The Natural Rubber Cartel of Indonesia, Malaysia and Thailand: Its Impacts on the Global Supply and Indonesia's Rubber Market

Arndt-Corden Department of Economics

Event details

ACDE Seminar

Date & time

Tuesday 26 March 2013
2.00pm–3.30pm

Venue

Seminar Room B, Coombs Building, Fellows Road, ANU

Speaker

Kiki Verico, LPEM University of Indonesia

Contacts

Daniel Suryadarma / Arianto Patunru
61250304 / 61259786
Abstract:
In 1999, the International Natural Rubber Agreement (INRA) which regulates the world natural rubber since 1979 collapsed. Three years after (2001), the top three major producing countries of natural rubber: Thailand, Indonesia and Malaysia established an organization named the International Tripartite Rubber Organization (ITRO). This article attempts to observe the impacts ‘before and after’ the collapse of the INRA (followed by the establishment of ITRO) on both the global trade of natural rubber and the country level of the domestic market featuring a case study on one of the major producing countries, Indonesia. This study adopts two approaches in its assessment: (1) The Cournot-Nash Equilibrium (CNE), which analyzes natural rubber’s global market condition in ‘before and after’ the collapse of INRA. This study classifies it as the ‘external effect’. (2) The Input-Output Table Simulation on rubber products, assessing the economic condition ‘before and after’ the collapse of INRA at the country-level of Indonesia. This study classifies it as the ‘internal effect’. The CNE analysis found that after the INRA’s collapsed, the global trade quantity of natural rubber has increased over the CNE line. This proves that instead of becoming an oligopoly market, the market turned out to be competitive. The country-level analysis on Indonesia’s input-output simulations further show that Forward Linkage (FL) of rubber has decreased while the Backward Linkage (BL) increased. The latter indicated both an increase in supply and a decrease in demand that further proved the excess supply in rubber market.

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