Production of natural rubber (NR) is regionally concentrated in South and South East Asia; yet the bulk of consumption occurs in North America, Europe, Japan, and China. The marketing network for NR has thus the crucial role of linking the regional concentration of producers on the one hand and consumers on the other. It entails a multitude of dealers, selling and buying agents, brokers and exporters, who perform discrete but related functions at various stages of the chain.The overall marketing chain may be examined by considering the internal and external marketing separately.
Rubber production is carried on in both estates and smallholdings. These two NR producing sectors possess discrete organisational structures and marketing channels.
Marketing of estate rubber
NR production and processing is fully integrated in most of the bigger estates. Moreover, a few large estates have moved downstream into rubber goods manufacturing and other activities. Some major players in the rubber plantation industry are now diversified industrial conglomerates which derive a small share of their income from production of the raw product (consider, for example, the Guthrie group in Malaysia).
Marketing structures vary greatly between and within different geographical locations.
A few large estates have direct links to consumers and, in such cases, direct sales are carried out. There may be either direct consignment to selling agents in consuming countries (as done by agency houses) or sales to consumers' buying agents who operate locally.
The balance of estate NR is handled through open trading. Essentially in this structure, estates rely on dealers and brokers operating both locally (primary market) and in consuming countries (terminal markets). Estates usually retain ownership over the product until the final stage. Moreover, large estates normally sell forward.
Marketing channels for smallholders' rubber
The arrangements in the marketing of smallholders' NR depend largely on the size of the holding and its integration into group schemes.
Marketing of smallholders rubber
Source: UNCTAD secretariat (adapted from Rubber Research Institute of Malaysia, Rubber Owners' Manual)
Traditionally, the flow of NR from producers to consumers has involved a chain of intermediaries operating at different levels: local rubber dealers (village level), middle dealers (town level), remillers, packers, and exporters (international). Under this system, the village dealer, often a shopkeeper and a moneylender in addition to being a rubber dealer, often represents the smallholder's only link in the marketing chain. The point has been made that this set-up may lead to monopsonistic and monopolistic situations.
First level traders and their agents collect rubber in sheet (most often unsmoked sheets) and crepe forms from smallholders, sort and sometimes smoke it, and sell it to "middle" dealers. From the middle dealers the rubber is delivered to wholesale dealers and exporters, who sort, grade and pack it before shipment against f.o.b. or c.i.f. contracts.
Strategies for the development of the smallholder sector included processing via group processing centres (GPCs). The GPC's members are able to benefit from an increase in scale and sophistication in rubber processing. They tend to produce better quality sheets, which are then sold to the middle- and upper-level network of traders (bulk sales through tenders).
Rubber commodity markets provide a channel of supply from producers to final consumers via dealers and brokers (open trading). In addition, a few large producers may have direct links to consumers and, in such cases, direct sales are carried out (direct trading).
Marketing channels
Source: UNCTAD secretariat (adapted from Rubber Research Institute of Malaysia, Rubber Owners' Manual)
Open trading
In the earlier structure of NR trading, dealers and brokers openly traded rubber through "primary markets" in Kuala Lumpur and Singapore. Rubber from these primary markets was then forwarded to counterpart "terminal markets" in London, New York, Shanghai, Amsterdam, Hamburg, Paris, and Tokyo. Primary and terminal markets perform an important function in matching supply and demand and discovering prices. Two types of trading strategies occur in these markets: spot or cash transactions involving trade in physical commodities and futures trading.
The primary markets in Kuala Lumpur and Singapore are regulated and administered by the Malaysian Rubber Board (MRB) and the Rubber Association of Singapore (RAS), respectively. Singapore is primarily an "entrepôt" market (storage and re-packaging): it imports rubber for re-export in consuming countries. Primary markets provide services related to the transfer of ownership and the physical flow of rubber from producers to the port of shipment.
Terminal markets located in Hamburg, Shanghai, Amsterdam, Paris, and Tokyo are basically import markets supplying the local needs. Similarly, New York is largely a domestic market to supply the needs of the United States (to a lesser extent it imports for re-export to Canada and Latin America). By contrast, the London market is primarily an "entrepôt" market, in addition to supplying domestic requirements, national rubber can also be re-exported.
NR handled through open trading notably involves less specialist grades (e.g., TSR 20, RSS1 and RSS3) and crops from less developed regions, particularly in Africa.
The few dealers transacting most of the rubber on open markets are actually subsidiaries of large companies. Major trading firms in the London market included Symington and Son. Ltd. (along with Symington Italia Gomma Lattice of Rome, part of the Guthrie group which controls large plantations in Malaysia) and Cargill plc (a subsidiary of the giant grain marketing company, with trading offices in Singapore and Tokyo).
Direct trading
Direct trading between producers and consumers (especially tyre-making consumers) has been encouraged by further developments in the rubber industry (notably, requirements for better consistency and tailoring to consumer needs and the growth of rubber goods manufacture in East Asia).
Direct trading may occur via sales to consumers' buying agents operating in producing countries (for example, the rubber-buying offices set up in Singapore by most of the international tyre companies). Yet there are also other direct outlets. In particular, a few large estate companies and smallholder group organisations have deepened and extended their marketing links with particular consumers, sometimes operating through selling agents in consuming countries.
NR direct trading between big suppliers and consumers typically entails long-term contracts of up to 18 months. Direct trading arrangements often involve specialty rubbers tailored to consumer needs.
Marketing structures in Malaysia, Indonesia, and Thailand