An Econometric Analysis of Natural Rubber Market In Malaysia
Abstract
The objective of this study is to identify the important factors that affecting natural rubber industry in Malaysia. Therefore, the Malaysian natural rubber market model where built. It consists of six behavioral equation and two closing identities. The six behavioral equations are production, import, domestic consumption, export, domestic price and world price equations and the closing identities are domestic and world stock. By using the annual data from year 1980 to 2012, the market mo del been examined using unit root test, cointegration test and simultaneous equation estimation. Method two stages least squares (2SLS) will be used in determining the factors that affecting natural rubber market. Results revealed th at time trend, hectare natural rubber and production with lagged 1 year are important in production natural r ubber equation. While, import depends on world price and exchange rate. Only synthetic rubber price isn’t important in determining Malaysia’s natural rubber consumption. A ll the factors in domestic price are significance except price with lagged 1 year while lastly crude oil price and lagged world price of rubber are the two variables that important in the world price equation compare to exchange rate and world price of syn thetic rubber.
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Introduction
Previously, agriculture is one of the main contributors in Malaysia. With contribution around 2 2.9 percent in year 1980, the sector is considered the one of the main contributors in Malaysia’s Gross Domestic Product (GDP). These contributions also reflect the role of rubber in Malaysia’s GDP. In year 1984, rubber contributed around 39.8 percent in agricultural sector. However, the changes to oil palm as the main commodity in Malaysia also had decreased the contribution and total number of estate rubber in Malaysia. Land development programme that been organized by Government had switch the role natural rubber as the main commodity to oil palm industry (Malaysian Rubber Research and Development Board, 1983). Early 1980s shows the amount of rubber estate decreased from 1,767 estates in year 1980 to 1,048 estate in year 1995.In year 2000 the total of rubber estate in Malaysia was only 229 before reduced to 172 estates in year 2012.
Parallel with the decreasing number of rubber estate, the total planted area also showed the decreasing trend. In year 1980, the total planted area for rubber was 1,998,200 hectares. In year 1995, the total area decreased from 1,688,800 hectares to 1,430,700 hectares in year 2000. In year 2010, the amount decreased again to 1,020,380 hectares before it increased around 41,000 tonnes to 1,041,540 hectares in year 2012 (DOSM, 2013).The decrease in natural rubber plantation also affect the smallholding sector, Malaysia’s natural rubber consumption and trade. In year 2010, the percentage share natural rubber to GDP was 8.8 percent and it reduced to 8.2 percent in year 2012 (DOSM, 2013).
In year 2000, the trend for natural rubber consumption increased from 363,715 tonnes to 400,888 tonnes (year 2001) to 421,781 tonnes in year 2004. In year 2005 and 2006, the consumption was only around 300,000 tonnes. The highest consumption is in year 2008: 468,894 tonnes. In year 2013, the amount was only 434,192 tonnes (DOSM, 2013).
The natural rubber contribution in export also was quite low. In year 2000 and 2001, it’s contribution was only around 0.69 percent and 0.56 percent each respectively. After year 2004, the contributions in export were around 1.11 to 1.40 percent. In year 2012, the contribution was only 1.12 percent.This contribution worsen because in year 2012, the import of natural rubber exceeds export. In year 2012, the total import of natural rubber in Malaysia was 871,535 tonnes compared to its export: 771,194 tonnes. In year 2013, the gap become bigger where Malaysia’s natural rubber export was only 847,090 tonnes compared to import: 1,004,805 tonnes. The contribution to export also decreased to 0.98 percent. Therefore, it is important to determine the factors affecting Malaysian natural rubber industry especially in production, consumption, export and import of natural rubber in Malaysia.
The organization of the paper is as follows: Section 2 is the literature review. Section 3 is the methodology. Results of the study is in Section 4. Lastly, Section 5 the conclusion part.
Conclusion
Overall, it can be concluded that there are many factors that affected the natural rubber equation. The production depends on time trend, he ctare natural rubber and production natural rubber with lagged 1 year. Therefore, it is important for the producers to working on idle land. It will increase the production rubber that can be tapped. Government incentive also should be provide as an effort to help smallholders.
World price and domestic stock are two variables that are significance in domestic price equation. When world price increase, the domestic price will follow to increase. This will benefit the smallholders. However, it is important to increase the natural rubber productivity as one of the support to ensure the competitiveness of natural rubber in the market. Lastly, world price with lagged and crude oil price are the important indicator in the world price equation .