the rubber industry : a study in competition and...

A STUDY IN COMPETITION •

AND MONOPOLY

•

By

P. T. BAUER Reader 2'11 Agricultural Economics I

University of Londo,,; Fellow of Gonville and Caius

College, Cambridge

THE LONDON SCHOOL OF ECONOMICS AND POLITICAL SCIENCE

(University of London)

. LONGMANS, GREEN AND CO. LONDON . NEW YORK . TORONTO

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PERPUSTAKAAN NEGARA MALAYSIA

ABBREVIA TrONS

INTRODUCTION.

CONTENTS

• • • •

• • • •

PART I

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THE IND USTRY TO 1933 CHAP.

1 THE STRUCTURE OF THE INDUSTRY . •

• • •

• • •

• • •

2 THE IMPACT OF THE DEPRESSION ON MALAYA AND THE

NETHERLANDS EAST INDIES . • • • •

3 GENERAL REVIEW OF THE RUBBER SLUMP. • •

4 PRODUCTION DURING THE SLUMP • • • •

5 THE POSITION OF THE SMALLHOLDINGS • • •

PART II

THE ESTABLISHMENT OF INTERNATIONAL REGULATION

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6 RESTRICTION NEGOTIATIONS AND THE INTERNATIONAL AGREE-

MENT OF 1934 . . . . . . . .

7 THE ESTABLISHMENT OF REGULATION. • • •

PART III

RUBBER REGULATION IN PEACE AND WAR

8 EARLY DIFFICULTIES, 1934-35. . . . .

9 THE SCHEME IN PROSPERITY AND RECESSION, 1936-39.

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10 ADMINISTRATIVE CHANGES AND THE RENEWAL OF THE SCHEME

11 RUBBER REGULATION DURING THE WAR, 1939-41 . . 12 THE PLANTING PROVISIONS OF RUBBER REGULATION • •

13 THE CRITERIA OF REGULATION: NORMAL STOCKS AND

EFFICIENT PRODUCERS. • . • . . •

14 CRITICAL RETROSPECT • • • • • • •

PART IV

LABOUR AND TECHNIQ,UE

15 PLANTATION LABOUR • • • • • • •

16 DEVELOPMENTS IN TECHNIQ.UE • • • • • • .. Vll

PAGE • IX

• Xl

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1 •

15

25 42 56

75 88

III 124 138 154

173

191

203

217 254

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• • • Vlll

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CHAP.

THE RUBBER INDUSTRY

PART V

THE THREAT TO THE MONOPOLY OF NATURAL RUBBER

17 THE RISE OF SYNTHETIC RUBBER • • • •

18 NATURAL RUBBER, 1941-45 . • • • •

o

PART VI

o THE PRESENT POSITION AND PROSPECTS OF THE INDUSTRY

19 PROSPECI'S AND POLICIES • • • • • •

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20 THE POSI'I10N

INDUSTRY

AND PROSPECTS OF THE MALAYAN RUBBER

• • • • o o • • •

APPENDICES

A THE VALUE OF THE AGRICULTURAL AND MI ING OUTPUT OF

PAGE

287 303

309

341

MALAYA, 1929 AND 1932 (Ch. 2) . . . . . 355 B SUPPLEMENTARY DATA ON THE RESPONSE OF PRODUCERS TO

SLUMP PRICES (Ch. 3). . . . . . . 359 C THE DATA UNDERLYING THE RUBBER-RICE COMPARISON (Cho 5) 361 D THE ECONOMICS OF PLANTING DENSITY .

E THE REDUCTION IN ESTATE COSTS, 1929-33

STATISTICAL APPENDICES

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• •

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I RUBBER PRODUCTION, PRICES AND ACREAGES IN MALAYA AND

363 365

THE NETHERLANDS EAST INDIES, 1929-33 . . . 369 II THE STATISTICS OF RUBBER REGULATION, 1934 41. . 378

III MALAYAN MIGRATION AND EMPLOYMENT STATISTICS, 1926 40 393

INDEX • • • • • • • • • • 399

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PART I

THE INDUSTRY TO 1933

CHAPTER 1

THE STRUCTURE OF THE INDUSTRY

UBBER is produced from the latex which occurs in the bark of the tree Hevea brasiliensis. The latex which issues when the is cut is collected, coagulated with an acid (generally formic

or acetic acid) and the coagulum is washed and dried to produce crude rubber. All the processes are essentially simple. Tapping is the opening of the latex vessels in the tree by an incision in the bark. The flow of latex is generally affected less by the thickness of the cut than by its length, and satisfactory amounts can be obtained by a very thin cut. Some bark removal is, however, inevitable, and this naturally varies not only with the skill of the tapper but also with the frequency of tapping and with the tapping system adopted. If a tree is left untapped bark reserves will be greater, with the possibility of higher yields later; where bark removal exceeds bark renewal it will eventually be necessary to suspend or slow down tapping, or else to tap on imperfectly renewed bark. The drying of the coagulated latex consists of passing it through a series of rollers, and is conducted in a very simple plant known on the estate as the factory. On smallholdings the' factory' is a shed housing one or two hand-mangles; the water is often eliminated simply by pressing with hands and feet. Final drying is done by placing the rubber in a hot chamber (usually termed smoke-house), or simply by exposing it to the sun.

Although there are certain differences in methods of cultivation and, of course, great differences of size, the basic processes (and the equipment) are essentially the same both on estates and smallholdings.

I

With the important exceptions of certain changes in acreage and in the cost of production (both of which are dealt with sub-

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2 THE RUBBER INDUSTRY

sequently 1), the structure of the industry altered very little bet~e.en the late 1920's and the outbreak of the Pacific war. For simplicIty of exposition this chapter describes the industry as it was in 1929.

The planted area at the end of 1929 was estimated by the late Dr. Whitford 2 at 7,635,000 acres in the East, and at 75,000 acres elsewhere. The total of 7,710,000 was made up as follows:

TABLE I

Areas Planted with Rubber at the end of 1929

(Thousand acres, to •

Malaya • • •

N.E.I. • • • •

Ceylon. • • •

Sarawak • • •

India (including Burma). British North Borneo •

French Indo-China •

Siam • • • •

Total • • •

Other countries • •

Grand total • •

the nearest five thousand) a

Mature

• 2,475 • 2,125 • 490 • 85 • 130 • 80 • 100 • 35

• 5,520 • • •

• • • •

Immature 470

1,030 50

175 40 40

195 115

2,115 • •

• •

Total 2,945 3,155

540 260 170 120 295 150

7,635 75

7,710

• As will be seen from the text, many of these figures are only approximations, and to indicate this, Dr. Whitford's estimates have been rounded off.

Though Dr. Whitford's figures were based on official estimates, most of them should be regarded only as approximations, while that of the N.E.I. native acreage (and consequently of the total N.E.I. area) was largely a guess. Dr. Whitford's estimates gained wide acceptance and were generally adopted by the Commercial Research Department of the Rubber Growers' Association (R.G.A.).3 His figure of 2,115,000 acres for the immature acreage

1 The latest acreage figures are shown in Tahle II of Statistical Appendix II j

changes in the cost of production are reviewed in Chs. 3 and 16. 2 A fOlmer manager of the Crude Rubber Department of the Rubber Manufacturers'

Association of America. His five Reports on Plankltion Rubber, issued between 1928 and 1934 by the Rubber Manufacturers' Association of America (R.M.A.), contain much valuable material. Tables I and II of this chapter are largely derived from Dr. Whitford's Report on Plankllion Rubber 1930.

3 Repeated revisions of his figures by Dr. Whitford between 1929 and 1934 will not be followed here, as no accurate figures were available until the advent of regulation, and even after 1934 some important gaps remained, notably of the planted area of the N.E.1. natives and of Siam.

Dr. Whitford's estimates of the acreage of India and Siam subsequently turned out to have been too low, which led to sOIfle complications in the early years of rubber regulation. At the end of 1929 the planted areas of India and Siam were each about 100 OOQ acres in excess of Dr. Whitford's figures. '

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THE STRUCTURE OF THE INDUSTRY 3

was, however, below that of the R.G.A., whose statisticians estimated it at 2,700,000 acres. Dr. Whitford seems to have overestimated the mature N.E.I. native acreage in 1930 and correspondingly understated the immature acreage. In the light of subsequent information an estimate of 5,200,000 mature and 2,600,000 immature acres at the end of 1929, though probably conservative, seems as close as possible always remembering the uncertainty of the native area in the N.E.I.

The comparatively small immature acreages in Malaya and Ceylon, which were accurately estimated, deserve some explanation. They reflect the policy pursued under the Stevenson restriction scheme (1922- 28), when new planting was not prohibited but was officially discouraged, and with few exceptions no land was alienated for rubber planting. New planting was thus confined to owners of land to which a title had already been issued, but which was not yet under rubber. This was either land planted with other crops, or unplanted land held in reserve. Estates undertook some new planting on unplanted reserve land, which many of them had. Smallholders rarely have unplanted reserve land, and much of the planting they undertook was on land which had been under other products, chiefly coconuts or fruit trees; they thus had to sacrifice another source of income to plant rubber. This policy much restricted the scope of new planting in Malaya and Ceylon. - .

Dr. Whitford's division of the total acreage between estates and smallholdings was also largely based on official figures, but again with the important exception of the N.E.I. His figures are as follows:

TABLE II

Planted Area at the end of 1929 divided between Estates and Smallholdings

(Thousand acres, to the nearest five thousand)

Malaya . . . •

N.E.!. . . . •

Ceylon. . . • Sarawak. . . •

India (including Burma) . British North Borneo French Indo-China .

•

•

Siam . . • •

Estates Smallholdillgs · 1,775 1,170 · 1,355 1,800 •

•

•

•

•

•

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370 a 170a

10 250 115 55 75 45

295

3,995

150

3,640

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Thus in 1929, according to these figures 52 per cent. of the total area was cultivated by estates and 48 per cent. by smallholders. The smallholders were all Asiatics. Moreover, an appreciable proportion of the estate acreage in Ma~ay.a, Ceylon, British No~th Borneo and India also belonged to AsIatIcs, who thus, accordmg to Dr. Whitford, had a clear majority (54 per cent.) of the total planted acreage. As it was later to be revealed that the Siamese and Indian acreages and the smallholdings area in Ceylon and the N.E.I. were all substantially under-estimated, it is certain that at the end ofl929 smallholders owned over one-half of the planted area, and that the Asiatic-owned acreage was over 60 per cent. of the total.

The distinction between estates and smallholdings has been of great importance since the earliest days of the industry. The estates are large or at least fair-sized units of several hundred or several thousand acres each, operated with substantial capital and employing large labour forces in receipt of a fixed daily wage .

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The majority of the smallholding acreage is in the hands of peasant proprietors, each with a holding of, say, two to five acres, who work with family labour, occasionally being assisted by outside workers paid on a share basis. In some of the producing territories much of the acreage officially classed as smallholdings is in larger holdings of 15-100 acres each, usually tapped with the help of outside labour, either on a share basis, or in receipt of piece-rates and paid according to the amount of rubber brought in. This type of property is sometimes known as a medium holding, and the greater part of the acreage is owned by absentees, non-resident businessmen, artisans and tradesmen, or Indian moneylenders. Even when the smallholdings or medium holdings rely on outside labour, their dependence is appreciably less than that of the estates and is generally confined to tapping only.

The estates, especially the European-owned estates, also differ from smallholdings and medium holdings by the adoption of an elaborate hierarchy for the production of rubber (to be reviewed subsequently). Putting it briefly, cultivation, tapping, manufacture and packing are carried out by outside labourers; above the labourer there stands the foreman, over the foreman the conductor who is supervised by the assistant manager, who in turn has ~ manager above him; on European-owned estates the further stages in the hierarchy include visiting agents, engineers and accountants the agency house, the secretarial firm, the board of directors and the shareholders. The ~st is not complete. On smallholdings and medium holdings the identical commodity is produced by the owner


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THE STRUCTURE OF THE INDUSTRY 5

and his family, assisted perhaps by a few share tappers or contract tappers, possibly under a Chinese kepala (foreman).

The great bulk of the estate acreage is European-owned 1 ;

in Malaya about one-quarter of the estate area is in Asiatic, largely Chinese, ownership. The smallholclings and medium holdings are in Asiatic ownership; in the N.E.I. (where there are few medium holdings) the holdings are practically all in Indonesian hands ; el.iiewhere a varying but generally appreciable proportion is in Chinese or Indian ownership. Apart from the N.E.I. it is, therefore, definitely inaccurate to refer to all smallholders as natives. There is a certain similarity between the larger medium holdings and the Asiatic-owned estates in methods' of finance and technique of production; but on the whole the distinction between estates and smallholdings has always been clear.

Although the official line of division between estates and smallholdings has varied somewhat between different territories, it has generally been drawn at 100 acres. 2 From fragmentary data it would appear that in the late 1920's and in the 1930's, between one-third and one-half of the total acreage in Malaya officially classed as smallholdings consisted of holdings of between 15- 20 and 100 acres each, and that about four-fifths or five-sixths of the acreage of meclium holdings was Chinese-owned. In Malaya the great majority of Chinese and Indian owners of smallholdings are absentee owners of medium holdings. Very few of the Chinese and Indian estate labourers have had the opportunity of planting and developing rubber smallholdings, partly because of the ban on the alienation of land for rubber planting from 1922 to 1928 and again since 1930, and partly because of the reluctance of the authorities to alienate land to this type of owner; lack of capital for the acquisition of land and the development of the holding was also a factor, but one of subsidiary importance. In Ceylon, Sarawak and Siam the proportion of medium holdings within the general smallholdings acreage was probably of the same order as that in Malaya.s The

1 In discussions of the rubber industry references to European estates usually include the comparatively small American- and Australian-owned acreage. Although the largest single unit in the rubber industry is American-owned, only about 5 per cent. of the estate acreage is in American hanru.

2 In the N .E. 1. the official distinction was based on differences of land tenure and the local population held land on titles (where these were issued) of a different type from those issued to other owners. This lends further justification to the use of the term , native' when referring to smallholders in the N .E.1.; it is also in accordance with official practice.

S This is suggested by occasional British and U.S. consular reports and by surveys conducted for the administration of rubber restriction.


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ownership of a property of over 15 acres, or of several smallholdings totalling more than 15 acres, would generally lift the owner .,abo:re the peasant class, and it is thus misleading to regard the officIal smallholdings acreage as entirely in the bands of this class.1 In contrast, the bulk of N.E.I. native acreage is owned by peasant proprietors, each with a few acres.

It is often implied or suggested that the bulk of the smallholding area is to be found in the immediate vicinity of the villagers' houses. This is incorrect. There are often rubber trees, or patches of rubber trees, around the villagers' houses, frequently interplanted with fruit trees. Though the aggregate acreage of these patches is not inconsiderable, it is only a small part of the total area, which mostly consists of entire stretches of rubber, starting usually some little distance behind the Malay dwellings, and often separated from these by a belt of padi fields. The trees in the villages enjoy the advantages of a regular supply of fertiliser, but this more than offset by their greater age and by the effect of much worse tapping. The rubber in the extensive stretches some distance from the villages is generally much better than the patches in the villages. This applies quite clearly both to Malay and to Chinese holdings in most of the important rubber-producing districts of Malaya, and the difference is often very striking.

The difference in the condition of the holdings in or around the villages and the much larger stretches of smallholders' rubber in the interior is one reason, though not the only one, for the inadequacy of roadside observation (which was used for many purposes by the authorities, as well as by unofficial observers) as a source of information on smallholders' rubber. Reliance on data from holdings near the roads is likely to provide biased samples. Such holdings are often planted on land with a previous history of cultivation and were usually the first to be planted in the neighbourhood. Their trees, apart from being older than those further in the interior, usually suffered most from the bad tapping of the early days. Moreover, the holdings nearest to the roads are general.ly reste.d less than those in the interior, being last to go out of tappmg dunng a slump or at low rates ofrelease under restriction , because of the lower transport costs to the nearest dealer or larger

1 In acc~rdance with general official. practice, in this study all properties of under 100 acres will he referred to as smallholdmgs; where a distinction is necessary how the smaller holdings, owned by resident owners and generally operated with~ t ':':' labour, will he referred to as peasant holdings and the larger small holdings u ou lIe

1 . ·d I b ed· hid· , genera y emp oymg some outS) e a our, as m )um 0 mgs. The peasant holdings f ·d d I th . hid· 0 res) ent owners correspon more Ol" ess to e native 0 lOgS of popular parlance .


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-THE S TR UCTURE OF THE IND USTR Y 7

village. Again, in many districts Chinese smallholders followed the Malays, and the better Chinese holdings lie behind the Malay areas. Moreover, the rubber trees in and around the villages are often tapped by the wife and children of the smallholder, while the homogeneous holding in the interior is tapped by the owner or by a professional tapper. Similar considerations apply to the smallholdings near the principal rivers and thus to the value of riverside observation.

To conclude this brief preliminary discussion of the different classes of rubber producer with a comparison in terms of output, 49 per cent. of the 1929 production came from estates owned by European and American interests, 7·5 per cent. from Asiaticowned estates, 40·5 per cent. from smallholdings, the remaining 3 per cent. being wild rubber'!

The liInitations of the acreage figures already given, and of others to be given subsequently, should be clearly realised. Most rubber statistics have always been prepared for business men who have a deep mistrust of round figures, believing these to be evidence of careless work. Hence the pseudo-accuracy of many rubber statistics which sometimes becomes quite grotesque as, for instance, when in roundabout estimates of the approximate native rubber acreage of a N.E.!. residency the precise number of trees in that area is given to the nearest digit. The worst example of pseudoaccuracy occurred during the currency of regulation, when in 1934-36 a rather haphazard tree census in Sumatra and Borneo (whose rubber-growing residencies are several times the size of Great Britain) claimed to have found 5~2,365,725 trees, and from an estimate of the average density inferred that the area totalled 1,683,328 acres. Subsequent experience of the hazards of this kind of estimating has not led to any improvement. In 1939 a more detailed survey of these residencies was started; results so far, based on 46 per cent. ofthe area, show that the original estimates understated the actual area by about 1 t million acres, one-half of the total area. But the revised figure of acreage is given as 3,179,092 acres; the figure is probably subject to a margin of error of at least half-a-million acres or more.

All the main elements reviewed above are subject to some error. The estimate of the total acreage under rubber is hazardous, particularly because no really reliable figures of the N.E.!. native acreage or of the total planted area of Siam have ever been

1 Dr. George Rae, in a paper read before the Midland Section of the Institution of the Rubber Industry, January 1931. .


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