore, a recent major development is China’s participation in Paris Climate Agreement, whereby the country is expected to push the move from vinyl plastic gloves to rubber gloves.
With the consistent strong demand for rubber gloves from Europe and the United States, as well as increasing consumption in the Asian markets, the global outlook in terms of demand remains very encouraging. In addition, demand for rubber gloves continues to grow in line with increasing hygiene standards and healthcare awareness, along with a growing ageing population who are susceptible to disease and require more medical attention. Overall, gloves makers have great expansion prospects moving forward.

Labour shortage is a major issue facing the upstream NR industry. What is the solution for this?

The plantation sector in Malaysia has long been facing the difficulty of labour supply. While foreign worker recruitments deemed to be the best solution for the time being, there is an increased concern over the dwindling labour supply from neighbouring countries and also tightening regulations on foreign labour by the Government due to the rising social and security problems.
The rubber industry upstream sub-sector is not spared from the labour supply woes. Of the total rubber area of 1.07 million hectares, 7.21% is owned by plantation companies which last year employed 10,264 workers (source: DOSM). These plantation companies faced difficulties in attracting local labour and, based on survey in 2015, there was a shortage of about 4.99% of total labour requirement. In order to meet this labour shortage, employers are forced to hire unskilled foreign workers; but over-reliance on foreign workers can have detrimental consequences, including the long-term effect to tree productivity.
Realizing the fact that tapping and collection processes are labour-intensive, R&D efforts on mechanized tapping and collection system have been expedited, and it is expected that, by the end of this year, the much awaited state-of-the-art mechanised tapping system will be ready for a roll-out.
Prior to that, a combined approach of land:man ratio with tapping intensity to overcome the problems of conventional tapping led to the introduction of Low Intensity Tapping System (LITS). To date, the MRB has introduced LITS d/4 and LITS d/6 tapping systems that can be used in rubber plantations and also among the smallholders. LITS has reduced tapping intensity with emphasis on lowering the tapping frequency, increase tree productivity by using latex stimulant. With the introduction of LITS, it will also increase tapper productivity by increasing land:man ratio. On the other hand, the estate owners are encouraged to adopt alternative tapping operations. The estates can resort to the following alternative tapping operations that will reduce tapper requirement:
• Enlarging Tappers Task, ie tapping 600 trees instead of the conventional 500-550 trees.
• Division of Labour (DOL) in Tapping Operations whereby only skilled workers are tasked to tap while those unskilled labourers are given the task of latex collection. This method has proven to reduce the labour by about 30%.
• Combination of Low Frequency Tapping System with enlarged task

Tapping automation is yet to become successful. Why is it so? Please elaborate.

Implementation of the MRB automation tapping system or ARTS has been conducted in small-scale trial, and the concept is proven to be effective. However, to manage such system in a small holding may not be feasible at this stage due the economics of scale whereby ARTS requires a total management including setting up, servicing and maintenance to ensure effectiveness. Malaysia’s rubber is mainly from these smallholdings, thus the costs of implementation ARTS are more apt for the estate sector under a more organised business management system.
Another factor that also will contribute to the costs and effectiveness of ARTS is the uniqueness in both physical and physiological aspects of the rubber trees. Among the challenges of ARTS effectiveness are the full functionality of ARTS and its effectiveness being attached to each tree, and also the surrounding aspects including disturbance due to animals, weather and others.
MRB has proved the concept is technically possible, and we see that a few universities around the region are working on similar projects to help increase the productivity of the rubber trees and reduce the dependence of labour. It is hoped that the direction spearheaded by the MRB will pave the way towards better technology for the rubber industry.
Sustainability of the NR industry has of late emerged as a major concern in the backdrop of the recent dip in prices and lack of interest among farmers in NR cultivation. Appreciate your detailed comments on this.
In Malaysia, natural rubber production is a smallholders’ industry. Apart from price that remains the bottom line for the sustainability of the industry, among other factors influencing are rate of new and re-planting, climate change, and the Government policies and programmes.
Smallholders, particularly in Malaysia, are very sensitive to the price changes. Whenever the price of NR declines to a certain level, smallholders will abandon their farms. In the smallholding sector, the owner and the tapper equally share the income from selling rubber and low NR price means rubber tapping is not remunerative. Besides shifting to other economic activities, smallholders who have other source of income would leave their holdings abandoned.
Despite that unfavourable scenario, the rubber industry will remain a strategic sector in the Malaysian economy. The Government has undertaken several efforts at the national and international level to stabilise NR prices with the aim of sustaining the Malaysian rubber industry. At the national level, the four entry point projects (EPPs) under the National Key Economic Area (NKEA) continued to be implemented. These include maintaining the production area of one million ha and increasing the average yield. The framework also covers accelerating downstream activities and commercialising new rubber products to value add rubber exports for the country.
In addition, concerning on low income of smallholders, the Government has put in place mechanisms in supporting them and with the aim of sustaining the industry as well. The Rubber Production Incentive and the Mechanism in Supervising Rubber Prices are among short-term measures in helping smallholders who are hit by the impact of low rubber prices. These measures will encourage them to continue tapping and producing the raw material for the midstream.
At the international level, the International Tripartite Rubber Council (ITRC) which consists of Thailand, Indonesia and Malaysia (TIM), continues to work closely to ensure a favourable price for the growers via implementing the three measures, namely the Supply Management Scheme (SMS), the Agreed Export Tonnage Scheme (AETS) and the Demand Promotion Scheme (DPS). The SMS is a longer-term measure to rationalize world NR supply to maintain a balance such that price could be maintained and sustained at a reasonable level. AETS, on the other hand, is a short-term measure aimed to restrict exports through quota, to address the transient imbalances between supply and demand. The DPS would find ways promoting new usage or application of NR to upsurge demand.

How do you assess the initiatives being taken by ITRC/IRCo in stabilising NR prices and ensuring sustainability of the industry?

Initiatives by ITRC such as AETS have managed to curb NR prices falling and helped to increase rubber prices at least in the short-run. The establishment of ITRC has had a positive impact on the rubber market to a certain extent only and not comprehensively due to the following factors:
The production share of TIM countries in 2016 was 67% of the global natural rubber (NR) production. Therefore, the efforts undertaken by ITRC can affect world NR price.

Do you think that factors other than the fundamentals of demand and supply have a major influence on rubber prices. If so, please elaborate?

Yes, definitely. In addition to the fundamental factors of demand and supply that affect the price of rubber in the international market, there are also many other influencing factors such as futures performance, crude oil prices, exchange rate of the currency, namely Ringgit against the US Dollar, economic growth of major consumer countries, world rubber and fiscal and monetary policies announced and implemented by the governments of producers and rubber importers.
World economic growth, particularly growth in rubber consuming countries, is another driver of rubber market. Economic development in countries like the US, China, Japan as well as Europe would influence demand for rubber as the countries are the major consumers of rubber in their tyre and automotive sectors. Any change in the financial policy of the US that affects interest rate would also impact exporting countries’ currencies and this would influence NR prices as NR is traded in USD.
Besides that, the rubber futures market in the world also will impact rubber prices. It has to be believed that speculative activity in the futures market, especially in Tokyo and Singapore rubber market, will affect the movement of rubber prices in the physical markets such as Malaysia. Excessive speculation in the futures market would disrupt the NR market. And increasing short-selling activities also would make market relatively more volatile, thus influencing NR prices.
Movement in oil prices would impact synthetic rubber (SR) prices. Whenever oil price increase, the SR price will also increase. As a result, consumer will shift demand to NR.

Also tell us whether you advocate cutting down rubber trees and desist from new planting to regulate over-supply as is being done by some NR producing countries?

Under NKEA, we aim to have our planting area in 2020 to be about 1.2 million hectares to provide the raw materials for our downstream activities. We are still having some distance to achieve it as we are still at 1.07 million hectares of rubber plantation and we are just ranking the 5th in terms of production and 5.4% globally. We advocate cutting down old rubber trees to plant new high-yielding clones. Majority of our new planting is in Sabah and Sarawak while a regulated replanting program by RISDA will also provide wood supply to the rubber wood furniture industry.

Could you tell us what would be the major drivers of NR market in the short-term, medium-term and long-term?

NR price has always been the major driver for NR market which is influenced by world supply and demand balance as well as other external factors. NR prices were relatively more volatile in 2017 and the market outlook in the near to medium-term are likely to be influenced by the following factors:
a) The world NR supply is expected to increase by 605,000 tonnes or 4.9% to 12.869 million tonnes during year 2017. Meanwhile, the world NR demand is expected to grow by 1.1% to 12.817 million tonnes for the year 2017. A surplus of 52,000 tonnes of world NR supply is estimated for 2017.
b) The world GDP, especially of the consumer countries, is also an important driver. According to the World Economic Outlook (Oct 2017) Report released by International Monetary Fund (IMF), global growth is expected to rise from 3.2% in 2016 to 3.6% in 2017 and 3.7% in 2018. However, the IMF was of the view that the growth would remain weak in many countries, and inflation would be below the target in most advanced economies.
c) In addition, China’s economic growth is expected to moderate at 6.7% in 2017 and 6.5% in 2018 as the economy rebalances away from investment and external demand towards domestic consumption.
Various factors can influence the production of NR in the long-term. Besides changes in mature area, potential changes in average yield are likely to have a major impact on production. Moreover, due to climate change, traditional rubber-growing regions in some of the countries are gradually becoming less suitable for realising the potential yield. This can have a negative influence on average yield. In some of the countries, non-traditional regions are gradually becoming more suitable for growing rubber. This can have a positive impact on the average yield for those countries. For demand side, the speed of economic growth in major consuming markets and changes in technologies are the two main factors that will have direct bearings on NR uptake in the long-run.