IJERD – International Journal of Environmental and Rural Development (2019) 10-2

Research article
erd

A Comparative Study of Economic Efficiency Between
Small and Medium Size Rubber Plantationin Thbong Khmom Province
KEOVORLEAK VICHET
Graduate School of Agriculture, Tokyo University of Agriculture, Japan
Email: keovorleakvichet@gmail.com

TOMOHIRO UCHIYAMA*
Faculty of International Agriculture and Food Studies, Tokyo University of Agriculture, Japan
Email: tu205722@nodai.ac.jp
Received 14 December 2018

Accepted 27 August 2019(*Corresponding Author)

Abstract The strong fluctuation of price makes investment decision difficult, especiallysmallholder rubber plantation that depend solely on rubber production to support theirlivelihood. An investment analysis of the rubber production was needed to complete thestudy, so a discounted cash flow (DCF) was introduced to account for this study. The
findings of the study illustrate that the investment of rubber seemingly economicallyfeasible. However, the result from the Discounted Cash Flow Analysis showed that the time
to recover the initial investment on the rubber plantation is getting longer at the current
price of rubber. The payback period will be 11.9 years for small size producers. For
medium size plantations, the payback period was estimated to be 12.2, 10.5 and 9.8 years in
MI, MII and MIII, respectively. The further findings also suggest that small size producers
have less choice in term of output produce that they want to put out in the market.
Keywords discounted cash flow analysis, natural rubber, payback period, profitability,
productivity, smallholder rubber plantation

INTRODUCTION
Rubber has long been a major commercial crop and export earner for Cambodia and, as a laborintensive crop, has the potential to contribute to poverty alleviation through rural employment. The
gross value added of rubber in 2006 was estimated at USD103.61 million, or about 5 percent ofagricultural sector production (MAFF, 2008).
The growing surplus of rubber worldwide, which is steadily decreasing the demand for
Cambodian rubber (Hor and Renzenbrink, 2013). According to a representative of Chop Rubber
Plantation, a major rubber exporter, the global oversupply of natural rubber reduced their prices
significantly from $3,100/ton to $2,100/ton in 2013 (Ross, 2016). Domestic demand for rubber isalso very low and studies have revealed that “there is currently very little domestic use insecondary or tertiary industries for Cambodia’s natural rubber products” (Ministry of Commerce,2013).
In 2014, 70% of the total rubber production was contributed by household-owned rubber
plantation. According to General Directorate of Rubber, the price of rubber has been decreased by
3/4 compared to a decade ago. However, little attention is given to their profit efficiency and its
determinants. Farmers’ income who live in the rural areas depends heavily on rubber production.
The instability of rubber price, and low productivity due to the lack of technology and information,
it affects greatly on their income.
OBJECTIVEⒸ ISERD73

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General objective of this study is to analyze economic efficiency of the rubber farmers. The
specific objectives are: 1) Identify the socio-economic characteristic of rubber producers, 2) Accessto farmer’s profitability, 3) Analyze the financial feasibility of rubber producers, and 4) Formulate
suggestions and recommendations.
METHODOLOGYDCF analysis was used as the framework for assessing the returns from the investment ofhousehold-owned rubber production, with the usual investment criteria of net present value (NPV),
internal rate of return (IRR), and benefit-cost ratio (BCR) (Campbell and Brown, 2003). A positive
value of NPV for a given project shows that the project’s benefits are greater than its costs. When
IRR is equal to or greater than the interest rate, the investment is worthwhile. If the value of BCR isequal to or greater than 1, it is a sign that investment is of worth, but if it is less than 1, theinvestment project is not profitable. In order to apply DCF, the costs and benefits of rubber
production first had to be identified, where the costs include establishment costs (before yielding
stage) and maintenance costs (after yielding stage). Then the issue of the discount rate had to beaddressed. Therefore, an allowance was made for risk and uncertainty through a sensitivity analysis.
RESULTS AND DISCUSSION
Farm Characteristics of the Small and Medium Size Rubber Producers
Table 1 Farm characteristics of the studied area

Average Rubber Owned Area (ha)Average Planted Tree (tree / ha)
Average Mature Tree (tree / ha)
Average Immature/Damaged Tree (% / ha)
Average Rubber Tree Age (Year)
Tapping Frequency (days / week)
Output Produces

S
Under 2(n=20)
1.3
557
456
17.3
8
2
Coagulum 1)MI
2 to 10(n=18)
4.4
559
472
15.7
9
6.6
Coagulum 1)

MII
10.1 to 20(n=14)
16.6
566
511
7.9
12.6
6.8
Latex 2)

Labor Type

Family labor

Family labor

Family labor +Seasonal
hiring labor

Items

MIII
20.1 up(n=11)
41.2
563
524
7.5
13
7
Latex 2)
Non-family
management 3)+
Fixed hiring
labor

Source: Field Survey, 2018
Notes:
1) Coagulum: Coagulated latex. There are two ways to coagulate latex, by additional acid to latex or let it coagulate
naturally. Due to high cost of acid S and MI producers in the studied area use the later method to coagulate their latex
and sell it as coagulum.
2) Latex: MII and MIII producers sell their produces in the liquid latex form. The price will be determined by the DRC(Dry Rubber Content) % that has in the latex and Dry Rubber Price at the farm gate.
3) Non-family management: No family labor is engaged to manage the plantation. 1 to 2 managers are hired to manage
the whole plantation in addition to the working labor (eg: tapping labor).

The farm characteristics is presented in Table1. Rubber producers were categorized into two maintypes, small (S) and medium (M) scale producers. For further investigation, this study divides
medium scale producers into three categories, accordingly. MI refers to medium scale producers
that use family labor only to manage the plantation, while M II are producers that manage theplantation themselves and use hired labor occasionally. Lastly, M III are producers that use hired
labor only to manage the plantation.

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For S producers refer to those who own less than 2 ha and use family labor only. As presented
in the Table 1, the average owned area is 1.3 ha, 4.4 ha, 16.6 ha, and 41.2 ha, respectively. There isno transition of land or rental land system found in the studied area. Most of the producers acquired
the land from the government, inheritance, and purchased land. The planting density is not so
different between the 4 groups of producers, as they planted an average of 550 to 560 per ha.
However, the ratio of immature/damaged tree is different across the groups, the producers that has
the most immature/damaged tree is S producers that accounted for 17.3% following by MI 15.7%,
MII 7.9%, and MIII 7.5%, respectively. This is the crucial point since only the mature area ofplantation is calculated and compared and number of tree per ha is statically significant related tothe productivity of the plantation itself.
Another distinguish differences that can be spotted in Table 1 is the age of rubber and tapping
frequency. Compare to the M producer’s groups S producers have smaller plantation area. Since
the rubber tree can be tapped every four days, producers with bigger plantation areas tapper canrotate the tree in circle and able to tap every day (Usually 400 trees can be tapped per day pertapper).
Profitability Analysis of Small and Medium Size Rubber Plantation in the Study Area
Total production cost:
The total production cost includes both variable and fixed cost. The variable costs include theexpenditure of fertilizers, herbicide control, latex stimulants and labor costs (tapping labor,
fertilizing labor, herbicide labor, and latex stimulant labor).
Table 2 Total production cost of rubber production

Table 1 Total Production Cost by Plantation Sizes
Items

Fertilizer
Herbicide Control
Latex Stimulation(2)
Family Labor(3)
Hiring Labora. Total Variable Cost
b. Total Fixed Costc. Total Production Cost (a+b = c)

S
Under
2 ha
(n=20)
513
170
187
3,321
0
4,191

MI
%
2 to
10 ha
(n=18)
11
544
4
178
4
193
74 3,220093 4,135

MII% 10.1 to20 ha(n=14)
12
642
4
195
4
214
72
929
2,139
93
4,119

378

7

371

7

355

4,514

100

4,450

100

4,425

Unit: riel/tree/year
MIII
%
20.1
ha up
(n=11)
15
677
4
213
5
223
21
0
48 2,988
93 4,102%

t-statistic

15
5
5
0
68
93

S vs MI S vs MII S vs MIII
2.03
2.03*
2.07*
2.12
2.06
2.09**
2.05
2.08
2.07
2.03 2.04***
N/A
N/A
N/A
N/A
2.08
2.03
2.04

330

7

2.04

2.03

2.05

100 4,405

100

2.04

2.05

2.04

7

Source: Field Survey, 2018
Notes: N/A = no data
1) The production cost does not include the cost that applied on the immature area of the plantation.
2) Current wages are applied to calculated family labor cost. (25,000 riel/day)3) There is no hiring labor cost in S and MI producers, only family labor is engaged in the plantation.
4) Establishment cost refers to all the expenses incurred during the first six years till the plantation come tocommercial yielding stage. Depreciation straight line method was used to calculate the annual share ofestablishment cost.
Significant codes: *** 0.001 **0.01 * 0.05

Fixed costs consist of establishment costs only, since there are no agricultural taxes in
Cambodia and all the interviewed producers owned the land they are farming. Moreover, unlike
other countries the interviewed producers only produce and sell raw material (coagulum, and latex),with no machines or heavy machinery involved in the rubber production. Establishment cost
includes all the expenses incurred during the first six years till the rubber tree comes to yielding
stage. The total cost of establishment comprised land preparation, lining and holding, planting,clone replacement, weeding, pruning/branch induction, fertilizer, and disease control.
To avoid being biased in this study, the total cost per tree has been computed. More than 70%of the total cost goes into labor for S producers. Producers in the studies area applied at least 1 bag(50 kg) of fertilizers (chemical) per ha to the rubber plantation and apply twice per year. One bagof fertilizer can cost up to 120,000 riel/bag (30 USD). The average quantity of fertilizer appliedⒸ ISERD

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was roughly 151 kg/ha, the cost of fertilizers wraps up 15% of the total variable costs, annually.
Usually, latex stimulant is applied once a month, with roughly about 1 liter/ha costing around
10,000 riel/liter.
Rubber productivity and profitability:
Two types of produce were in the market, coagulum and latex. Coagulum is coagulated latex andconsists of two ways to coagulate the latex. It can be developed by introducing additional acid tolatex or by simply allowing it coagulate naturally. Due to the high cost of acid, S and MI producers
in the studied areas use the latter method to coagulate their latex and sell them as coagulum.
Table 3 Average rubber productivity and profitability
Items
Yield (kg / tree) (a)Price (riel / kg) (b)A. Revenue (A = a*b)
Total Variable Cost (riel / tree) (c)Total Fixed Cost (riel / tree) (d)B. Total Production Cost (B = c+d)
C. Net Farm Income (A+B = C)S
Under 2 ha(n=20)
4.97
1,890(1)
9,395
4,191
378
4,514
4,881

MI
2 to 10 ha(n=18)
5.41
1,877(1)
10,161
4,135
371
4,450
5,711

MII
10.1 to 20 ha(n=14)
2.79
4,307(2)12,001
4,119
355
4,425
7,576

MIII
20.1 ha up(n=11)
2.87
4,345(2)12,477
4,102
330
4,405
8,072

Source: Field Survey, 2018
Notes:
1) Coagulum rubber price riel/kg2) Dry rubber price riel/kg
3) The production cost does not include the cost that applied on the immature area of the plantation.

Table 3 shows the average yield per tree for S and MI coagulum production, the producers’
yields equated to 4.97kg and 5.41kg, and the net farm income was computed at an average price of
1,890 riel/kg and 1,877 riel/kg. Net farm income per tree/year came in at a total of 4,881 riels and
5,711 riel for S and MI producers. The average yield per tree was 2.79 kg and 2.87 kg for latex
production, with the net farm income standing at 7,576 riel and 8,072 riel.
MII and MIII producers can generate more profit than S and MI producers, as latex is ahigher-grade rubber that is used to make elastic bands, teats for babies’ bottles, and athletic shoes,
while coagulum is a low-grade (quality) rubber that is used for tires (ADI, 2007). Most of the large
processors prefer to buy latex rather than coagulum and offer a premium for it. In contrast,
smallholders prefer to sell coagulum, as farmers can receive cash in hand (Hing and Thun, 2009),
where the smallholders producing the coagulum are selling them to collectors at either the farm
gate or at various collection points in the districts’ towns. Smallholders are also known toadulterate their latex with all kinds of additives, rendering it unusable for higher grades of rubber(ADI, 2007). Due to this, the factory prefers to make a deal with large-plantations so that they cansecure the quality as well as the quantity.
Rubber smallholders have little choice but to sell their collected latex to private companies forprocessing and export, given that only semi-processed (dry) rubber, not latex, can be exported(Hing and Thun, 2009). Competition among collectors is limited and localized, resulting in pricecollusions against the farmers (so farmers are quoted the same prices by the collector) (Rubber
Sector Profile, 2012).
Discounted Cash Flow Analysis
The financial feasibility analysis for rubber production was carried out by employing important
tools such as the Net Present Value, Benefit Cost Ratio, Internal Rate of Return, and Payback
Period as seen in Table 4.
The BCR for the rubber plantation presented more than unity in every category, but also
implied that rubber cultivation was a profitable venture. The Net Present Value of the stream ofⒸ ISERD

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returns from one hectare of rubber plantations worked out to 38,231,362 riel for S producers,
40,820,918 riel for MI, 43,311,209 riel for M II and 46,030,839 riel for MIII at a non-discounted
rate. The high positive Net Present Value indicates the soundness of the investment.
The internal rate of returns equated to 21% for S producers, however the ratio was 23%, 32%,
and 33% in MI, MII, and MIII respectively. Since the values of the internal rate of returns are
considerably higher than the market rate, more than 14.50% would be financially feasible(Shunmugiah, 2000).
Table 4 Benefit cost ratio and internal return rateIRR
NPVPB (Year)BC
Source: Field Survey, 2018

S

M1

M2

M3

21%
38,231,362
11.9
1.8

23%
40,820,918
12.2
1.8

32%
43,311,209
10.5
1.7

33%
46,030,839
9.8
1.8

The payback period refers to the time required to recover the initial investment in the rubber
production. While the payback period worked out to be 11.9 years for S producers, the payback
period for medium-size plantations was estimated to be 12.2, 10.5 and 9.8 years for MI, MII, andMIII, respectively. Thus, all the criteria of financial feasibility of the project indicated thatinvestment in rubber production was economically feasible and financially sound in the study areas.
Table 5 Results of DCF analysis for rubber producers
Table 4. Result of DCF analysis (Using world bank projected price and wage rate of 34,000riel/day)
5%
Scenario
S
MI
MII
MIII
S
A

B

C

NPV (riel/ha)
B.C ratio
IRR%
NPV (riel/ha)
B.C ratio
IRR%
NPV (riel/ha)
B.C ratio
IRR%-1,244,873-462,624-124,128 1,234,496
0.97
0.99
1.00
1.03
3.90%
4.60%
5.30%
7.40%
10,327,710 12,006,326 13,960,084 15,506,547
1.26
1.29
1.30
1.33
13.60%
15.10%
21.00%
22.00%
25,372,068 28,215,962 32,269,560 34,060,215
1.64
1.67
1.69
1.74
23.00%
24.80%
35.80%
36.50%-1,868,824
0.94
3.90%
5,352,964
1.17
13.60%
16,620,349
1.52
23.00%

8%MI

MII-1,015,001-130,399
0.97
1.00
4.60%
5.30%
6,757,139
9,051,105
1.20
1.24
15.10%
21.00%
18,952,529 23,115,069
1.56
1.61
24.80%
35.80%

MIII-678,883
1.02
7.40%
10,153,484
1.27
22.00%
24,376,616
1.65
36.50%

Source: Field Survey, 2018
Notes: A scenario: Rubber price decrease by 30% (of projected price); B scenarios: World Bank projected price;
C scenarios: Rubber price increase by 30% (of projected price).

Table 5 shows the DCF applied the sensitivity analysis of small and medium-sized rubber
plantations at the discount rate of 5% and 8%. Table 5 is using the wage of 34,000 riel/day tocompute.
The results show that for 30% less than the projected price (scenario A), the investment for
rubber production is unprofitable in all categories. With the world bank projected price (scenarioB), the investment shows positive signs in all categories, indicating that the investment project isviable. At 30% more than the projected price (scenario C), the investment was worthwhile for all
discounted rates.
The findings from the sensitivity analysis shows that if the input material costs were toincrease by 30% from the current price, the investment in rubber production would no longer beworthwhile, indicating that the expansion of rubber may stop if there is a decline in the price of
rubber in the future. In fact, at the wage rate of 34,000 riels/person per day and a discount rate of
5%, the investment in rubber production becomes unprofitable when the price of rubber decreases
more than 30% from the current market price. This could perhaps be countered by increasing yields(e.g., through the use of fertilizer) or obtaining a higher farm-gate price by improving the quality ofrubber. Nevertheless, the current expansion is clearly vulnerable to a price downturn.
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CONCLUSION
The findings suggest that the bigger plantations can generate more income than the smaller
plantations due to a difference in output production. Medium-size producers tend to produce latex
that are more likely to be in demand by the factory. This type of produce is identified as a highgrade rubber that is commonly used for high-end products. In contrast, small-size producers sell
their produce as coagulum used in the tire industry, and they are usually purchased by middlemen.
In the current market, the price of latex is twice as profitable than coagulum rubber. However, thesmall-size producers prefer to sell their produce as coagulum in order to receive cash-in-hand,
while the big factories prefer to purchase the latex only from the medium to large-size plantations
to secure the quality as well as the quantity.
Further findings also show that despite the continuously decreasing price of rubber, rubber
production is still seemingly economically feasible. However, if the price continues to decrease,rubber producers will struggle to recover the initial investment from the rubber plantation as thepayback period is getting longer. From the results, it can be concluded that the investment for
rubber plantations is getting riskier, and small-size producers are likely to be at the mostdisadvantaged. Upon weak market channels, rubber producers are not proactively addressing any
potential risks, with even the slightest changes to input costs (labor, fertilizer, herbicide, and latex
stimulant) having the potential of posing a major threat for rubber producers.
Smallholder rubber plantations usually have no control to dictate the price of their produce, as
farm gate prices are usually set by collectors and traders. Therefore, the development of proper fairmarket channels and support from the government should be established to sustain the rubber
producers’ livelihoods and to mitigate any potential future risks. Support such as subsidies andquality material inputs should be accessible and available to rubber producers, especially during theestablishment period when producers cannot generate any income.
Relevant and timely information on local and international rubber markets and rubber
feasibility investment reports should be provided to rubber producers. Moreover, information suchas potential markets and required standards should be informed to all rubber producers. Using thelatest information and techniques can help rubber producers during the investment making
processes and increase their productivity and income, potentially protecting the producer’s
livelihoods in the long run.
To further address this study, a study on the biophysical components (weather, soil, intercrop
system, and clone) should be conducted in order to determine the factors that may affected farmer
decision on output produce.
ACKNOWLEDGEMENTS
The authors acknowledge Tokyo University of Agriculture for financially support this research. We
are also would like to express our gratitude to all the officials from the General Directorate of
Rubber and the participants for their cooperation during the field survey.
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