Comparative and competitive advantage of the Indonesian rubber industry

The study assessed the comparative and competitive advantage of the Indonesian rubber industry and focused on two major rubber products that are traded internationally, natural rubber and natural dry rubber. Based on the value of RCA [revealed competitive advantage], the rubber industry in Indonesia and Thailand was highly competitive while the Malaysian rubber industry exhibited a downtrend in its level of competitiveness from 1977-2002. Before and after trade liberalization, the Indonesian natural dry rubber industry was more competitive and led over Thailand and Malaysia. Meanwhile, the Indonesian natural rubber industry before trade liberalization was more competitive than Thailand and Malaysia but offer trade liberalization the Thailand natural rubber industry took over the lead. The DRC [domestic resource cost) ratios of the private, PTPN [plantations owned by the government], NES [nucleus estate smallholders], and CRF [conventional rubber farmers] plantations were 0.45, 0.58, 0.88, and 1.07, respectively. In general, the country possesses a comparative advantage in rubber production as indicated in the average DRC ratio of 0.75. Factors that had a significantly positive effect on the competitiveness of the Indonesian natural rubber industry were domestic production, producer price, and foreign exchange rate, while in the Indonesian natural dry rubber these were domestic production and world price. Meanwhile, factors that had a significantly negative effect on the competitiveness of the natural rubber industry were world price of rubber, nominal interest rate, and volume of exports of natural rubber from Thailand. In the case of the Indonesian natural dry rubber, these factors included producer price of rubber, nominal interest rates, export volume of rubber from Malaysia, RCA level of the Malaysian rubber industry, and wage rates of the Indonesian rubber industry. To maintain the comparative and competitive advantage of the Indonesian rubber industry, the following recommendations were suggested: 1) implement a rehabilitation and replanting program using quality and high yielding rubber plants in smallholder and conventional farms2) setting a quality standard with the concerned agencies taking charge of supervision and inspection3) promote the use of updated technologies through properly managed R and D to be funded by the governmentand 4) improve access to market by promoting joint ventures between large and small plantations and providing market information (supply and demand situation and prices) in the domestic and export markets.