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Vietnam’s rise to the ranks as the third largest rubber producer globally, came through a series of economic transitioning spurred by eco-political reforms as well as regional partnerships, says Angelica Buan in this report.
The once-underrated Vietnam has already outranked Malaysia and India in the global rubber output race. And amongst Asia’s emerging economies, it is now an investment haven in the region. The World Bank (WB), with which the country has fostered the Country Partnership Strategy (CPS) 2012-2016, rooted this metamorphosis from the time the Doi Moi (economic reforms with the aim of creating a socialistoriented market economy) was launched in 1986. From then on, Vietnam has shifted from a lower income country, with per capita income below US$100, to a lower middle income level, with per capita income exceeding US$2,000 by the end of 2014. It has also shifted from an agrarian to an industrialised economy.
The country has further bolstered its economic agenda with international and regional partnerships, such as joining the World Trade Organisation in 2007; and becoming a negotiating partner in the 12-nation Trans-Pacific Partnership (TPP) trade agreement in 2010, which will benefit Vietnam, having exportoriented industries. It also joined the recently initiated Regional Comprehensive Economic Partnership (RCEP) amongst the ten-member ASEAN and its free trade partners (which reports say is the ASEAN’s version to the US-led TPP).
Furthermore, based on the latest CIA Factbook data, the share of agriculture’s economic output has fallen from about 25% in 2000 to 18% in 2014, while its share grew from 36% to 38% in the same period.
By 2013-2014, exports surged in the second quarter, GDP expanded 6.4% from the first quarter’s 6.1%, over the same period last year, according to data released by Vietnam’s General Statistics Office (GSO). The growth target for 2015 is 6.2%, whereas industry observers project the economy to expand 6.4% by 2016.
Looking ahead to rubber production
Foremost, Vietnam is known for producing natural rubber (NR) , and had been ranked the fifth largest producer in the world until 2012, contributing significantly to Asia’s 91% global share of rubber output.
Data by the Association of Natural Rubber Producing Countries (ANRPC) and the Vietnam Rubber Association (VRA) indicates that Vietnam has outpaced Malaysia and India in terms of rubber production and exports.
Vietnam’s rubber output was estimated at 1.04 million tonnes in 2013, up from the previous year’s 1.01 million tonnes, according to VRA. Meanwhile, ANRPC reported that there have been shifts in the ranking amongst the top rubber exporters when Malaysia (which posted an annual decrease of 11.1%) and India (which posted an output of 849,000 tonnes) posted reductions in outputs; while Vietnam’s output has marginally increased.
Push for rubber exports
The country exports 85% to 90% of its rubber to 70 countries across the globe; and imports NR from more than 40 countries, including Cambodia (which accounts for 59% of imported NR), Thailand, Myanmar, Laos, and South Korea, to enumerate a few, according to a 2013 NR industry report by VietinBank.
In the first five months of 2015, Vietnam’s reported NR exports reached a volume of 330,000 tonnes, valued at US$475 million. In May, the export volume was pegged at 78,000 tonnes, worth US$114 million.
Citing data by the Ministry of Agriculture and Rural Development, this figure grew 30.1% in volume but fell 2.9% in value, compared to the same period a year ago.
The country’s largest rubber importer is China, which accounted for over 44.39% of the total export volume in the first five month-period, followed by Malaysia and India. Overall, the three countries make up for more than 72% of the market share for Vietnam’s NR exports.
China is Vietnam’s largest trading partner. According to reports citing the GSO data, in the first half of 2015, the country posted US$32.1 billion in trade revenue with China. Over US$24 billion worth of products, including machinery and fertilisers, to cite a few, have been shipped by China during the sixmonth period; while nearly US$8 billion worth of commodities, mainly agro-forestry products, have been exported by Vietnam to China in the period. As well, during the first half of the year, Vietnam’s earnings from foreign exports was close to US$78 billion, but almost US$82 billion was incurred on imports.
Strength in numbers with trading partners
Due to Vietnam’s rise to the throes of rubber producing bigwigs, the tripartite group of Thailand, Indonesia and Malaysia, the International Rubber Consortium (IRCo) has urged participation from Vietnam to stabilise the price of rubber. The three Asian rubber producers account for almost 70% of the total global rubber output.
Meanwhile, Thailand, which has been persuading Vietnam to join the Bangkokbased IRCo, is also expanding its bilateral trade with the latter. Vietnam is its fourth largest trading partner in ASEAN and 11th globally, and it expects bilateral trade to rise to US$20 billion over the next five years (2020), up from US$11 billion in 2014. A five-year plan of action is proposed to achieve the trade targets. Discussions are being launched for this agenda, which will also tackle mutual efforts to stabilise commodities, including rubber.
Cambodia is also an important trade and investment partner for Vietnam. Currently, Vietnam has 128 investment projects in the country, with a total investment estimated at US$49.6 million; whilst Cambodia has invested in three projects in energy and rubber plantations in Vietnam. This year, the bilateral trade revenue between the two countries is estimated to reach US$5 billion.
Also earlier in the year, Vietnam discussed a US$2 billion bilateral trade with Israel that would cover agriculture, science & technology, investment, and others. During a country visit to Israel by the Chairman of the Party Central Committee’s Commission for Economic Affairs, Vuong Dinh Hue, early this year, he suggested that the target may be achieved by creating optimal conditions to import certain Vietnamese commodities, including NR, in exchange of facilitating Israel’s export of technology products and transfer and funding of production activities in Vietnam.
Likewise, recently, Vietnam reiterated expanding trade ties with Latin America, and this was discussed during a workshop on business opportunities organised by the Vietnam Chamber of Commerce and Industry (VCCI) and the Uruguay-based Mercosur- ASEAN Chamber of Commerce.
Vietnam exports not only rubber but other products including footwear and electronic products, to 33 markets in Latin America. The trade turnover between Vietnam and these markets reached US$9.5 billion in 2014, an increase of 40.7% over the previous year.
Expanding rubber plantations
Despite these new developments and an upswing in trade revenues, Vietnam’s NR sector is observed to witness “little organic growth in the next few years”, according to a 2013 Vietnam Rubber Report by Stox Research, an independent research house in Vietnam. It said that plantations are declining for most listed rubber companies and this may be due to plantations being either “too old or replanted areas not being ready for yielding.” By increasing rubber prices, only can revenue growth come in, and Vietnam, Stox Research said, “has no impact or influence on” increasing rubber prices.
Vietnam has vast tracts of rubber plantations. According to the Vietnam Trade Promotion Agency (Vietrade), the country’s rubber plantations grew by 640,000 ha in 2009. By end of 2012, the rubber plantation area covered some 910,500 ha.
The 2014 Rubber Protection and Forest Protection in Vietnam Report published by the Forest Trends said that this 2012 figure continues to expand not only on the home front but because there has also been expansion in neighbouring countries, such as Laos and Cambodia, by several Vietnamese rubber firms.
At the time of the 2014 report, the area exceeded the 2020 target of 800,000 ha rubber projected in the development strategy approved by the country’s Prime Minister in 2009, producing a total volume of 1.2 million tonnes of latex.
However, the continued expansion of plantation areas has played out significantly on forest resources.
The report illustrated an example. In the Central Highlands, as much as 79% of the new rubber plantations were established on natural forest land not necessarily classified as poor forests.
About 397,879 cu m of timber was harvested during this conversion process to give way to more than 200 projects in the area. In short, encroachment of forests directly managed by communities is widening as expansion for rubber plantations increases.
Thus, industrial crops like rubber have been identified as one of the top drivers for deforestation and degradation in the country, the report added.
In response to this forest conversion issue, the Vietnamese government says it is engaging in activities such as the “Reducing Emissions from Deforestation and Forest Degradation (REDD+)” and “Forest Law Enforcement, Governance, and Trade (FLEGT)” programmes. This, the government says, would enable Vietnam to implement mechanisms that address drivers of deforestation and degradation, and aid the country to forge ahead in its plans to be one of the top producers of rubber in Asia.