The Case of Malaysian Rubber Board: The Rubber Production Incentive

The Rubber Production Incentive (IPG):

The Case of Malaysian Rubber Board

Abstract

Opening in 2015 is considered a challenge in the presence of a new tax introduced in Malaysia, namely, sales and service tax. The new tax was adapted in Malaysia was considered controversial when all levels of society regardless of pay, including operators of the rubber industry. What's more, during the opening of the New Year 2015, the rubber industry has experienced a significant decline in rubber prices increasingly seen as unstable. Often, when reading the local newspapers, news about smallholders’ complaints are there.

On October 17, 2014, as concern the government in addressing this issue, a new incentive was introduced. The incentives are Rubber Production Incentive (IPG). The Government, through the MRB has agreed to allocate RM100 million as initial funding to implement these incentives in January 2015.

In objectives, IPG introduced for the purpose of reducing the economic burden of smallholders by increasing the income of rubber smallholders in rural areas and strengthening the development of downstream industries of rubber, particularly in terms of ensuring an adequate supply of raw materials for downstream industries. Unfortunately, the rubber smallholders still have not got the results in line with objectives introduced.

Background

Natural rubber industry in Malaysia started in 1877 in Kuala Kangsar, Perak. The first rubber estates were developed in Melaka in the year 1902/1903. After that rubber plantation area continues to grow until it reaches its peak with an area of 2.06 million hectares in 1979. The highest productionby the country achieved at 1.66 million metric tons in the year 1988. In Malaysia, the Malaysian Rubber Board is the agency responsible in the case of- matters related to the rubber industry.

Malaysian Rubber Board is a government agency under the supervision of the Ministry of Plantation Industries and Commodities (MPIC). To continue its efforts to promote and develop the rubber industry for approximately 78 years ago, the Board of Malaysian rubber was formed on 1 January 1998. The results of Association is a merged of three rubber institutions which are Rubber Research Institute of Malaysia (RRIM), Malaysian Rubber Research and Development Board (MRRDB) and Malaysian Rubber Exchange and Licensing Board (MRELB). Until now, various research and development was conducted by MRB to develop rubber industry.

Overview

The Government is very concerned with the situation faced by smallholders in the face of the unstable in rubber prices. Therefore, various measures introduced by the government through the agencies involved in the rubber industry to stabilize rubber prices which are still considered low at present includes giving monetary support of RM500 as one off to smallholders. Not only that, the cooperation of the three largest rubber producing countries, namely Malaysia, Indonesia and Thailand are also working to address the problem of falling rubber prices through the International Tripartite Rubber Council (ITRC). Recently, Vietnam has reportedly agreed to the ITRC.

The rubber prices were unstable begin in 2014 is worrying not only to the citizens of small farmers but also the government. Scenario natural rubber prices in January to March 2014 are a continuation of the downward trend that has been recorded since June 2012.

Rubber production incentive is an incentive was approved by the cabinet minister in presenting the 2015 budget. Incentives provided by initial fund RM 100 million was supposed to be implemented in January 2015. The IPG is only given when the monthly average price of SMR 20 rubber is less than RM4.60, however, if the monthly price reaches more than RM 4.60, IPG not activate.

IPG also will only be given to rubber smallholders who have a Permit Authority Transaction Rubber (PAT-G). To register PAT-G, variety of supporting documents should be given. The supporting documents are a copy of the identity card, a copy of the title of plantation for own plantation while the approval letter if do not have the own plantation and registration approval letter if tapping on others plantation.

IPG payment is subject to:

(A) RM0.30 for every kilogram of cuplumps (50% of Dry Rubber Content - DRC);

(B) a maximum of RM0.90 for every kilogram of latex based on the percentage of the DRC; and

(C) A maximum of RM0.60 for every kilogram of unsmoked rubber sheets (USS) based on DRC.

The implementation of IPG done by the end of each month, LGM announced average rubber prices during the particular month, if the price is less than RM4.60 per kilo IPG will be activated. With activated IPG, smallholders can get a claim with copies of the sales receipt, the IPG claim form and copy of PAT-G. For the smallholders in Peninsular Malaysia, they can claim the IPG in offices nearby LGM, or claim it at agencies like RISDA, FELCRA, FELDA and others. For rubber smallholders in Sabah and Sarawak they can claim at Sabah Rubber Industry Board (LIGS) and the Sarawak Agricultural Department (JPS).

Rubber prices fell due to several key factors including the fall of crude oil prices and the world economic growth, particularly rubber consuming countries. In addition, excessive rubber production from the producing countries over the use of rubber consumer countries is also the cause of the fall in rubber prices. Monetary policy states the main importer of China, European countries and Japan are also affecting rubber prices fall.

Case Problems

Because of incentives was introduced earlier this year, the LGM has been working hard to move around the country to for IPG talk thus urged