A study of the implications of a buffer stock scheme for natural rubber based on a simple simulation model

Abstract

The unsettled economic conditions of the last few years have rekindled new interest in matters of economic stability and its benefits. Although international price stabilization of primary commodities has attracted a great deal of attention since the early 1900's, at present only a few stabilization schemes are in operation. Natural rubber (NR) is an example of a primary commodity which has recently been the subject of intensive negotiations with a view to an international buffer stock scheme. This scheme has been proposed by Malaysia, which is the largest NR producer, and may include Thailand, Sri Lanka, Indonesia and Singapore. More than 85% of the world's NR comes from this region. An International Buffer Stock Scheme for NR seems a timely proposal in view of the energy crisis since 1973 which has precipitated international uncertainties and shortages in synthetic rubber (SR) supplies and caused violent fluctuations in NR prices. The competitive position between NR and SR has markedly altered. Increases in the cost of production of SR have been substantially higher than that of NR because the principal feedstocks for manufacturing SR are base-chemicals derived from petroleum and natural gas.

This study aims to (i) formulate a simple model for NR supply, demand and price incorporating the speculative demand aspects, (ii) based on the formulated model simulate the performance of a buffer stock scheme for various pricing policies and under a range of assumed price elasticities of demand for NR, (iii) simulate the performance of such a scheme on the assumption that stabilization increases the demand for NR, (iv) determine the effects of such a scheme on shortrun speculation. An outline of the contents of the thesis is as follows: Chapter 2 provides background to the rubber industry. Chapter 3 is a review of previous approaches to international control schemes and the operation of buffer stock schemes. The following two chapters deal with model formulation and discussion of data respectively. The results, model validation and discussion of results are presented in Chapter 6, and Chapter 7 is the summary and conclusions.