It’s been a while since I last reported about the state of the rubber industry. As I had mentioned we needed to wait about a year until there was a rebound in prices. This is even happening sooner than I expected, so good news. Sure enough, yesterday’s prices for dry latex was KHR 7,500, up from KHR 4,800 at the beginning of the season, but still lower then last year’s high of KHR 10,800.
I believe this is about the level it should stay at, not that I wouldn’t mind higher prices, but those higher prices would surely be the result of another overheating, only to come down hard again. The main component in the recovery of Cambodia’s rubber industry is China, the main buyer of Cambodian crepe rubber, either directly or through Vietnam. China’ s economy is still humming along at an about 8% growth rate. They managed to dampen the effects of the financial crisis much better than Western countries, as many economists point out.
The Cambodian government privatized about 25,000 ha in 2008/9 – the right move in my mind – and I believe investing in a rubber plantation is still something worth considering if people have a mind for it. The total acreage under cultivation in Cambodia is about 85,000 ha. There is still room for a lot more until the planned 130,000 ha are reached; the government’s official target acreage. A lot of the previous state plantations are older trees, which will soon reach their end of productivity. So even if there is no increase in demand any new plantations will partially fill a void left by the end of production of those old trees.
Good land for cultivation is available from private sellers in both Kompong Cham and Kompong Thom provinces, although one might have to search hard. The best chances are in Rattanakiri province. The only drawback there is the access roads. The last 120 km is still a pitted dirt road, which was virtually unnavigable after Ketsana. The government with the help of the Chinese has started building a new paved road but completion won’t be until 2015. So until that time one must expect travel times of about up to 6 hours in the rainy season if you want to go easy on your car, and about 2 hours during the dry season. A good alternative is to use one of the overland coaches and rent a car/truck with driver in Rattanakiri. Believe me the trip is much more comfortable this way.
Prices for arable land alone is about $2,000/ha and once trees have been planted from $3,000/ha up to $15,000/ha depending on the age of the trees. Producing plantations go for about $20,000/ha. If the plantation is managed on ‘lean’ principles the return on investment can be anywhere from 8% to 12%. Prospects will be even better if prices stay at the a. m. level.
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7 comments:
Hi KJE,
My relatives are in the agriculture and they grow rubber trees in Kompong Cham province. The trees will be mature for latex extraction in 2011. They were wondering about the future market price for rubber. Do you see an upward price trend?
They are asking me to invest in arable land in Kompong Cham province. The price for 50 hectares is $60,000 USD. Do you think this is a good deal?
I don't intend to be a rubber plantation owner. I am an investor and I would like your opinion on the deal.
On another note, I am grateful for the many articles you posted on your blog.
Hi KJE,
My relatives are in the agriculture business. They own a private rubber planation in Kompong Cham. The trees will mature in 2011. Do you foresee an upward price trend for natural latex in the future?
They asked me to invest in arable land in Kompong Cham province. The price for 50 hectares is $60,000 USD. Do you think this is a good deal?
I don't intent to be a rubber plantation owner, like yourself. I am an investor and I truly value your opinion.
I am always grateful for the many articles you posted on your blog. You are doing a fine job. Keep up the great work.
Hi there,
As a matter of fact, the price has been rising since my last post. As of Dec. 03, dry latex was 8,500 KHR. The trend is still upward due to a certain shortage and the Chinese economy going into higher gear still. The PPP reported that both Malaysia and Thailand were hit by too much rain and storms, which affected their harvests this year. But nevertheless, I do believe that prices will remain steady for the foreseeable future, but anything as crazy as in 2007 will eventually lead to another balloon. Most important for Cambodia is the state of the Chinese economy, and that is not showing any signs of weakening. They are set to end the year with an 8.5% growth rate. Currently Cambodia does not produce RSS-type rubber but only crepe in the CSK5L and CSK10 categories, the larger plants also produce CSK20. This first two are high-quality grades, which typically not used in tires, but other applications, e. g. medical. So I think prospects for the rubber industry, especially in Cambodia, which is a small player, are pretty good.
The price of $1200/ha in Kompong Cham for arable land is generally very good. Normal levels are around from between $1,500/ha to $2,000/ha. It depends whether it is red volcanic soil or not, whether it is cleared or some other crop has been planted.
As you know, the time from planting to the first harvest is about 6 - 7 years. We invested approximately $1,700/ha in Rattanakiri plantation for clearing, seedlings, planting, making the access road navigable, etc. Nobody can see that far into the future. But it is a good bet, if you will. You can contact me directly by email if you want to get a little more precise.
I am not a hands-on owner, but employ a manager, so you could say I am an investor myself. The key is, of course, a trustworthy manager. I am very satisfied with my people. The Khmer I am dealing with are all upright, honest, hardworking, and good people.
Hi KJE,
It been a while since I visited my relatives in Cambodia. It is certainly good to know arable farm land is reset back to normal prices.
I am pursuing this investment from abroad. I intend to purchase the land and finance the farming activities. I am new to this and I am seeking recommendation from a professional like yourself.
After doing the math, the price to sustain continuous farming activity will run about $2,000/ha the first year. Since the young rubber trees are already planted, year 2, 3, and 4 are projected to cost 30% less. Do you think my projection is incorrect?
I am thinking of setting a reserve of $10,000 USD per year. The total capital cost for this project, including the reserves will come to $490,000 USD. Within 5 years as the rubber trees starting to produce latex, I would have spent $9,800/ha USD. At what point do you think the enterprise will start to see a break-even point and start producing profit?
I am always grateful for your insights.
Thank you.
Hi,
I am not too comfortable giving exact numbers and breakdowns here. Just so much: your estimates are way too high. Email me and I will give you exact figures. If you are not comfortable using your own email-address, get a gmail account.
Merci d'avoir un blog interessant
I want to admit that all of your articles are of great helpsince they bestowwonderful guidances.Wishing u all the best for your future articles and expect them also to help me similar to this.And yes i have tweeted your site about-cambodia.blogspot.com .
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