As oil price falls, more rubber trees felled

18:45 | 26/05/2015 Trade

Sharp oil price falls, high tax rates, overproduction and inappropriate development of rubber plantations all have dealt strong blows to rubber producers.

As oil price falls, more rubber trees felled

The rubber price has dropped to a level just equal to 1/3 of the peak price, close to the production cost.

According to the Vietnam Rubber Group (VRG), the rubber price has been sliding over the last three years. It had climbed to the highest peak at $5,000 per ton, but has tumbled to $1,500.

Vietnam now exports rubber at VND31 million per ton, while the production cost is VND30 million.

“The situation is really serious. We are negotiating with other big rubber producers in the world – Malaysia, Indonesia and Thailand -- trying not to sell rubber at below the $1,500 per ton threshold,” he said.

Tran Thi Thuy Hoa, chief secretariat of the Vietnam Rubber Association, said there ws no sign of a rubber price recovery, even though the global economy has recovered recently, leading to higher rubber demand.

The rubber price heavily depends on the oil price. Oil is the major input material that makes synthetic rubber – the rival of natural rubber. 

“As the oil price is on the decrease, there is no need to hope the rubber price would go up. We just hope the price would not go down further,” Hoa said.

However, misfortune does not come alone. While rubber companies are hovering between life and death because of the oil price fall and overproduction, lawmakers are attempting to impose higher land taxes on them. 

The Tay Ninh provincial authorities, for example, plan to raise the land tax to VND5 million per hectare. In Binh Duong and Binh Phuoc provinces, land tax is VND2-3 million for every hectare of land for rubber cultivation, much higher than the tax rates applied in the past.

Rubber companies are now trying to “rescue themselves before God saves them” by growing other industrial crops on the same land as well. Though the cultivation of the crops still cannot bring profits, enterprises still must pay a land tax.

“It is quite unreasonable to impose tax on the land if growers still cannot harvest crops,” a senior executive from VRB said, adding that the investment period lasts at least five to seven years before one can make money from cultivation.

Hoa of the Vietnam Rubber Association said policy makers designed the taxation scheme several years ago, when rubber growers were in their golden age. However, they begin taxing at the time when rubber growers were in their most difficult period.

Hoa warned that many rubber enterprises would go bankrupt if the government refuses to help. 

Minister of Agriculture and Rural Development Cao Duc Phat has promised he will report to the Prime Minister about the situation to come up with solutions.