ECONOMICS OF RUBBERWOOD FOR
SMALLHOLDING OWNERS IN TRADITIONAL
RUBBER PRODUCTION AREAS IN
THE SOUTH OF THAILAND
Thesis submitted for a M.Sc. degree
in Forest Economics
University of Helsinki
Dept. of Forest Economics
June 2007, Helsinki
Adrián Antonio Monge Monge
i
HELSINGIN YLIOPISTO  HELSINGFORS UNIVERSITET  UNIVERSITY OF HELSINKI
Tiedekunta/Osasto  Fakultet/Sektion  Faculty
Laitos  Institution  Department
Faculty of Agriculture and Forestry
Department of Forest Economics
Tekijä  Författare  Author
Monge Monge Adrián Antonio
Työn nimi  Arbetets titel  Title
Economics of Rubberwood for Smallholding owners in Traditional Rubber Production Areas in the
South of Thailand.
Oppiaine Läroämne  Subject
Forest Economics
Työn laji  Arbetets art  Level
Aika  Datum  Month and year
Sivumäärä  Sidoantal  Number of pages
M.Sc. Thesis
June 2007
55
Tiivistelmä  Referat  Abstract
From all rubber production systems, rubber monoculture is the most disadvantaged due to its
sensibility to changes in latex price, higher labour requirements and the smaller farm size.
Nonetheless, rubber monoculture is attractive during times of high latex and timber prices,
particularly in traditional rubber production areas where price distortions are small.
In this study, an optimal rotation for rubber plantations is calculated taking into account the revenue
generated from the selling of latex as well as the stumpage price. The net present value (NPV)
combined with the Faustmann approach of infinite rotations is used to estimate the optimal rotation
for rubber plantations inside traditional production areas. Expected stumpage prices, obtained from a
linear model, are combined with normal cash flows from a rubber plantation in order to estimate the
rotation length that maximises the net present value for smallholdings.
The value of timber reduces optimal rotation from 26 to 21 years. Planted area, basal area nor latex
price have a strong effect on the optimal rotation for smallholdings, harvesting age stays close to 21
years with small changes on NPV. The large revenue generated by timber seems to be the reason for
the stable optimal rotation. The elasticities of the stumpage prices model indicate that basal area is
twice as important as total planted area at the moment of estimating timber value. This is particularly
important for smallholdings that would find it difficult to increase planted area, but could increase
basal area by using an improved latex-timber clone.
The effect of using improved latex-timber clones on NPV per rai seems to be stronger than the effect
of increasing planted area with rubber. The new clones will be an easy way to improve
smallholding's welfare and more has to be done to promote its used. A 2% change of interest rate
would shorten or extend optimal rotation by one year. The value of timber measured as a fraction of
NPV is the highest when latex prices are low and interest rates high.
The replanting aid paid by the Office of Rubber Replanting Aid Fund (ORRAF) was also evaluated
and indeed. It was found that it has a positive affect on NPV and reduces optimal rotation in some
cases. However, its relative importance decreases as latex and timber prices increase.
Avainsanat  Nyckelord  Keywords
rubberwood, latex, economics, southern Thailand, optimal rotation, stumpage price.
Säilytyspaikka  Förvaringsställe  Where deposited
Viikki Science Library
Muita tietoja  Övriga uppgifter  Further information
i
Acknowledgements
This M.Sc. thesis was prepared as part of the project “Improving the productivity of
rubber smallholdings through rubber agroforestry systems in Indonesia and
Thailand”. This project is financed by the Common Fund for Commodities (CFC)
and coordinated by the World Agroforestry Centre (ICRAF) in cooperation with the
Indonesian Rubber Research Institute, Kasetsart University (KU) and Prince of
Songkla University (PSU) in Thailand as well as the University of Helsinki (UH).
I would like to thank the professors at the Viikki Tropical Research Institute (VITRI)
and the Department of Forest Economics for combining the time and knowledge in
order to collaborate with my work. My supervisors Professor Jari Kuuluvainen and
Professor Olavi Luukkanen deserve particular acknowledgement for their comments
and commitment to my thesis as well as the trust they put on me.
In Thailand I would like to recognise the excellent work of the staff at the
International Student Centre (ISC) and the Faculty of Forestry at the Kasetsat
University. My gratitude to Dr. Sompetch Mungkorndin for giving me my first
impressions of the rubber sector in Thailand; it was admirable to see how the Faculty
of Forestry keeps strong links with its senior members and allow them to continue
sharing the valuable information they have accumulated along the years.
At the Prince of Songkla University, I would like to express my sincere gratitude to
Professors Buncha Somboonsuke and Pramoth Kheowvongsri for all the information
and cooperation with my work. I also have to mention the members of the CFC
project Pikun Saiyapan: Uraiwan Laongsri, Patinya Srakawi, Somchai Jantaraphithak
and Pichet Petwong, they did not only help me with the collection of information, but
they also made my stay in the south unforgettable. My acknowledgement also go to
the governmental agencies the Royal Forest Department (RFD), the Rubber Research
Institute of Thailand (RRIT), the Center Rubber Market (CRM) and the Office of
Agricultural Economics (OAE) for all the time and information several members of
their staff kindly shared with me. My special gratitude to Dr. Rachane Sonkanok and
Dr. Pranad Pipitkul at the OAE for the interviews and sharing of information.
Finally, I would like to express not only my gratitude but also my admiration to Dr.
Damrong Pipatwattanakul (KU) and Dr. Vesa Kaarakka (UH) for their continuous
support and their ability to deal with the logistics of my thesis. They made my work
in Thailand and in Helsinki much easier. I consider them indispensable to my
accomplishments and the successful relation between the Kasetsart University and
the University of Helsinki.
Helsinki, 5th June, 2007
Adrián A. Monge Monge.
This project is been financed by the Common Fund for Commodities, an
intergovernmental financial institution established within the framework
of the United Nations, headquarters in Amsterdam, the Netherlands.
ii
TABLE OF CONTENTS
ABBREVIATIONS AND ACRONYMS ............................................................. IV
1. INTRODUCTION...............................................................................................5
1.1 BACKGROUND ..................................................................................................5
1.2 OBJECTIVES OF THE STUDY ................................................................................6
2. LATEX AND RUBBERWOOD PRODUCTION AND TRADE IN
THAILAND.............................................................................................................6
2.1 SHORT HISTORY ABOUT HEVEA BRASILIENSIS (WILLD.) MUELL. -ARG ...............6
2.2 THAILAND'S RUBBER SECTOR.............................................................................9
2.2.1 Rubber production .....................................................................................9
2.2.2 Characteristics of the Thai rubber market ................................................13
2.3 THAILAND'S RUBBERWOOD SECTOR .................................................................15
2.3.1 Rubberwood production...........................................................................15
2.3.2 Characteristics of the Thai rubberwood market........................................18
3. PREVIOUS RESEARCH. ................................................................................21
3.1 SMALLHOLDINGS ............................................................................................21
3.2 RUBBER CLONES .............................................................................................23
4. THEORETICAL FRAMEWORK ...................................................................26
4.1 BASIC FAUSTMANN MODEL .............................................................................26
4.2 FAUSTMANN MODEL WITH NON-TIMBER PRODUCTS ..........................................27
5. MATERIAL AND METHODS. .......................................................................28
6. RESULTS AND DISCUSSION ........................................................................32
6.1 OPTIMAL ROTATION ........................................................................................32
6.1.1 Stumpage price model..............................................................................32
6.1.2 The net present value (NPV) ....................................................................35
6.2 SENSITIVITY ANALYSIS ....................................................................................36
6.2.1 Effect of planting area..............................................................................36
6.2.2 Effect of latex prices.................................................................................37
6.2.3 Effect of basal area. .................................................................................38
6.2.4 Effect of the discount rate.........................................................................39
6.3 THE ORRAF EFFECT .......................................................................................41
6.4 LIMITATIONS OF THE RESEARCH. .....................................................................44
7. CONCLUSIONS ...............................................................................................45
8. REFERENCES..................................................................................................48
9. APPENDIXES...................................................................................................54
APPENDIX 1. LATEX PRODUCTION AND COSTS FOR YEARS 2000 AND 2006..............54
APPENDIX 2. ESTIMATION OF OPTIMAL ROTATION FOR A 15 RAI PLANTATION .........55
iii
ABBREVIATIONS AND ACRONYMS
BAAC
Bank for Agriculture and Agricultural Cooperatives
CFC
Common Fund for Commodities
CRM
Center Rubber Market
DOAE
Department of Agricultural Extension
EU
European Union
FAO
Food and Agriculture Organization of the United Nations
FRIM
Forest Research Institute Of Malaysia
ICRAF
World Agroforestry Centre
IMF
International Monetary Fund
IRRDB
International Rubber Research & Development Board
IRSG
International Rubber Study Group
ITTO
International Tropical Timber Organization
KU
Kasetsart University
LDD
Land Development Department of Thailand
MDF
Medium Density Fibreboard
NPV
Net Present Value
OAE
Office of Agricultural Economics
OED
Operations Evaluation Department
OPEC
Organisation of the Petrolum Exporting Countries
ORRAF
The Office of the Rubber Replanting Aid Fund
PSU
Prince of Songkla University
REO
Rubber Estate Organisation
RFD
Royal Forest Department of Thailand
RRC
Rubber Research Centre
RRIT
Rubber Research Institute of Thailand
US
United States of America
UH
University of Helsinki
iv
1. INTRODUCTION
1.1 Background
Rubber is one of the successful histories about a foreign tree been introduced to a
new continent. In less than fifty years after its introduction in South-east Asia, the
latex from rubber trees became an important economic source not only for local
governments but for a large number of small producers who discovered in rubber an
important source of continuous cash flows.
Nowadays, rubber is still vital for the welfare of millions of small farmers around the
region and it can be found as part of different production systems. These production
systems can be rather complex in terms of diversity (biological and economical) with
jungle rubber on one extreme, or much simpler in the form of pure rubber stands.
Since 2004, under the coordination of the World Agroforestry Centre (ICRAF) and
the financial support of the Common Fund for Commodities (CFC), the Indonesian
Rubber Research Institute, Kasetsart University (KU) and Prince of Songkla
University (PSU) in Thailand as well as the University of Helsinki (UH) have been
working together in the project “Improving the productivity of rubber smallholdings
through rubber agroforestry systems in Indonesia and Thailand”.
The University of Helsinki through the Viikki Tropical Research Institute (VITRI),
has dedicated particular effort to evaluate different aspects related to the increasing
importance of rubberwood for smallholdings particularly in Thailand. This thesis is
the latest product of the coordinated work between Kasetsart University, Prince of
Songkla University and the University of Helsinki (UH).
5
1.2 Objectives of the study
This thesis deals with the economic effect of timber value on rubber monoculture
smallholdings, particularly in the traditional rubber production regions in Southern
and Eastern Thailand. In these regions, the closeness of rubber markets and sawmills
reduce price distortions faced by small rubber producers.
The main objective of this research is to calculate optimal the rotation for rubber
plantations, taking into account the value of timber. To do so the net present value
(NPV) of all cash flows is going to be maximised not for one rotation but for an
infinite number of rotations, assuming that inside traditional production areas rubber
plantations are not going to be eliminated.
To help to achieve this objective, a simple model to predict stumpage prices for
rubber plantations in the traditional rubber production areas is developed.
Additionally, some factors affecting stumpage prices are evaluated in order to
determine their effect on the optimal rotation length and the profitability of the
rubber plantations.
2. LATEX AND RUBBERWOOD PRODUCTION AND
TRADE IN THAILAND
2.1 Short history about Hevea brasiliensis (Willd.) Muell. -Arg
It is important to note that Hevea brasiliensis (Willd) is not the only “rubber tree”
available, but it is the most important in terms of industrial production. Polhamus
(1962 cited in Hill 1963) indicates that a variety of species of Castilla sp, Ficus sp as
well as many species of Apocynaceae's family have been used around the world for
centuries to obtain raw materials similar to what is today commonly known as
rubber.
6
Resor (1977) and Dove (2002) mention that rubber products were already used in
many pre-Columbian cultures in Latin America. The main uses included protective
clothes, game balls and syringes, in some cases it was even used for religious rituals.
For a couple of centuries, after the arrival of the Europeans in America, rubber was
considered a particularity and not an extended use was found for it, crude footwear
and other waterproof material were the main products (Schultes 1977; IRRDB 2000).
It was in 1839 when Charles Goodyear and the development of vulcanisation
introduced rubber to the industrial era (Resor 1977, Schultes 1977). The invention of
the car only multiplied the good news for rubber producers, Hevea brasiliensis
(Willd.) became the main source of raw rubber and Brazil the main exporter. For
many years, rubber industry brought millions of dollars to rubber lords and brutality
to native Amazonian people. Small towns like Manaus and Pára rapidly transformed
itself into rich cities whilst the native population decreased rapidly under slavery
(Akers 1914, Resor 1977, Schultes 1984).
In 1876, Henry Wickham (a thief for some or a remarkable British official for
others), smuggled or shipped, 70 000 seeds of Hevea brasiliensis (Willd.) to
England. Between 2 700 and 2 800 seeds germinated and were sent to Ceylon
(present day Sri Lanka) and to the Singapore's Botanic Garden. After several failures
and continuous research, mostly in the Singapore's Botanic Garden and under the
direction of Henry Ridley, rubber plantations started to appear in different countries
around the region (Resor 1977, Schultes 1977, 1984, 1993; Kong 2002; IRRDB
2000).
Posterior research during the early 1900's brought innovations in the management
and harvest of rubber trees; production capacity increased rapidly and the area
planted also grew constantly. At the same time, Brazil's ability to supply the
international market was in decline; particularly because of the difficulty of
increasing supply from natural forest, partially because of the extermination of the
Amazonian natives used for finding and taping trees. (Akers 1914, Resor 1977,
Schultes 1984). From been the only supplier Brazil's share of the market dropped to
50% in 1910 to less than 8% in 1921 (Resor 1977)
7
During the Second World War, the Southeast Asia region was the main supplier of
rubber. With the expansion of Japan to the south and increasing rubber prices, big
consumers of rubber like the USA, United Kingdom and France, started to worry
about possible distortions of supply and they invested in developing the available
alternatives: from new tree species and locations to synthetic products. Extensive
work on the latter alternative yielded a product that, economists predicted, would
replace natural rubber. By 1964, synthetic rubber supplied 75 percent of the total
global market (Resor 1977, IRRDB 2000).
However, the situation changed drastically with the OPEC oil embargo of 1973,
which doubled the price of synthetic rubber. Another concern, the gas mileage
brought an unexpected threat to the synthetic rubber market: the radial tyre. The
radial tyre replaced the simple bias tyres (about 90 percent of the market) and within
a few years virtually all cars were rolling on radials. Synthetic rubber did not have
the strength for radial tyres only natural rubber could provide the required sturdiness
(Mongabay 1996). Today between 30 and 90 percent of every auto tyre, from small
cars to big trunks, and between 90 and 100 percent of all aircraft tyres are made with
natural rubber (IRSG 2005). Of this rubber, more than 85 percent is imported from
Southeast Asia, with Thailand, Indonesia, and Malaysia as the main producers (Kong
2002).
Hevea brasiliensis grows best at temperatures between 20 and 28°C, well distributed
annual rainfall between 1,800-2,000 mm and will perform well on most adequately
drained soils. The tree is susceptible to strong winds and will grow well up to 600
meters above sea level (even 1000 meters near the Equator). Based on temperature
and rainfall requirements, the optimal growing area for Hevea brasiliensis is between
10° latitude on either side of the Equator, although it can be found further north, as in
China and Mexico, as well as further south as in Sao Paulo, Brasil (IRRDB, 2000).
8
2.2 Thailand's rubber sector
2.2.1 Rubber production
When listening to expressions like “jungle rubber”and “natural rubber”many people
get the impression that rubber production in South-east Asia is an ancient and
endogenous activity. In fact rubber was introduced in the region at the turn of the last
century when many farmers started to plant it in their small pieces of land. The forest
fallow was replaced by ‘jungle rubber’, a mixture of planted rubber, forest trees and
fruit trees close to a secondary forest in terms of biodiversity and structure (Gouyon,
1999).
Rubber (also known as para-rubber) was introduced to Thailand around 1900 by
Praya Ratchadanupradit Mahison Phakdi Na Ranong, who first brought seeds from
Perak State (Malaysia) into the Muang Trang district in the Trang province, south of
the country near the Malaysian border (LDD 2006). Adequate climatic conditions
and land availability favoured the expansion of rubber plantations along the southern
peninsula (Pendleton 1962). Later cultivation was extended to some of the eastern
provinces. (RFD 2000).
Somboonsuke (2002), presents some chronological characterisations of different,
rubber based, production systems in Thailand from its origins to the 1990's. Before
1960 rubber was normally produced on conventional farms also known as rubber
forestry or rubber community forest systems, where skills and technology were
family or region specific and most of the labour force came from the household. An
indigenous rubber strain was dominant until 1934 when high yield varieties such as
Tjir and PB86 were introduced. Usually, the quality of rubber was low and
smallholders sold their products at a local market.
In 1960, the establishment of the Office of Rubber Replanting Aid Fund (ORRAF),
brought rubber production into the green revolution. The main goal of ORRAF was
to introduce and implement new and standard technology into rubber farms. The use
of improved rubber strains such as RRIM 600/623, PB 5/51 and Tjir1, chemicals like
9
fertilisers and herbicides, more efficient tapping techniques and the search of
additional sources of income for smallholdings, are some of the most important
achievements of this institution. The Rubber Research Centre of Hat Yai (RRC) was
opened in 1965 to coordinate and develop research at both national and international
levels.
During the 1970's the technical extension activities of ORRAF increased and new
socio-economic extension programs by the Department of Agricultural Extension
(DOAE) were also introduced. Farmers were advised to diversify production and to
apply agribusiness management techniques. Producers were also asked to organise
themselves into local rubber farmers groups, in order to improve the quality of their
products, reduce production costs and to increase their bargaining power at the local
markets. The introduction of agricultural crops under the rubber trees and mixed
plantations with fruit trees became very common. Favourable international prices
promoted the expansion of rubber plantations even away from traditional cultivation
areas.
The rubber sector developed rapidly during the 1980's. The rubber farmers groups
became more product specific (e.g. rubber sheet making group, rubber latex group)
and with better access to technology. In order to complement the improvements in
production, the government made significant investments in public infrastructure like
roads, communication channels and water supply. All these improvements also
accelerated the migration of people away from the rural areas and generated shortage
of local labour and consequently pushing the diversification of rubber farms into less
labour demanding forms of rubber farming.
The 1990's was a difficult decade for rubber producers with fluctuating international
prices for latex and the deepening of the labour shortage. Improvements in the
quality and type of latex produced in Thailand as well as some governmental
interventions were the answers to deal with an increasingly difficult international
market. The economic crisis in 1997 drastically changed the rubber sector in
Thailand; rubber plantations outside traditional areas disappeared or changed into
very diverse farming systems, even rubber farms inside traditional rubber production
spots moved further into the diversification of production. The replanting program of
10
ORRAF came almost to a hold and the common agreement was to reduce latex
production by limiting the area planted with rubber. Figure 1 displays rubber prices
for the main latex products in Thailand during the last eight years.
Today the area of rubber plantations has increased again. In 2002 prices started to
increase and recently have stabilised between the 60 and 70 bahts per kilogram,
which is more than twice as the price in 2002. Smallholdings which earlier had
mixed rubber plantations have increasingly established rubber monoculture in recent
years, and around traditional rubber production areas new plantations have appeared
even on unfavourable sites like rice fields. (Somboonsuke 2006, Kheowvongsri
2006). In 2004, the Thai government announced plans to expand rubber plantations
into non-traditional areas (particularly in the North and Northeast of the country),
with a target of one million rai (about 160 000 hectares). The extension of rubber
cultivation area is expected to be around two million hectares by the year 2010
(IRSG 2005).
110
100
RSS3
STR 5L
90
STR 20
Latex 1st
Bahts / kg.
80
70
60
50
40
30
20
1999
2000
2001
2002
2003
2004
2005
2006
Year
Figure 1. Real prices of Ribbed Smoked Sheet grade 3 (RSS3), Standard Thai Rubber
5L (STR 5L), Standard Thai Rubber 20 (STR 20) and Natural Rubber latex (Latex
1st) in Thailand from 1999 to October 2006.
11
The main reason behind the revaluation of natural rubber is the escalation of the
international crude oil prices since 2002 as the building up of the Iraq invasion and
throughout the Iraq conflict. Considering the current international scene and the
global concerns about climate change, international oil prices could stay high in the
foreseeable future keeping international and local natural rubber prices high as well.
China's economic growth and its increasing demand of raw materials also have an
effect on international prices of natural rubber (Van Beilen 2006).
Nowadays, Thailand is the biggest rubber producer with an output of more than 3
million tons of raw rubber per year (RFD 2005). Production is expected to continue
increasing in the next 13 years despite a projected modest decrease in the planted
area. Most of the rubber is exported as raw material to big consumers like China,
Japan, Malaysia and the EU; only about 10% of total production is consumed in
Thailand (IRSG 2005).
The main sector demanding natural rubber in Thailand is the tyre industry. Top
producers like Bridgeston, Gooyear and Michelin have had production capacity in
Thailand since the 1980's. Others products like balloons, gloves, rubber bands and
moulded goods have been produced in Thailand since the 1950's. Recently the Thai
government announced plans to increase the share of domestic consumption of
natural rubber from 10% of total production to 30% within a few years. Already
companies like Bridgestone, Sumitomo Rubber Industries and Yokohama are
increasing production capacity, and the industry of medical equipment made from
rubber has also grown in recent years (IRSG 2005).
According to the projections of the International Rubber Study Group (2005)
production and consumption of natural rubber in Thailand for the next 10 years looks
profitable, especially if international oil prices stay as high as expected.
12
2.2.2 Characteristics of the Thai rubber market
In most of Southeast Asia, rubber production is based on a combination of state
owned plantations, large private plantations and smallholdings, with Thailand as the
major exception. Contrary to other countries in the region, estate agriculture was
discouraged in Thailand at the beginning of the 20th century. Rubber growing became
an important activity for smallholding. High latex prices during the second part of the
1920's only increased the popularity of rubber as a cash crop for small owners and
the planted area increased significantly (Courtenay 1979). Official figures from the
RFD (2000), indicate that 93% of all rubber plantations are classified into the
category of smallholdings with a planted area smaller than 50 rai (6.25 rai = 1
hectare); more than a million rubber plantations fall into this category with an
average size of 13 rai.
In Thailand, rubber producers have a fair access to information like rubber official
prices, governmental policies, cost of inputs, new technologies, stumpage prices, etc.
Gilbert et al. (2001) indicates that monetary markets are also fairly accessible, the
Bank for Agriculture and Agricultural Cooperatives (BAAC) and to some extent
ORRAF are the main connection between small rubber producers and monetary
markets; the BAAC is considered a well functioning institution with relatively low
administrative costs.
The access to physical rubber markets depends on different conditions, from which
the distance from central rubber market and the organisational level of rubber
producers are the two most important ones. The combination of these two factors
determined the number of intermediaries needed to reach central markets.
Somboonsuke (2002) mentions up to five different intermediate dealers in some
circumstances; the use of these intermediaries only aggravates the price distortions
faced by rubber producers. In theory, the difference between farm gate latex prices
and official latex prices should not be larger than five or six bahts per kilogram.
Nonetheless, this is difficult to control especially when rubber prices are high;
differences above ten bahts per kilogram have been reported in recent years
(Boonchote 2006).
13
There are four governmental agencies supporting rubber production and
development, all of them under the Ministry of Agriculture and Cooperatives
(Somboonsuke 2002).
1. The Rubber Research Institute of Thailand (RRIT) is responsible of research
and development of new technologies as well as for the training of farmers and
officials from other agencies.
2. The Office of Rubber Replanting Aid Fund (ORRAF) is in charge of
governmental planting policies (replanting and new plantations); ORRAF is
also responsible of some particular training activities.
3. The Rubber Estate Organisation (REO): deals with the supply of planting
material including agricultural tools, fuel and other related material.
4. The Department of Agricultural Extension (DOAE): is mainly responsible for
the transference of technology from other agencies to rubber producers, as well
as to function as an adviser to farmers.
Additionally, the Center Rubber Market (CRM), working under the RRIT, tries to
systematically regulate the national rubber market by facilitating the exchange of
sensible information within the market, by providing marketing and warehousing
services. Some private organisations of natural rubber consumers also provide
additional support and information to particular regions or groups of producers. In
the main rubber production and marketing areas of the south and east of the country,
market characteristics resemble an almost perfect market with good flows of
information, fair access to capital markets, low indirect cost and a functioning price
mechanism. The longer the distance from these market centres, the more market
imperfections can be found.
14
2.3 Thailand's rubberwood sector
2.3.1 Rubberwood production
According to Hong (1996), research to determine the potential use of rubberwood,
including timber, fibreboards and wood pulp as well as other products, was initiated
in the Forest Research Institute of Malaysia (FRIM) in 1953. Even though these
attempts showed the potential of rubberwood, the wood processing industry at that
time was not receptive. Problems related to the durability and the quality of
rubberwood as well as the plentiful and low cost supply of logs from natural forest,
made rubberwood unattractive.
The decreasing area of natural forests available for logging as well as the increase in
harvesting cost (e.g. labour and transportation) have enabled rubber plantations to
emerge as a leading source of timber, especially for the manufacture of furniture
(Hong 1996).
A commonly agreed rotation for rubber trees is between 25-30 years, after latex
production decreases (Kadir 1998). Previously the felled trees were used as firewood
or burnt on the place. The major users of rubberwood were firewood consuming
industries like drying and smoking of sheet-rubber, tobacco curing, brick making, the
charcoal industry and others. It was in the late 1970's that intensive commercial
utilisation of rubberwood started in Malaysia (Hong 1996, Kong 2002). However,
Malaysia was not the first country to use rubber as a source of timber; this credit
belongs to India or Sri Lanka, which have been utilising rubberwood much earlier.
Malaysia could claim to be the first to successfully export rubberwood in the late
1970's (Kong 2002).
The turning point for the rubberwood industry in Thailand came in 1989 with the
logging ban for all natural forest. The main objective was to reduce environmental
degradation, partially generated by the extension of rubber plantations into areas
previously covered by natural forest (Collins et al 1991). After wood imports
drastically increased, as a consequence of the logging ban, local industries as well as
15
governmental officials started to search possible alternatives for the increasingly
expensive supply of raw materials for the wood industry. Thailand's imports of wood
increased from about 1.1 million cubic meters in 1988 to about 2.5 millions in 1989
and about 3.3 millions in 1990; the peak on wood imports was reached in 1994 with
about 4.1 million cubic meters. Since 1995 wood imports have decreased and in
recent years the annual volume of wood imported have stabilised around the two
million cubic metres (RFD 2005).
The almost 11 million rai (1.176 million ha) of rubber plantations in 1990 became an
attractive source of raw material for the Thai wood industry. Today, the more than 13
million rai (2.08 million ha) of rubber plantations (RFD 2005) roughly supply around
5 millions cubic meters of saw logs per year (RFD 2000). This optimistic
approximation of rubberwood supply is still below the projected demand of more
than 6.6 million cubic meters for 2007 (RFD 2000). However, with the projected
increase of one million rai of rubber plantations, the government expects to expand
the replanting area from 280 000 rai to 420 000 rai and thus increase rubberwood
supply (RFD 2005). Additional technology updates of the industry will close the gap
between supply and demand.
Currently, not all rubber plantations are considered commercial; due to
inaccessibility problems only between 75% (RFD 2000) and 90% (Promachotikool &
Doungpet 1996 cited in Balsiger et al. 2000) of all rubber plantations are
commercially viable. With increasing stumpage prices, more plantations in difficult
areas will become more profitable. In Thailand, the RRIT recommends spacing of
3x7 or 2.5x8 meters between trees in the plantation (RFD 2000). Mature trees on
rubber plantations are commonly 20-30 meters tall with a relatively slim trunk of up
to 30 cm diameter at breast height, an average branch-free bole of three meters and
upwards-extending branches (Balsiger et al. 2000).
Estimations on potential rubberwood volume from plantations vary significantly
between authors and between regions. Volume estimates for the clone RRIM600, by
far the most planted clone in Thailand, are presented in Table 1. The differences
between estimations are due to differences in methodology, such as mortality rate,
volume functions and sample size. However, it is important to recognise the lack of
16
official and standardised volume tables for rubberwood. As part of the project
“Improvement of Rubberwood Utilisation and Marketing in Thailand”, a pilot
assessment of rubberwood resource was financed by ITTO in 2002. Unfortunately,
the effort was abandoned and only preliminary results from the Rayong province are
available.
Table 1. Estimation of total and commercial volume of the clone RRIM600 for
rubber plantations between 24 and 26 years old in Thailand.
Source
Total volume
m3/rai
RFD (2000, 2005)
INDUFOR (2006)
Chantuma et al. (2005)
Commercial volume
m3/ha
24.8 - 60 155.3 - 379.4
29.04
181.56
40.96 - 48
256-300
m3/rai
m3/ha
16.6 - 19.8 103.75 - 123.75
17.5
109.52
According to official figures, about one third of the wood volume is used for
furniture parts and one third is used as firewood; the rest is used to make crates and
in construction. This projection assumes timber volumes of 45 m3 per rai (281.25 m3)
and it is presented in Figure 2. In places where industry is available, rubberwood is
also used by particle board mills and plywood industries (RFD, 2005).
Recovery rates of sawing wood are low, with an average recovery rate of 33.5% with
minimum values of 29% and maximum values of 40% (RFD, 2000); ClémentDemange (2004) reports conversion rates of 70% in the Rayong province whilst
Kaikulainen (2007), presents improved recovery percentages closer to 40%.
12 %
Wood for furniture and parts
35 %
18 %
Wood for fuel and charcoal burning
Wood for commodity crates
Wood for pilings, construction
pillars
35 %
Figure 2. Proportional use of wood from a rubber plantation in Thailand according to
RFD (2005), expected timber volume is 45 m3 per rai.
17
2.3.2 Characteristics of the Thai rubberwood market
The Department of Industrial Factories of the Ministry of Industry, reported in 2004
a total of 815 rubberwood related plants, of which 462 were sawmills, 96 were
drying plants, 27 furniture parts manufacturing factories and 56 furniture
manufacturing factories as well as many other small enterprises. Additionally in
2005, five particle board companies and 25 plywood industries were reported using
rubberwood as raw material. (RFD 2005). Most of the primary rubberwood industries
are located in the south and east of Thailand, in provinces such as Surat Thani,
Nakhon Si Thammarat, Trang, Songkhla and Yala (south), as well as Rayong
province in the east. A significant part of the furniture industry is located in and
around the Bangkok area (RFD, 2000). These industrial areas basically overlap with
the traditional rubber planted areas and are presented in Figure 3.
Rubberwood industry in Thailand employs several hundred thousands of people and
generates an output value of 70 000 million bahts (more then 1.6 billion euros).
Around 80% of all products and furniture made of rubberwood are for export, with
Japan, the USA and the EU as the main consumers. Surpluses of processed
rubberwood are exported to other countries in the region like China, Hong Kong
(China), Vietnam, Malaysia and others (RFD 2005).
Direct contact between rubberwood producers and rubberwood users is very limited.
Just in the south, the most important source of raw material, 70 percent of standing
timber is bought from wood dealers and the rest directly from plantation owners
(Bassili 2000). The stumpage price that the wood dealer offer for the plantation is
based on different factors e.g. distance from saw mill and the main road, season of
the year (rainy or dry), size of the trees as well as the extend of the plantation, quality
of tapping and clone. In practice, inside the traditional rubber production areas, these
factors seem to have little significance for stumpage price estimation. Distance from
sawmill is below 75 kilometres, secondary and local roads are in good conditions,
plantation size does not vary significantly and the other factors are relatively
constant. Bassili (2000), mentioned that the “problematic”rainy season is only three
months long in the south.
18
Figure 3. Main rubberwood industrial regions in Thailand1.
1
Source: http://www.maps-thailand.com/
19
Harvesting and transportation costs are covered by the wood dealer, who usually
owns the equipment required for these activities. Normally chain saws are used to
fell the trees, de-branching and cutting of logs. Tractors or small bulldozers are used
to extract the roots or move materials if necessary; in some cases, tractors or
bulldozers are used to uproot the whole tree (RFD 2000). The wood dealer will take
all the marketable wood and leave behind only small branches and some pieces of
wood that could not fit in the last car. Transportation is done by using modified pickup trucks, but bigger trucks are gaining popularity among wood dealers
Sawmills keep very little if any information about neither the origin of timber nor the
transportation distance. Commonly sawmills will buy all the logs delivered during
the day and work overtime to process the total supply of the day, just to avoid fungal
problems (Bassili, 2000). In most cases sawmills offer a price per kilogram for the
timber, but in some places and for particular dimensions they have a price per cubic
meter (RFD 2000).
Rubberwood logs are normally cut between one and 1.5 meters long, with diameters
above 15 cm. Logs with less of 15 cm of diameter but with lengths near to 1.8 meters
are sent to medium density fibreboard (MDF) mills. Smaller logs of at least 5 cm of
diameter and with a minimum length of 0.9 meters can be sold to particle board
mills. Shorter logs with large diameters are sometimes destined for plywood
production (Bassili, 2000). How the wood is going to be distributed between
different uses is the choice of the sawmill. Part of the wood and residuals will be also
allocated to heat the sawmill's own drying facilities.
There are two important governmental agencies in the rubberwood sector, the
Department of Industrial Promotion and its Furniture Industries Division as well as
the Department of Export Promotion and its Product Development Centre. The
private sector is organised into two main groups: the Thai Parawood Association, and
the Thai Furniture Industries Association (Bassili, 2000). Of the government
agencies, the Department of Industrial Promotion is more active, providing training
for machine operators and courses for technicians and managers on different topics.
The Thai Parawood Association includes all related industrial levels from sawmills to
furniture exporters in the south of Thailand. The Thai Furniture Industries
20
Association is involved with exports promotion by providing information to both
foreign buyers and potential exporters (Bassili, 2000).
Despite the increasing importance of timber in the economy of smallholdings, rubber
plantations have been exclusively managed to maximise latex production. Decisions
like spacing and rotation length are made without considering potential
improvements on timber volume or stumpage prices. Timber is still seen as a byproduct of latex and its effect on silvicultural decisions is continuously ignored.
Recently, significant advance has been made in the development of new rubber
clones, which combine both, high latex yields and improved timber volumes.
However, it is unclear when these new clones will start to be widely used.
Nonetheless, potential changes in the way rubber plantations are managed are only
occasionally discussed.
3. PREVIOUS RESEARCH.
3.1 Smallholdings
A considerable amount of research has been made about rubber and rubber
smallholdings, especially in Thailand and Indonesia. Most of the technical research
concentrates on improved tapping techniques and the development of new rubber
strains that are able to adapt to particular locations or produce higher yields of latex.
Research about the small rubber producers has dealt with issues like poverty
alleviation, improvement of market conditions and diversification of production as
well as information networks.
The amount of information is significant, but it is not properly distributed.
Governmental agencies and public universities carry out most of the research, which
is published in the national language. Large part of this research is never translated or
summarised and gets lost between the many layers of bureaucracy; this situation also
promotes overlapping and in some cases results in replication of research, especially
from international institutions and projects.
21
Dr. Buncha Somboonsuke is one of the most cited experts on the socio-economic
aspects related to rubber smallholdings in Thailand. The latest research of Dr.
Somboonsuke concentrates in the effect of the 1997 Asian economic crisis on rubber
smallholdings, particularly in the south of the country.
In 2001, Somboonsuke presented a small historical review of the rubber sector in
Thailand until before the economic crisis. He also redefined a classification of
different rubber farming systems, based on the variety of products produced by the
smallholding, its socio-economic structure and its agroeco-zone. The classification
starts with rubber monoculture farms and ends with rubber-integrated farming with at
least three agricultural products or two agricultural products and one non-agricultural
product (animal or fish). There is also an empirical argumentation that in case of
sufficient supply of natural and financial resources, smallholdings will move away
from monoculture into more complex production systems.
Prommee & Somboonsuke (2001) compared some socio-economic characteristics
between the different farming systems previously defined by Somboonsuke (2001).
They showed that rubber monoculture has more disadvantage characteristics than
other systems. The heads of the monoculture smallholdings are generally the oldest,
they have a relatively low level of education and the lowest rate of participation in
farm groups. They also have the smallest farm size, the highest farm labour needs,
the poorest access to information as well as the lowest standards of equipment and
machinery.
Somboonsuke et al. (2002a) calculated economic indicators for the same farming
systems; measurements of financial capacity (self financing and debt service) and
farm productivity were carried out as well as an economic comparison between
systems, treating them like individual projects. The analysis indicated that all rubber
systems were profitable with rubber monoculture and rubber-pineapple systems
showing the worst results. They also indicated that the more diverse the system, the
more profitable it becomes.
22
Finally, Somboonsuke et al. (2002b), analysed the main constraints faced by rubber
smallholdings. In general, low latex price and quality, insufficient capital for
investment, difficult access to information and problems with pests and diseases were
mentioned as the main constraints by rubber producers. Shortage of family labour
was mentioned as a constraint, but not as important; however labour supply was an
increasing problem as younger people moved into cities in the search of better
opportunities (OED 1994). The document also indicates that biological and economic
constraints are more serious than physical and social ones. Less diverse systems are
also more vulnerable than complex ones.
3.2 Rubber clones
Since the beginning of the rubberwood boom, research on new rubber strains has
expanded to develop new clones that combine high latex yields with large timber
volume and special clones to be used only for timber production. However, ClémentDamange (2004) mentions that the idea of rubber trees only for timber plantation is
not particularly popular among researchers. A reduction of latex production or even a
delay of the tapping activities, to increase timber volume, seems to have a negative
affect on the economic returns for the smallholdings. Figures 4 and 5 show some
comparisons between clones evaluated by the RFD and RRIT.
500
500
450
400
350
Kg /ra i
Kg /ra i
400
PB 235
PB 255
PB 260
450
RRIT 226
BPM 24
RRIM 600
300
350
300
250
250
200
200
150
150
7
8
9
10
11
12
13
14
15
16
Age of the tree
7
8
9
10
11
12
13
14
15
Age of the tree
Figure 4. Comparison between the latex clones (RRIT226, BMP24 and RRIM600)
and the latex-timber clones (PB235, PB255 and PB260) in term of latex production. 2
2
Source: RRIT (2003)
23
16
The RRIT has developed a classification for new latex-timber and timber clones and
it is actively working in the development of improved strains. Information about
these new clones and some preliminary results can be found in many of the RRIT's
publication as well as from other institutions (RFD 2000, 2005). These documents
aim at informing about the results of the institution but lack technical references
about the development of the new strains, in some cases these documents even
contradict each other. It seems to be little difference between latex clones and latextimber clones in terms of latex production. When speaking about timber volumes,
there is a clear difference between the reference clone (RRIM600) and all the other
clones. This indicates potential increases in timber supply in the future if the new
clones are fully utilised.
0,5
6 years
15 years
cubic meters
0,4
20 years
0,3
0,2
0,1
0
PB 235
PB 255
PB 260
Clone
AVROS
2037
BPM 1
RRIM 600
Figure 5. Comparison between the latex-timber clones (PB235, PB255 and PB260)
and the timber clones (AVROS2037 and BMP1) at tree different ages in terms of
commercial timber volume per tree; clone RRIM 600 is the reference clone.3
Other countries are also in the final steps of the development of latex-timber strains.
In Vietnam (Thuy Hoa T. el al. 2005), breeding trials from 1985 were cut at the age
of 19 and the volume production was evaluated in order to select hybrids that
combine both high latex production and good timber volumes. A regression equation
for commercial volume (including branches with at least 6 cm of diameter) was also
estimated. The best clones showed volumes of up to one cubic meter per tree; the
3
Source: RRIT (2003)
24
clone RRIM600 (the most popular in Thailand), was also included in the trial and
reported the second lowest timber production out of 25 clones with 0.419 m3/tree.
Also from Vietnam, Lam L.V. et al (2005) reported preliminary results from rubber
trials including new germplasm obtained during an expedition, organised by the
International Rubber Research and Development Board (IRRDB) in 1981, to the
Brazilian Amazonian. The expedition's main objective was to expand the genetic
base of Hevea in Asia. This document presents a brand new collection of genotypes
including some with low latex production and excellent timber growth.
Bin Mohd. Aris (2005) argues that plantations for timber production only could be
felled after 15 years. The potential volume after 15 years was not estimated, but a
commercial volume of more than 100 m3/ha is reported from a 10 years old trial. The
effect of different plantation densities is also analysed in this document; including
higher densities that traditionally have been considered for timber plantations.
It is also important to consider the effect of tapping on growth rate of the trees. Silpi
et al. (2006), shows that there is a negative correlation between latex yield and
annual girth increment. After one season of tapping, the radial growth rate of tapped
trees was about half of that of untapped trees. Nonetheless, it is still unclear how
much timber could be obtained from an untapped rubber plantation when managed to
maximise timber value.
All of the previous research neither evaluates the economic potential of timber
plantations nor compares it with latex-timber plantations. Comparative research
between tapped and untapped rubber trees, including the economic effect, for timber
production is also limited, but extremely needed.
25
4. THEORETICAL FRAMEWORK
4.1 Basic Faustmann model
In 1849, Faustmann illustrated how to calculate the value of bare forestland using
two different approaches, one of them uses a discounted cash flow analysis for which
all incomes and expenditures are reduced to their present value equivalents. The
value of bare forestland is just the difference between discounted incomes and
discounted expenditures. In accordance with the Faustmann approach, landowners
will maximise the economic benefit from the forest if they maximise the present
value of net incomes. Between other things, Faustmann assumes that stumpage price,
harvest volume as well as regeneration costs remain the same for an infinite number
of rotations. A simplified form of the original Faustmann model can be written as
follows (Hyytiäinen et al. 2001).
m


−i
R
−
cik (1 + r )

∑
∑
i
k =1

VL = i =0 
−s
1 − (1 + r )
s
(1)
Were:
VL : value of bare land.
Ri : harvesting revenues.
cik : silvicultural and establishment costs.
(1+r)-i : discount factor to the beginning of the rotation.
r : interest rate.
1-(1+r)-s = infinite time horizon.
Two conditions need to be satisfied in order to solve the maximisation problem for
optimal rotation time. The first order derivative have to be equalised to zero whilst
the second order derivative must be less than zero. For forestry this conditions have
been proved correct by many authors, one of them is Chang (1983). The Faustmann
rotation model had been widely used to determine optimal rotation for even-age
forests, also including non-timber benefits; however its used, combining annual
revenue flow and final timber harvesting income, is still uncommon.
26
4.2 Faustmann model with non-timber products
Hartman (1976) expands the Faustmann model to include the economic value of nontimber products. This additional revenue from the forest stand can extent the optimal
harvesting moment even to a point when the timber is losing value and in some cases
when the non-timber values are high enough, the optimal time for harvesting the
trees may never come. The Faustmann model as well as the Hartman variation can be
easily rewrited in the form of net present value (NPV) by including the discount
factor that repeats all cash flows for an infinite number of times as follows.
 T Bt − Ct
 
pf (T )
1

NPV = ∑
+
−
Cp
*
1
−
  (1 + r ) T
t
T
 t =1 (1 + r ) (1 + r )
 



−1
(2)
Where:
Bt : annual revenue obtained from the selling of latex.
Ct : annual cost related to the production of latex.
pf (T) : the stumpage price as a function of the harvesting moment T.
T: age of the plantation at the moment of harvest.
Cp : the plantation cost.
r: rate of return.
The multiplying factor on the right is used to repeat all cash flows for an infinite
number of times. The result does not only approximate the NPV for one rotation, but
for consecutive rotations until infinity, assuming land is not going to be used for
other activities. Note that rubber plantations are not normally thinned.
There is much research on optimal rotation and timber supply in terms of forest
owners' behaviour has been done, part of this research deals with the effect of timber
price and owner's amenities value on short and long term timber supply. Amenity
value depends on the owner's own perception of the forest, it is additional to the
timber prices and increases along with the increasing age of the forest stand
(Hartman 1976, Kuuluvainen et al. 1996).
27
By using comparative statistics Clark (1976) and Johansson & Löfgren (1985) show
that a permanent increase in stumpage price have a negative effect on the optimal
rotation or moment of harvest. Under high timber prices, forest owners will harvest
trees at a younger age and replant, as commercial maturity of the trees occurs earlier;
thus, high prices will increase timber supply in the short term. Decreasing timber
prices would have the opposite effect and owners will wait longer before felling the
trees and by doing so timber supply will decreases in the short term (Chang 1983,
Koskela & Ollikainen 2001)
Using the same methodology Clark (1976) and Johansson & Löfgren (1985) indicate
that lower interest rates will extend the optimal rotation length whilst high interest
rate will make the rotation shorter as low rates allow forest owners to have a lower
opportunity cost. The marginal increase of growing timber stock will equal the
opportunity cost of harvesting at an older age under low interest rate, the opposite
will happen with high interest rates.
From the forestry point of view, the income from latex can be seen as an amenity,
which total value increases over time but at a decreasing rate; the main difference
here is that after a particular age the revenue from latex starts to decrease. The effect
of amenities on optimal rotation and timber supply has been analysed by Hartman
(1976) and Strang (1983). They argue that an increase in the value of the amenities
will extend optimal rotation as owners wait longer before felling the trees in order to
capitalise the additional value of the trees. This situation will also reduce the supply
of wood in the short term (Kuuluvainen et al. 1996).
5. MATERIAL AND METHODS.
From the beginning of the research, it was assumed that most of the information
needed in order to achieve the objectives was already available in Thailand. In order
to establish contact with local expertise and collect the necessary information, a three
months trip was organised as part of the cooperation program between the Kasetsart
University in Bangkok and the University of Helsinki.
28
The information required was:
•
Annual rubber productivity at different ages.
•
Prices of latex paid to smallholders.
•
Economic governmental incentives to rubber producers.
•
Rubber trees growth rate.
•
Stumpage price of Rubberwood.
•
General information about the social and economic situation of small rubber
producers.
Governmental agencies like the RRIT and the RFD were visited in Bangkok, as well
as the Office of Agriculture Economics (OAE). Informal interviews were carried out
with members of these agencies and with some members of the Faculty of Forestry at
the Kasetsart University. An additional trip was organised to the Songkhla province
in the south of Thailand, the most important region in terms of latex and rubberwood
production.
In the south, the offices of the Rubber Research Centre and the Central Rubber
Market were also visited and staff from these agencies was interviewed. Researchers
at the Prince of Songkla University (PSU) were also contacted and interviewed. With
the collaboration of the PSU, which is also part of the Common Fund of
Commodities (CFC) project, three field trips were organised in order to visit rubber
plantations and sawmills. Information about annual costs and revenue from rubber
plantation was relatively easy to find. However, most of the databases lacked
information about the methodology used. In most cases, cost and benefits were
presented as a constant average value per year, which does not give information on
annual changes in latex production.
Two databases were selected for this thesis, the first one from the OAE (Rachane
2000 and Rach-Chachoop 2000) was used to run most of the calculations, and the
second by Somboonsuke (2002) that was used as support information. Two of the
persons in charge of the gathering of these databases were also interviewed in order
to clarify some aspects of the methodologies used. Both databases were corrected for
29
inflation based on the official annual inflation rates published by the International
Monetary Fund in its website (IMF 2006).
The information for the OAE's database was collected during 1999 and early 2000.
Around 255 smallholdings were interviewed along the country, especially in the
southern and eastern part; information about latex production as well as latex related
costs was collected. The database also contains information about stumpage prices
for a few areas also in the southern and eastern part of the country.
The database by Somboonsuke (2002) was collected during the same period but it
concentrates on mixed rubber production systems. From 3 820 smallholdings
evaluated 807 were considered rubber monoculture. Again information about latex
production as well as latex related costs was collected. In this case, the information
was collected in only three districts in the Songkhla province.
Prices for all latex concentrations and latex products were obtain from the
governmental website (RRIT 2006). This website includes a monthly publication of
the RRIT that informs about prices as well as other aspects of the Thai rubber sector,
but most of the information is only available in Thai language. In this thesis, latex
prices were corrected for inflation and can be compared with today prices. For the
calculations, an average price of 60 bahts/kg was used. This is an average of the
Ribbed Smoked Sheet (RSS) price during the last three years. RSS is the most
common product sold in the rubber market of Hat Yai as well as in other parts of
Thailand.
The only information unavailable was the stumpage price of rubberwood. To collect
this information, a field trip was organised with the cooperation of Dr. Pramoth
Kheowvongsri's team (PSU/CFC), and including two wood dealers. With the help of
a local ORRAF official, a set of 10 plantations were selected and then visited in
companion of the wood dealers. These dealers were then questioned about the
potential bid price per rai for each individual plantation.
30
One of the observations, a 19 years old plantation was eliminated from the
calculations. The clone planted in this plantation was the PB235. The site conditions
were the worst observed (almost in state of abandonment), the trees were in poor
condition (even with stem damage produced by tapping), and with obvious high
mortality. Nine plantations were finally used and two wood dealers were consulted
about the potential wood price per rai for each individual plantation. The size and the
age of the plantations varied from 8 to 40 rai (1.28 to 6.4 hectares) and from 12 to 25
years, respectively.
With the information about timber prices, a regression model was prepared in order
to predict stumpage prices for rubber plantations at different ages. Because of the
particular conditions of the region, e.g. large concentration of rubber plantations, well
organised latex market, good infrastructure and the presence of many sawmills, it is
assumed that stumpage prices are only affected by the price of latex, the expected
revenue of the wood dealer as well as the demand and supply of timber.
Optimal rotation length was calculated using the net present value concept combined
with the Faustmann-Hartman approach of infinite rotations, including latex and
timber values, as in equation (2). Optimal rotation for latex production only was also
calculated. A minimum accepted return rate of 5% on investment is expected from
latex and timber. Information about costs and revenues from latex were included in
the NPV calculation as given in the original database. Additional models to predict
costs and revenues based on latex production were not considered as it was assumed
that the effect on the results was not significant. The software programs PcGive and
Limdep were used for most of the statistical calculations. The normal worksheet of
Excel was used for algebraical calculations.
Finally, with a sensitivity analysis, the effect of different variables on NPV and
optimal rotation is going to be evaluated. The variables included for the analysis are:
planted are, latex price, basal area and discount rate. Additionally, the effect of the
replanting aid program by ORRAF will be also evaluated.
31
6. RESULTS AND DISCUSSION
6.1 Optimal rotation
6.1.1 Stumpage price model
In this particular case, two separate steps were required in order to estimate the
optimal rotation for plantations inside the traditional rubber production areas. To
begin with, a model to predict potential stumpage prices, as a function of the growth
of the rubberwood stand, was developed; then the NPV was calculated and applied to
estimate the optimal rotation for rubber smallholdings. The information collected on
the field generated 18 observations with stumpage price as the dependent variable
whilst age of stand, plantation size and basal area as the independent variables (Table
2).
Table 2. Age, planted area, basal area and stumpage prices (bahts/rai) for nine rubber
plantations in Songkhla province, Southern Thailand
Age
(years)
12
12
15
15
18
19
21
25
25
Owner
Planted area Basal area
(rai)
( m2/rai)
Sirayo S.
17
2,72
Yenta P.
7
1,12
Niyom C.
8
1,28
Prayot C.
18
2,88
Tam M.
8
1,28
Suchat C.
17
2,72
Klub C.
8
1,28
Wichad L.
40
6,40
Vaeng N.
10
1,60
Basal area
Wood dealers
(m2/ha)
Taan Pomlak Vaeng Noosong
12,42
18 000
15 000
13,34
22 000
25 000
16,13
45 000
40 000
19,48
47 000
47 000
22,60
55 000
52 000
23,47
60 000
60 000
28,39
57 000
57 000
26,58
80 000
75 000
26,90
60 000
60 000
The proposed model is a linear regression that generates linear results based on a
linearly increasing age, basal area and planting area. In reality, however, basal area
behaves in a different way. To correct this inconsistency, a quadratic equation to
predict basal area based on age was also estimated (Figure 6).
32
5
4,5
2
y = -0,0144x + 0,7157x - 4,5197
4
2
R = 0,9483
Basal area per rai
3,5
3
2,5
2
1,5
1
0,5
0
10
12
14
16
18
20
22
24
26
Age
Figure 6. Regression equation for basal area to be used with the model to predict
timber prices for rubber plantations in Songkhla province, Southern Thailand.
As expected, the dependent variable Price (stumpage price) as well as the
independent variables Age (age of the plantation) and BA (basal area), are highly
correlated (around 90% correlation). The independent variable Area (planted are in
rai) shows a correlation value of 48% with the dependent variable and values below
40% with the other independent variables.
The plantation age is the only non significant variable in the model; nevertheless, it
was included as the time reference variable for the model (Table 3). In this case,
basal area is a function of time, site conditions and intensity of tapping, with the
latter factor having a strong effect on growth (Silpi et al. 2006). The inclusion of age
in the model would reinforce the effect of tapping on basal area.
Table 3. Statistics of the stumpage model for rubber plantations in Songkhla
province, Southern Thailand.
Std.Error
6395.0
1053.0
191.4
824.9
t-value
-2.40
0.55
2.33
2.70
6800.76
0.888712
F(3,14) =
log-likelihood -182.125
no. of observations
18
Mean (Price) 48611.1
RSS
37.27
Constant
Age
Area
BA
Sigma
R2
Coefficient
-15369.3
584.408
444.981
13931.50
33
t-prob
0.031
0.588
0.036
0.017
Part.R2
0.2921
0.0215
0.2786
0.3428
647505516
[0.000]**
DW
1.37
no. of parameters
Std.Dev
Mean of «x» Elasticity
18.000
14.778
2.280
4
6800.764
0.084
0.061
1.397
The adjusted R2 of the model is high at 0.86. The whole model is significant at 5%
significant level; the independent variables Area and BA are also significant. The
Durbin-Watson's test indicates a significant correlation of the residuals, probably due
to high correlation between some of the variables. The partial autocorrelations for the
independent variables indicate that basal area is twice more important than plantation
size when estimating stumpage prices.
The proposition that the effect of basal area over price is larger than the effect of
plantation size is particularly important for smallholders who normally will find it
difficult to expand the area planted with rubber. Previous research indicates
(Chandrasekhar 2005, Lam et al. 2005, RFD 2005, Thuy Hoa T. el al. 2005) that the
clone RRIM600 generally produces far less timber (meaning -ceteris paribus- lower
basal area) than many of the new latex-timber clones. Improved latex-timber clones
could have a significant effect on farm gate prices for timber. In the sensitivity
analysis below, the effect of increasing basal area on stumpage price and optimal
rotation will be discussed.
The average plantation size of the plantation was the remaining value included in the
model. Table 4 displays the expected stumpage prices from 12 to 25 years old
plantations.
Table 4. Expected stumpage prices for a 15 rai (2.4ha) rubber plantation and age
between 12 and 25 years in Songkhla province, Southern Thailand.
Age
12
13
14
15
16
17
18
19
20
21
22
23
24
25
Basal area
(m2/rai)
2.00
2.35
2.68
2.98
3.25
3.49
3.7
3.88
4.03
4.16
4.26
4.32
4.36
4.37
Basal area
(m2/ha)
12.47
14.69
16.74
18.60
20.28
21.79
23.11
24.25
25.21
26.00
26.60
27.02
27.27
27.33
Expected stumpage price Expected stumpage price
(bahts/rai)
(bahts/ha)
26 113.02
163 206.38
31 652.86
197 830.38
36 791.47
229 946.69
41 528.86
259 555.38
45 865.01
286 656.31
49 799.95
311 249.69
53 333.65
333 335.31
56 466.13
352 913.31
59 197.38
369 983.63
61 527.40
384 546.25
63 456.20
396 601.25
64 983.77
406 148.56
66 110.11
413 188.19
66 835.23
417 720.19
34
6.1.2 The net present value (NPV)
When the previous information is combined with the annual cost and benefit values
of running a rubber plantation, the NPV for different rotation lengths can be
calculated. It is assumed that the plantations around the main rubber markets will
always be replanted with rubber. In this case the NPV can be calculated for an
infinite number of rotations.
Table 5 presents the results of the NPV for a single rotation and for infinite rotations
for plantations between 12 and 25 years old, the long term NPV is used to determine
optimal rotation. The values presented are the discounted and accumulated cost and
benefit for each year using the 5% return on investment. The expected stumpage
price is also express as present value. All values are presented as bahts per rai.
Additional information about production costs and benefits can be found in the
appendix. For a 15 rai plantation (2.4ha), the optimal rotation age is 21 years with a
NPV of 79 194.95 bahts/rai (494 968.44 bahts/ha). The NPV of timber (at 5% rate of
return) accounts for 27.9 % of the total NPV, which is higher than the 20% calculated
by Clément-Demange (2004).
Table 5. Estimation of optimal rotation for a 15 rai rubber plantation in Songkhla
province, Southern Thailand based on the long term NPV; the accumulated costs and
benefits from a rubber plantation as well as stumpage prices are discounted at 5%
return rate, all values are in bahts/rai.
Year
12
13
14
15
16
17
18
19
20
21
22
23
24
25
Latex production
Costs
Benefits
32 224.52
49 937.02
35 550.28
59 739.59
38 455.03
68 575.35
41 049.30
76 195.81
43 464.89
83 238.18
45 714.20
89 783.94
47 757.93
95 652.50
49 800.65
101 074.45
51 599.05
106 073.81
53 151.22
110 261.38
54 499.58
113 768.76
55 699.60
116 706.71
56 806.41
119 457.51
57 865. 40
122 033.38
Stumpage price
if harvested
14 540.71
16 786.19
18 582.19
19 976.09
21 011.29
21 727.55
22 161.23
22 345.56
22 310.87
22 084.79
21 692.49
21 156.85
20 498.62
19 736. 63
35
NPV
32 253.20
40 975.49
48 702.51
55 122.60
60 784.58
65 797.29
70 055.80
73 619.36
76 785.64
79 194.95
80 961.67
82 163.96
83 149.72
83 940 61
Long term
NPV
72 779.62
87 241.54
98 402.41
106 212.74
112 171.75
116 723.26
119 860.18
121 832.70
123 229.56
123 537.95
123 013.98
121 827.50
120 518.71
119 064.76
With the current information, it would be difficult to estimate optimal rotation length
for plantations located outside the traditional rubber production areas. However, it is
reasonable to assume that with increasing transportation costs, optimal rotation could
shift around the 24 years if timber is still a priced product. The increase in
transportation cost could have stronger effects on stumpage price than on latex price
as the latex market is more extend and better organised than the rubberwood market
thus rotation would be longer than 21 but shorter than 26 years.
The estimation of an optimal rotation for timber production is not possible with the
available data. Current rubber plantations are neither designed nor managed for
timber production rendering it difficult to predict expected volumes and potential
stumpage prices when silvicultural activities are changed.
6.2 Sensitivity analysis
6.2.1 Effect of planting area
Because smallholdings, of less than 50 rai in area, are the subjects of this research,
the changes in plantation area concentrated in this particular group; nonetheless,
results for plantation of 100 rai are also presented. Table 6 shows the effect of
different plantation areas.
Table 6. Effect of planted area on optimal rotation and NPV for rubber plantations in
Songkhla province, Southern Thailand.
Planted area
(rai)
5
15
30
50
100
Planted area
(ha)
0.80
1.60
2.40
4.80
16.00
Optimal rotation
(years)
21
21
21
20
18
NPV
(bahts/rai)
77 597.72
79 194.95
81 590.79
82 655.44
85 772.20
Long term NPV
(bahts/rai)
121 046.41
123 537.95
127 275.28
132 649.73
146 749.76
It seems clear that for smallholdings any increase in the area planted with rubber
would significantly affect neither the optimal rotation nor the NPV of the activity. In
the best case, if the small owner has the required financial resources to increase the
36
planted area from 5 rai to at least 30 rai, the increase on NPV will be about 5% or
less than 4 000 bahts/rai.
The results suggest that optimal rotation is reduced by one year with an increase of
the plantation area is increased in at least 20 rai, as better timber prices are payed for
larger plantations whilst latex related cost stay constant. This could indicate that
wood dealers are obtaining higher benefit-cost rates from large plantations by
increasing the productivity of labour and machinery during the harvesting and
transportation activities of which they are responsible.
This information has little value for financially constrained smallholdings but it could
be relevant for the owner of mid and large plantations, who could reduce optimal
rotation by considerable increasing the area planted with rubber. Nevertheless,
information reported by the RFD (2000) indicates that, based on the characteristics of
the RRIM600 clone and under current management conditions, sawmills are only
willing to accept trees that are older than 19 years.
6.2.2 Effect of latex prices
As latex accounts for 73% of the total NPV, changes in the price of latex are
expected to have a strong effect on profitability. Increasing latex prices tend to
increase optimal rotation for rubber plantations (Table 7). However, a considerable
change in latex prices from 40 to 75 bahts per kilogram only increases the optimal
rotation from 20 to 21 years. Apparently, in this case, timber value works as buffer
for the optimal rotation; the fact that a significant proportion of income occurs at
once maintains optimal rotation stable even if NPV changes significantly. Normally,
latex prices have a strong effect on optimal rotation for plantations producing only
latex.
It is important to observe the fraction of NPV that corresponds to the timber value.
With lower latex prices, this percentage grows close to 40%. This may indicate that
when latex prices fall below 40 bahts per kilogram, rubber plantations for timber
production become more attractive from an economic point of view.
37
Table 7. Effect of latex price on optimal rotation, NPV and the importance of timber
as percentage of NPV for 15 rai rubber plantations in Songkhla province, Southern
Thailand
Price
(bahts/kg)
40
45
50
55
60
65
70
75
Optimal rotation
(years)
20
20
21
21
21
21
21
21
NPV
(bahts/rai)
41 427.70
50 267.18
60 818.05
70 006.50
79 194.95
88 383.38
97 571.84
106 760.29
Discounted stumpage price
if harvested (bahts/rai)
22 310.87
22 310.87
22 084.79
22 084.79
22 084.79
22 084.79
22 084.79
22 084.79
Timber as %
of NPV
53.85
44.38
36.31
31.55
27.89
24.99
22.63
20.69
According with the estimations of the IRSG (2005), increasing demand for natural
rubber will continue in the near future due to the strong economic growth of
countries like China and India and high oil price. Nonetheless, the potential future of
high latex prices and potential shortage of raw material is worrying the main latex
consumers. Already the US and the EU are actively seeking to diversify not only
their suppliers but also the main source of the raw material (Van Beilen 2006), this
could have a negative effect on future latex prices from the producers’point of view.
6.2.3 Effect of basal area.
The development of latex-timber clones is well advanced in different countries
around the region. Many latex-timber clones in Thailand show superior latex
production and faster growth than the traditional RRIM600 (RDF 2005). It is unclear
if smallholdings would be able of capitalise on the higher latex production capacity
of the new clones, since labour shortages could seriously limit the amount of latex
tapped. However, the timber potential of the new clones would enlarge revenue for
smallholdings without any additional cost (Table 8).
The results are for a 15 rai (2.4ha) plantation and again indicate that the optimal
rotation length stays relatively unaffected as basal area improves whilst the NPV
increases. For a plantation of 5 rai, the utilisation of any clone that could increase the
basal area of one rai by 25% would have the same effect on the NPV per rai as the
planting of additional 45 rai of rubber (NPV for a 50 rai plantation = 82 655.44
bahts/rai ).
38
Table 8. Effect of increasing basal area on optimal rotation and NPV for a 15 rai
(2.4ha) rubber plantations in Songkhla province, Southern Thailand.
Increments of Optimal rotation
basal area
(years)
0%
21
15%
21
25%
20
35%
20
45%
20
NPV
(bahts/rai)
79 194.95
82 315.03
82 081.29
84 199.56
86 317.82
Long term NPV
(bahts/rai)
123 537.95
128 405.03
131 728.30
135 127.80
138 527.30
Preliminary results from Indonesia, Thailand and Vietnam (Thuy Hoa T. el al. 2005,
Lam et al. 2005, RFD 2005) suggest that most of the new latex-timber clones could
produce 25-40% more timber than the RRIM600 clone. This is not only important for
smallholdings but also for the wood industry in general as timber supply could be
increased in the future without expanding the area planted with rubber. Main users of
rubberwood should also participate in the promotion of new clones between rubber
producers.
6.2.4 Effect of the discount rate
Clark (1976), indicates that at higher interest rates optimal rotation would be shorter
than at lower rates as the discounted value of timber decreases faster under high
interest rates. In other words, timber value equals the opportunity costs of logging
early under high rates than under low interest rate.
It is clear that for rubber plantations, high interest rates will shorten optimal rotation
and low interest rates will extend it. After the economic crisis in the late 1990's,
interest rates in Thailand were low. However, increasing inflation since 2002 has
produced an increase in interest rates in recent years (Table 9).
A 2% increase in the discount rate reduces optimal rotation age by one year at any
price level and vice versa. The fact that most of the revenue from latex occurs when
plantations are between 7 and 14 seven old whilst timber revenue occurs after 21
years, seems to compensate for changes in the interest rate, thus reducing its expected
effect on optimal rotation. Discount rate also has a strong effect on profitability.
39
Table 9. Effect of changing interest rate (3%, 5%, and 7%) on optimal rotation and
NPV as latex prices changes for 15 rai plantations in Songkhla province, Southern
Thailand; NPV is in bahts/rai.
Latex price
(bahts/kg)
40
45
50
55
60
65
70
3% discount rate
Rotation
NPV
21
63 142.74
21
75 084.06
22
89 472.37
22
101 859.91
22
114 247.45
22
126 634.99
22
139 022.53
5% discount rate
rotation
NPV
20
41 427.70
20
50 267.18
21
60 818.05
21
70 006.50
21
79 194.95
21
88 383.40
21
97 571.85
7% discount rate
rotation
NPV
19
26 985.94
19
33 607.88
20
41 537.66
20
48 445.26
20
55 352.86
20
62 260.45
20
69 168.05
Timber revenues are the most affected by changes of the interest rate. Interest rates
thus have a different effect on latex and timber profitability as revenues from latex
are distributed over many years and timber revenue only occurs at the end of the
rotation. Figure 7 shows the discounted value of timber as percentage of NPV for
different latex prices.
60
3%
5%
7%
Percentage of NPV
50
40
30
20
40
45
50
55
60
65
70
75
Latex price (bahts/kg)
Figure 7. Timber value as percentage of NPV for different interest rates (3%, 5%,
and 7%) and with changing prices.
When latex prices are high, the revenue from timber is more significant when interest
rates are low. Nevertheless, the importance of timber value as a percentage of NPV is
relatively small when latex prices are high. With low latex prices, the effect is the
opposite; revenue from timber is more significant when interest rates are high.
40
Additionally the importance of timber as a percentage of NPV is clearly different as
interest rate chances under low latex prices.
The combination of low latex prices and high interest rates could be very difficult for
smallholdings. Under such circumstance, smallholdings would be better off with a
strong timber component in the plantation. The importance of timber seems more
significant during difficult economic times. The investment in timber production will
not only generate additional revenue at the end of the rotation, but it would also
insurance rubber producers against potential drops of latex prices.
6.3 The ORRAF effect
As previously mentioned, ORRAF is in charge of applying the planting and
replanting policies of the government as well as providing new technology to rubber
producers. The total planting aid from ORRAF is 7 300 bahts/rai (slightly more than
1 000 €/ha) which is paid during a 5.5 years period. The payment partially covers the
cost of seedlings and labour. The fund is financed by different sources but most of it
comes from rubber related taxes paid by producers, consumers and exporters of latex.
Additionally and in cooperation with the BAAC, ORRAF also offers loans to farmers
interested in planting rubber (ITTO 2006). In the previous calculations, the subsidy
by ORRAF was not taken into account. Table 10 presents the results of NPV for a 15
years old plantation with and without the subsidy as latex prices change. Only the
effect of changing latex prices is evaluated as it generates most of the income.
In average, the ORRAF aid improved the NPV in 6 363.78 bahts per rai and in some
cases it reduces the optimal rotation by one year. The distribution of the ORRAF
payments varies between regions, but around half of the 7 300 bahts is paid the first
year to cover the purchase of seedlings and planting cost. The subsidy strongly
reduced initial investment. This is reflected in the NPV, which gives higher weight to
the cash flows that occur during the first years.
41
Table 10. Effect of the ORRAF's planting aid on optimal rotation and NPV for
rubber plantations in the Songkhla province, Southern Thailand.
Price
40
45
50
55
60
65
70
75
Without ORRAF's aid
Optimal rotation
NPV
(years)
(bahts/rai)
20
41 427,70
20
50 267,18
21
60 818,05
21
70 006,50
21
79 194,95
21
88 383,38
21
97 571,84
21
106 760,29
With ORRAF's aid
Optimal rotation
NPV
Subsidy as %
(years)
(bahts/rai)
of NPV
20
48 158,48
13,98
20
56 997,96
11,81
20
65 837,44
10,22
20
74 676,93
9,01
21
85 925,73
7,83
21
95 114,17
7,08
21
104 302,62
6,45
21
113 491,07
5,93
This financial aid improves the welfare of small rubber producers, especially when
latex prices are low. Based on the information presented by Somboonsuke (2002) and
Rach-Chachoop (2000) in the year 200, when latex prices were at 25 bahts/kg and
timber prices 20% lower than today, ORRAF's subsidy accounted for 40% of total
NPV. Nowadays, the combination of high latex and timber prices makes these
payments far less significant for smallholdings.
From Table 10 it is also clear that the importance of the aid programme, on the
smallholding economy, diminished as latex and timber prices increase. In other
words, the investment of ORRAF in the subsidy generates decreasing returns
(measured as a proportion of total smallholding revenue) as latex and timber prices
increase. The importance of the subsidy will be further eroded as latex-timber clones
become more popular.
At some point in the future, ORRAF's officials have to consider the possibility of
moving capital from the rubber replanting aid to other schemes or activities that
could generate higher returns. Alternative loan programs, promotion of latex-timber
clones and silvicultural activities to improve timber production are some of the
possibilities that need to be considered.
According to ITTO (2006), ORRAF has partially failed to include timber into the
latex production picture. ORRAF has also financed the introduction of other tree
species into rubber plantations and it is involved in the promotion of new latex-
42
timber clones. Nonetheless, rubber plantations are still managed for latex production
exclusively, despite the increasing importance of timber production in some regions.
Another important goal for ORRAF is the promotion of replanting and new planting
of rubber trees in different areas. As already mentioned, the importance of the
programme decreases as latex and timber prices increase. Under certain price
conditions this programme will become irrelevant for smallholding when replanting
or planting decisions are made. Kainulainen (2007) reports that 82% of rubber
producers in the south and 92% in the east were willing to replant rubber after clear
cutting their plantations. The replanting payments were not mentioned but it seems
clear that there is a positive attitude towards rubber. ORRAF needs to consider this
situation and try to avoid the misplacement of resources in areas where rubber
replanting is already secure.
Promoting improvements in timber production is not the only way in which ORRAF
could invest its resources. It was already mentioned that it is unclear whether
smallholdings would be able to fully exploit the new latex-timber clones and thus
increase latex production. If the potential latex yields of the clone RRIM600 are
compared with the yields reported on the field, it is evident that smallholdings are
producing less latex than they potentially could (Figure 8).
400
Expected
350
Real
Kg of latex
300
250
200
150
100
50
0
7
9
11
13
15
17
19
21
Age
Figure 8. Expected and real latex yields per years for the clone RRIM600 reported in
the south of Thailand in the year 2000.
43
After the first 9 years of tapping, real yields are 14% lower than the expected yields
and this means 403 kg of latex in 9 years or 2 686.67 bahts per year. ORRAF should
analyse the possibility of helping smallholding to maximise revenue from latex
production, at least during the first years of tapping when latex yields are the highest.
An increase of latex yields during the first years of tapping would have a stronger
effect on profitability than the replanting aid
It is difficult to determine whether these low yields were the result of ecological
conditions, shortages of labour or low latex prices (albeit the belief that producers
would increase production during periods of low prices in order to compensate losses
of revenue). Nevertheless, if this situation is more the norm than the exception, it has
two very important implications. Firstly, it means that the investment on new clones
of high latex yields would have little or none effect on smallholdings welfare, as
farmers are not able to take advantage of the additional production capacity.
Secondly, the assumption that the latex-timber clones should produce both more
latex and timber than the clone RRIM600 turns out to be incorrect and the real target,
in term of new clones, would be to increase timber yields.
6.4 Limitations of the research.
The main limitation in the present study is the six years difference between data
collection and analysis. This means that some of the changes that have occurred in
the sector during these years can not be fully quantified, e.g. inputs prices. Some
research has been done during the last years, but could not be utilised because the
information normally used was the one published by the RRIT. If well reliable, the
information from the RRIT seems to be unaffected by some constraints, which are
shared by many smallholdings e.g. limited investment capacity, insufficient qualify
labour, environmental limitations and others. These constraints have a measurable
effect on the quantity and quality of rubber tapped.
Another limitation is the difficulty to estimate accurate labour costs for rubber
plantations. During the years of low rubber prices, wages were low and it was
common to complement labour payments with latex, between 30 and 50% of the total
44
worker's production (Rachane 2006, Mungkorndin 2006). Nowaday, there is a
combination of the previous payment system and normal wages with skilled workers
bargaining for premium salaries.
For the calculations, a 50% increase in wages was assumed for the period 2000 to
2006. This assumption is based on two extreme situations. First the information from
Somboonsuke (2002), and Rach-chachoop (2000) with low latex prices and 50% of
the total revenue used for labour. Second the information published by the RRIT
based on high prices and only 27% of total revenue paid for labour. The 50%
increase in labour costs means that under current market conditions 35% of total
revenue is used to pay for labour.
It is assumed that the increase in wages have no effect on labour supply, which is
very inelastic in the short term. Family labour has been decreasing for many years in
the rubber smallholdings. First the youth slowly moved out during the years of good
rubber prices and then low prices during the 1990's forced more labour into the cities
(Rachanee, 2006, Somboonsuke, 2006). Today, high rubber prices generate higher
wages that attracted some additional labour into the rubber sector. Nonetheless high
prices also promote the establishment of new plantations and additional demand of
labour with them.
7. CONCLUSIONS
Since its creation in the 1960's, ORRAF has promoted alternative sources of income
for rubber producers. In 2002, Somboonsuke corroborated that mixed rubber
productions systems were more profitable than rubber monoculture. However,
diversification is not accessible for everyone. There are some needs in terms of
financial and natural resources that can not be fulfilled for all smallholdings. Rubber
monoculture systems are traditionally the most strongly affected by price variations.
Ten years ago the prognosis for rubber smallholdings in Thailand was discouraging;
the combination of low prices, labour shortage and competitions from other crops
were slowly moving farmers away from rubber. These problems were not new and
45
for many years, the response was the diversification of the production system. Today
high latex and stumpage prices are giving new life for rubber monoculture systems in
Thailand. The new task now is to identify places where monoculture can be
environmentally and economically sustainable. Regions around strong rubber
markets and with several sawmills would be very attractive from an economic point
of view.
The effect of basal area on timber price in traditional rubber production areas is
larger than the effect of total planted area. This is particularly important for
smallholdings, which are not able to increase planted area or would like to diversify
their production. For medium and large size rubber producers, the optimal rotation is
shortened as plantation area increases to at least 50 rai.
In traditional production areas and for rubber smallholdings which are expected to
continue rubber planting in the future, the optimal rotation is 21 years and generates a
net present value of 79 194.95 bahts/rai (€11 205.69/ha) when latex price is 60 bahts
per kilogram. Variations in the latex price have a moderate effect in the optimal
rotation because the timber price softens the effect of both low and high latex prices.
The introduction of the long awaited latex-timber clones will have an important
effect on smallholding welfare. In regions facing labour shortages, clones that
produce larger timber volumes but lower latex harvest, need to be considered.
Silvicultural activities that promote higher timber yields need to be introduced, not
only to improve revenue for the smallholdings but also to increase timber supply in
the future and close the current gap between the demand an supply of rubberwood.
The combination of new clones and better management could considerable increase
supply of timber.
Potential changes in the rubber plantation management can only be acceptable if they
improve the profitability for smallholdings. Silvicultural changes need to be
evaluated under different economic situations to be able to offer dynamic alternatives
to smallholders as the market conditions change.
46
ORRAF needs to review the effects of the replanting aid programme and decide
whether to continue with it. To do so, it will be important to fully incorporate wood
production into the rubber equation; in some circumstances, the prioritisation of
wood over latex could generate results that are more profitable. It is possible that the
ORRAF support is not a decisive factor for small farmer when deciding between
rubber and other alternatives.
The rubberwood industry needs to get more involved in the promotion of the new
latex-timber clones in order to accelerate the transition to more timber friendly
plantations. This would increase timber supply without increasing the planting area
and could stabilise stumpage prices.
Long term collection and of information is needed to clearly understand
smallholdings
socio-economic
development
and
behaviour.
Today,
only
disconnected dots of information are available inside and outside Thailand. A strong
commitment from all parts e.g. governmental agencies, agencies universities, both
latex and wood related private sector as well as foreign agencies, is needed to
develop a common data bank. The information collected could be analysed in
different ways for different objectives and thus facilitate the decision making process
for all parts.
47
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53
9. APPENDIXES
Age
(years)
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
Production
(kg/rai)
97,48
146,41
196,11
259,14
336,28
326,47
308,07
291,57
264,04
256,21
250,05
235,39
228,35
221,08
194,44
171,00
150,40
147,86
145,38
142,94
140,53
Labour
1672,91
686,44
527,64
437,28
363,06
254,40
1230,61
1447,03
1867,15
2400,32
2833,48
2783,95
2812,71
2672,55
2439,65
2372,52
2319,66
2194,96
2328,37
2072,46
1847,26
1649,26
1475,25
1452,80
1430,83
1409,15
1387,83
Production costs (bahts/rai)
Labour 2006
Materials
Materials 2006
2946,50
1415,43
1662,00
1209,03
428,68
503,36
929,33
278,21
326,67
770,18
311,03
365,21
639,46
314,49
369,27
448,07
223,93
262,94
2167,47
2692,04
3160,99
2548,65
396,69
465,79
3288,61
451,77
530,47
4227,68
423,67
497,47
4990,61
515,72
605,56
4903,37
381,30
447,72
4954,03
605,62
711,12
4707,16
373,00
437,98
4296,96
417,54
490,28
4178,72
415,72
488,14
4085,62
394,96
463,76
3865,98
380,21
446,44
4100,96
387,35
454,83
3650,22
438,92
515,38
3253,58
395,72
464,65
2904,84
369,10
433,40
2598,36
410,03
481,46
2558,82
344,66
404,70
2520,12
391,68
459,91
2481,94
567,79
666,70
2444,38
350,87
411,99
54
.
Others
322,77
331,85
342,52
335,16
340,95
349,59
356,20
356,20
356,20
356,20
356,20
356,20
356,20
356,20
356,20
356,20
356,20
356,20
356,20
356,20
356,20
356,20
356,20
356,20
356,20
356,20
356,20
Others 2006
566,82
577,48
590,01
581,36
588,16
598,31
606,07
606,07
606,07
606,07
606,07
606,07
606,07
606,07
606,07
606,07
606,07
606,07
606,07
606,07
606,07
606,07
606,07
606,07
606,07
606,07
606,07
Totals
2000
2006
3411,11
5175,31
1446,97
2289,86
1148,37
1846,01
1083,47
1716,76
1018,50
1596,89
827,92
1309,32
4278,85
5934,54
2199,92
3620,52
2675,12
4425,15
3180,19
5331,23
3705,40
6202,24
3521,45
5957,16
3774,53
6271,21
3401,75
5751,21
3213,39
5393,30
3144,44
5272,93
3070,82
5155,45
2931,37
4918,49
3071,92
5161,85
2867,58
4771,67
2599,18
4324,30
2374,56
3944,31
2241,48
3685,88
2153,66
3569,59
2178,71
3586,10
2333,14
3754,70
2094,90
5733,97
54
Appendix 1. Latex production and related production costs for years 2000 and 2006.
Appendix 2. Estimation of optimal rotation for a 15 rai plantation.
Latex production
Costs
Benefits
Stumpage
price
Costs
5% discount
Benefits
Wood
(years) (bahts/year) (bahts/ year) (bahts/rai) (bahts/ year) (bahts/ year) (bahts/rai)
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
5175,31
2289,86
1846,01
1716,76
1596,89
1309,32
5934,54
3620,52
4425,15
5331,23
6202,24
5957,16
6271,21
5751,21
5393,30
5272,93
5155,45
4918,49
5161,85
4771,67
4324,30
3944,31
3685,88
3569,59
3586,10
3754,70
5733,97
5848,80
8784,60
11766,60
15548,40
20176,80
19588,20
18484,20
17494,20
15842,40
15372,60
15003,00
14123,40
13701,00
13264,80
11666,40
10260,00
9024,00
8871,60
8722,80
8576,40
8431,80
26113,02
31652,86
36791,47
41528,86
45865,01
49799,95
53333,65
56466,13
59197,38
61527,40
63456,20
64983,77
66110,11
66835,23
67159,12
67686,41
5175,31
2076,97
1594,66
1412,38
1251,21
977,04
4217,56
2450,51
2852,49
3272,91
3626,32
3317,17
3325,76
2904,75
2594,27
2415,59
2249,31
2043,74
2042,72
1798,39
1552,18
1348,36
1200,02
1106,81
1058,99
1055,98
1535,83
4156,63
5945,76
7584,86
9545,37
11796,96
10907,44
9802,57
8835,76
7620,47
7042,37
6545,76
5868,56
5421,95
4999,36
4187,57
3507,38
2937,96
2750,80
2575,87
2412,03
2258,44
14540,71
16786,19
18582,19
19976,09
21011,29
21727,55
22161,23
22345,56
22310,87
22084,79
21692,49
21156,85
20498,62
19736,63
18887,88
18129,69
55
.
Accumulated values
Costs
Benefits
(bahts)
5175,31
7252,28
8846,94
10259,32
11510,52
12487,56
16705,12
19155,63
22008,12
25281,03
28907,35
32224,52
35550,28
38455,03
41049,30
43464,89
45714,20
47757,93
49800,65
51599,05
53151,22
54499,58
55699,60
56806,41
57865,40
58921,38
60457,21
Latex + timber
NPV
Long NPV
NPV
Only latex
Long NPV
(bahts)
(bahts/rai)
(bahts/rai)
(bahts/rai)
(bahts/rai)
4156,63
10102,40
17687,25
27232,62
39029,58
49937,02
59739,59
68575,35
76195,81
83238,18
89783,94
95652,50
101074,45
106073,81
110261,38
113768,76
116706,71
119457,51
122033,38
124445,41
126703,86
-5175,31
-7252,28
-8846,94
-10259,32
-11510,52
-12487,56
-12548,49
-9053,24
-4320,87
1951,59
10122,23
32253,20
40975,49
48702,51
55122,60
60784,58
65797,29
70055,80
73619,36
76785,64
79194,95
80961,67
82163,96
83149,72
83904,61
84411,92
84376,34
-108681,51
-78006,24
-64973,41
-57864,97
-53172,82
-49205,35
-43372,56
-28014,66
-12158,07
5054,79
24372,07
72779,62
87241,54
98402,41
106212,74
112171,75
116723,26
119860,18
121832,70
123229,56
123537,95
123013,98
121827,50
120518,71
119064,76
117441,15
115244,34
-5175,31
-7252,28
-8846,94
-10259,32
-11510,52
-12487,56
-12548,49
-9053,24
-4320,87
1951,59
10122,23
17712,50
24189,30
30120,31
35146,51
39773,29
44069,74
47894,57
51273,80
54474,77
57110,16
59269,18
61007,11
62651,10
64167,98
65524,04
66246,65
-108681,51
-78006,24
-64973,41
-57864,97
-53172,82
-49205,35
-43372,56
-28014,66
-12158,07
5054,79
24372,07
39968,39
51501,82
60857,47
67721,90
73397,55
78178,96
81943,99
84853,02
87423,93
89087,40
90054,19
90457,47
90807,63
91057,52
91162,70
90482,13
55
Age