THE COUNTERMEASURES STRATEGY THE COUNTERMEASURES STRATEGY ADOPTED BY VIETNAM RUBBER INDUSTRY ADOPTED BY VIETNAM RUBBER INDUSTRY

AGAINST GLOBAL ECONOMIC CONSTRAINTSAGAINST GLOBAL ECONOMIC CONSTRAINTS

Presentation by Dr. Tran Thi Thuy Hoa

Secretary GeneralThe Vietnam Rubber Association

The 1st Qingdao International Natural Rubber Forum,April 2nd 2009, Qingdao CHINA

Session “How rubber businesses should act under the global financial storm?”

TREND OF VIETNAM ECONOMY: TREND OF VIETNAM ECONOMY: KEY INDICATORSKEY INDICATORS

2004 2005 2006 2007 2008

GDP growth%

7.7 8.4 8.2 8.5 6.2

Agric.

%

21.8 20.9 20.4 20.3 22.0

Industry %

40.2 41.0 41.6 41.6 39.9

Services %

38.0 38.1 38.1 38.1 38.1

Source: General Statistics Office of Vietnam

Vietnam Rubber Association – Qingdao, 2 April 2009

TREND OF VIETNAM ECONOMY TREND OF VIETNAM ECONOMY (1)(1)

• The global financial crisis and economic recession The global financial crisis and economic recession have affected markets worldwide. Ihave affected markets worldwide. It is predicted that t is predicted that world world economic situation cannot recover quicklyeconomic situation cannot recover quickly and and consuming markets could be consuming markets could be restrictedrestricted until 2010. until 2010.

• Vietnam’s economy grew about 8% from 2004 to Vietnam’s economy grew about 8% from 2004 to 2007, but only 6.2% in 2008. GDP growth rate in the 2007, but only 6.2% in 2008. GDP growth rate in the first quarter 2009 reached 3.1%, only half of the level first quarter 2009 reached 3.1%, only half of the level recorded in the same period of last year.recorded in the same period of last year. Vietnam Vietnam would suffer stronger impacts from the slowdown of would suffer stronger impacts from the slowdown of world economy this year. world economy this year.

• Vietnam’s GDP would drop to 4.7% according to the Vietnam’s GDP would drop to 4.7% according to the predict of IMF in March 2009.predict of IMF in March 2009.

Vietnam Rubber Association – Qingdao, 2 April 2009

TREND OF VIETNAM ECONOMY TREND OF VIETNAM ECONOMY (2)(2)

• Until now, agricultural products still play an Until now, agricultural products still play an important role in Vietnam’s economy. This important role in Vietnam’s economy. This sector shares around 20% – 22 % of the sector shares around 20% – 22 % of the general domestic product value.general domestic product value.

• The share of industrial sector is about 40%-The share of industrial sector is about 40%-42% and the share of services sector is 38%.42% and the share of services sector is 38%.

Vietnam Rubber Association – Qingdao, 2 April 2009

TREND OF VIETNAM RUBBER INDUSTRYTREND OF VIETNAM RUBBER INDUSTRY

• Natural rubber was the 9Natural rubber was the 9thth exported commodity in exported commodity in 2008 and the 32008 and the 3rdrd exported agricultural products, exported agricultural products, behind rice and coffee. behind rice and coffee.

• As a natural rubber (NR) producing country, Vietnam As a natural rubber (NR) producing country, Vietnam has been strongly affected by the downward trend in has been strongly affected by the downward trend in global rubber demand and declined prices beginning global rubber demand and declined prices beginning in late 2008 till now. in late 2008 till now.

• The current economic crisis impacts on automobile The current economic crisis impacts on automobile consumption which pulls the slowdown of tyre consumption which pulls the slowdown of tyre production and rubber demand. Besides this, prices production and rubber demand. Besides this, prices of natural rubber and synthetic rubber cannot of natural rubber and synthetic rubber cannot increase to high levels when crude oil prices are still increase to high levels when crude oil prices are still at low levels.at low levels.

Vietnam Rubber Association – Qingdao, 2 April 2009

Trend of Rubber Area and Production in Vietnam, Trend of Rubber Area and Production in Vietnam,

1976 - 20081976 - 2008

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Ha

Ton

Source: GSO, compiled by VRA

The area and production of rubber plantations have been The area and production of rubber plantations have been increased continuously since 1976. In 2008, this sector increased continuously since 1976. In 2008, this sector reached 618,600 ha and 662,900 tons. NR productivity was reached 618,600 ha and 662,900 tons. NR productivity was 1661 kg/ha.1661 kg/ha.

Area and Production of Area and Production of rubber tree in Vietnam, 2007rubber tree in Vietnam, 2007

SOUTHEAST: 374,950 ha (67.4%)

1714 kg/ha / 472,400 tons (78.5%)

HIGHLANDS: 126,500 ha (22.7 %)

1,360 kg/ha / 106,560 tons (17.7%)

COASTAL REGION: 55,150 ha (9.7%)

1,173 kg/ha / 22,700 tons (3.8%)

NORTHWEST: 700 ha (0.1%)

2008: 4,600 ha

TOTAL: 556,300 ha

601,700 tons

The biggest rubber- growing area is located in the SE, following areas are in Highlands and Coastal region. New area has been in NE.

Area and production by sector, 2007Area and production by sector, 2007

Sector Ha Ton kg/ha

Estate 301,800(54%)

398,100(66%)

1716(106%)

Smallholding 254,500(46%)

203,600(34%)

1441(90%)

Total 556,300 601,700 1612

Source: Provincial Dept of Agriculture, compiled by VRA

In Vietnam, state-owned rubber companies still dominate so far over area, production and productivity. Rubber smallholding has been encouraged to develop recently and would catch up 50% of the total area soon as the Government strategy.

Trend of NR export from Vietnam, 1990-2008Trend of NR export from Vietnam, 1990-2008

Source: General Statistics Office and MOIT, compiled by VRA

NR export of Vietnam has been increased continuously in value but dropped 8% from 2007 in volume, reached 619,300 tons (drc).

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

Tons USD/10T 000 USD

Trend of NR Export Prices from Vietnam in Trend of NR Export Prices from Vietnam in 2008 and 2 first month of 20092008 and 2 first month of 2009

0

500

1000

1500

2000

2500

3000

3500

Jan08 Feb08 Mar08 Apr08 May08 Jun08 Jul08 Aug08 Sep08 Oct08 Nov08 Dec08 Jan09 Feb09

US

D/to

n

Source: Customs Office, compiled by VRA

Trend of NR Export Volume from Vietnam Trend of NR Export Volume from Vietnam in 2007 and 2008in 2007 and 2008

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

1 2 3 4 5 6 7 8 9 10 11 12

To

n 2007

2008

Source: General Statistics Office and MOIT, compiled by VRA

NR export of Vietnam has been dropped 8% from 2007 in volume due to slowdown demand.

Vietnam NR Export by country in 2008Vietnam NR Export by country in 2008

Source: Ministry of Industry and Trade, compiled by VRA

China has been the NR biggest importer of Vietnam sharing 69 % of the China has been the NR biggest importer of Vietnam sharing 69 % of the total NR export in 2008. Other predominant importers were Korea, total NR export in 2008. Other predominant importers were Korea, Germany, Malaysia and Taiwan which shared about 3-4% per each.Germany, Malaysia and Taiwan which shared about 3-4% per each.

Vietnam NR Export by type in 2008Vietnam NR Export by type in 2008

Source: Ministry of Industry and Trade, compiled by VRA

SVR 3L, L48%

SVR 1016%

Latex 9%

RSS5%

SVR CV3%

SVR 202%

SVR 51%

Others16%

The major type of The major type of the NR export was the NR export was SVR 3L (48%), SVR 3L (48%), followed by SVR followed by SVR 10 (16 %) and latex 10 (16 %) and latex concentrate (9%)concentrate (9%)

Vietnam NR Import by country, 2008Vietnam NR Import by country, 2008Total: 150,100 tonsTotal: 150,100 tons

Source: Ministry of Industry and Trade, compiled by VRA

Vietnam imported NR from other countries for re-export and domestic consumption, mainly from Thailand (49 %), Cambodia (26 %), Indonesia (17 %) and others (8%).

NR domestic consumption in VietnamNR domestic consumption in Vietnam

• NR domestic consumption in Vietnam is still low, 80,000 – 100,000 tons/year, accounting 12 - 15 % of the total production.

• Value of Rubber Products made in Vietnam was estimated about US$ 300 million, which total export tunrnover was about US$ 100 million in 2008.

• The main rubber-based products are tyres and tubes produced for commercial vehicles, motorcycles and bicycles (70% of total value). Other rubber products are gloves, mattress, technical rubber products, shoe soles, conveyor belts, sport balls, rubber bands, mats, …(30% of total value).

COUNTERMEASURES OF VIETNAM COUNTERMEASURES OF VIETNAM RUBBER INDUSTRYRUBBER INDUSTRY

In response to the sharp decline in NR prices and In response to the sharp decline in NR prices and demand, the Vietnam Rubber Association (VRA) has demand, the Vietnam Rubber Association (VRA) has recommended the following countermeasures recommended the following countermeasures against global economic constraints, which should against global economic constraints, which should be implemented in 2009 in order to be implemented in 2009 in order to minimize minimize damagesdamages of NR producers: of NR producers:

• Reducing NR production and export volumeReducing NR production and export volume • Reducing cost of productionReducing cost of production • Improving quality of rubber productsImproving quality of rubber products • Stockpiling natural rubberStockpiling natural rubber

Vietnam Rubber Association – Qingdao, 2 April 2009

COUNTERMEASURES OF VIETNAM COUNTERMEASURES OF VIETNAM RUBBER INDUSTRY (1)RUBBER INDUSTRY (1)

• Reducing NR production and export volumeReducing NR production and export volume

Speeding up replanting program is one of measures Speeding up replanting program is one of measures to reduce production, to compensate rubber income to reduce production, to compensate rubber income by wood income and to maintain jobs of labors, to by wood income and to maintain jobs of labors, to have opportunities to use high-yielding clones and have opportunities to use high-yielding clones and take full advantage of low prices of input in this take full advantage of low prices of input in this period. Production cut-down will lessen pressure on period. Production cut-down will lessen pressure on pushing down prices deeper. Other measures would pushing down prices deeper. Other measures would be applied such as reducing tapping intensity or be applied such as reducing tapping intensity or frequency and late opening newly mature frequency and late opening newly mature

plantations.plantations.

Vietnam Rubber Association – Qingdao, 2 April 2009

COUNTERMEASURES OF VIETNAM COUNTERMEASURES OF VIETNAM RUBBER INDUSTRY (2)RUBBER INDUSTRY (2)

• Reducing cost of productionReducing cost of production

Expenses to be cut or restricted will reduce Expenses to be cut or restricted will reduce production costs to avoid loss when turnover would production costs to avoid loss when turnover would be declined in this period. Current low prices of be declined in this period. Current low prices of fertilizers and inputs will contribute to reduce rubber fertilizers and inputs will contribute to reduce rubber

production costs in 2009-2010.production costs in 2009-2010.

Vietnam Rubber Association – Qingdao, 2 April 2009

COUNTERMEASURES OF VIETNAM COUNTERMEASURES OF VIETNAM RUBBER INDUSTRY (3)RUBBER INDUSTRY (3)

• Improving quality of rubber productsImproving quality of rubber products Customers will be more and more exigent in narrow Customers will be more and more exigent in narrow

consuming markets and will prioritize high quality consuming markets and will prioritize high quality products or materials from reliable producers; products or materials from reliable producers; therefore, consistent quality products must be given therefore, consistent quality products must be given care.care.

Vietnam Rubber Association – Qingdao, 2 April 2009

COUNTERMEASURES OF VIETNAM COUNTERMEASURES OF VIETNAM RUBBER INDUSTRY (4)RUBBER INDUSTRY (4)

• Stockpiling natural rubberStockpiling natural rubber

In case the NR trading prices in domestic markets In case the NR trading prices in domestic markets below 1,000USD/ton or the NR export prices fall below 1,000USD/ton or the NR export prices fall below 1,350USD/ton, state-owned companies and below 1,350USD/ton, state-owned companies and VRA’s members would be encouraged to cut rubber VRA’s members would be encouraged to cut rubber export and buy smallholders’ natural rubber for export and buy smallholders’ natural rubber for stockpile. The downward NR export volume could stockpile. The downward NR export volume could be amounted from 100,000 to 200,000 tons (15 – 30% be amounted from 100,000 to 200,000 tons (15 – 30% of the total production) according to the demand of the total production) according to the demand and prices.and prices.

Vietnam Rubber Association – Qingdao, 2 April 2009

Long-term responses to the impact of Long-term responses to the impact of

NR prices downturnNR prices downturn • In long-term responses to the impact of NR prices In long-term responses to the impact of NR prices

downturn, planters are encouraged to increase the downturn, planters are encouraged to increase the productivity of rubber plantations by using high productivity of rubber plantations by using high yielding clones, advanced techniques in planting yielding clones, advanced techniques in planting and upkeeping, high effectively tapping systems to and upkeeping, high effectively tapping systems to improve the productivity of tappers.improve the productivity of tappers.

• The additional incomes for planters should be more The additional incomes for planters should be more focused such as intercropping, rearing and wood focused such as intercropping, rearing and wood for furniture.for furniture.

• New potential opportunity to improve the rubber New potential opportunity to improve the rubber planters’ income should be implemented as rubber planters’ income should be implemented as rubber planters contribute to reduce the impact of the planters contribute to reduce the impact of the climate change through carbon sequestration by climate change through carbon sequestration by rubber plantations.rubber plantations.

Vietnam Rubber Association – Qingdao, 2 April 2009