PRICE DYNAMICS AND NATURAL RUBBER PRODUCTION IN MALAYSIA: EVIDENCE FROM AN EMPIRICAL ARDL ANALYSIS

Abstract

This study aims to examine the factors influencing Malaysia’s natural rubber production and the fluctuating prices of SMR20 from 1995 to 2024. It utilized the Autoregressive Distributed Lag (ARDL) model to analyze both short- and long-run relationships between natural rubber production and other macroeconomic variables. The results of natural rubber production revealed that smallholdings have consistently contributed more than 80 percent of national production but are highly responsive to price factors and structural constraints. In fact, production records peaked at over 1.3 million tonnes in the mid-2000s but plunged drastically to 347,900 tonnes in 2023. It slightly improved to 386,400 tonnes in 2024. The empirical results verify that price volatility is an important factor in the production of SMR20, as higher prices boost tapping activities while declining prices decrease production. Exchange rate depreciation has both positive and negative effects on the sustainability of smallholders, as it increases export competitiveness while raising the price of inputs. Increases in the price of crude oil improve the competitiveness of natural rubber relative to synthetic materials, while growth in GDP enhances industrial demand, especially in the automotive and medical industries. The results of the ARDL approach verify the cointegration relationships between the production of natural rubber and the macroeconomic factors, confirming the vulnerability of the natural rubber industry in Malaysia to external factors and structural decline.