Indonesia&#;s downstream rubber industry is still underdeveloped. Today, the country depends on imports of processed rubber products due to the lack of domestic processing facilities and the lack of a well-developed manufacturing industry. Little domestic consumption of rubber explains why Indonesia exports about percent of its rubber production. However, in recent years there is a change visible (although a slow one) as exports slightly decline on the back of increased domestic consumption. About half of the natural rubber that is absorbed domestically in Indonesia goes to the tire manufacturing industry, followed by rubber gloves, rubber thread, footwear, retread tires, medical gloves, carpets and other tools.

A key driver for the global rubber market is the Asia-Pacific region where demand is growing robustly, led by China, the world&#;s leading rubber consumer that is expected to account for nearly percent of total worldwide rubber consumption by (mostly used in its tire manufacturing industry). Meanwhile, strong growth in rubber consumption is also expected to occur in Indonesia, India, Vietnam, and Thailand on the back of developing automotive industries in these countries.

Another problem was that the USA removed Indonesian-made tires from its generalized system of preference. This US program was designed to support developing countries by cutting import duties and taxes for about products from countries. Indonesian-made tires were removed from the list as the USA believes that Indonesia’s tire industry is already sufficiently competitive. This means that tire exports to the USA are now subject to a five percent import tax.

Compared to its rubber producing competitors, Indonesia contains a low level of productivity per hectare. This is in large part due to the overall older age of its rubber trees in combination with low investment capability of the smallholder farmers, hence reducing yields. Whereas Thailand produces , kilogram (kg) of rubber per hectare per year, Indonesia only manages to produce , kg/ha. Also Vietnam (, kg/ha) and Malaysia (, kg/ha) have higher rubber productivity.

As the second-largest rubber producer, Indonesia supplies a substantial amount of rubber to the global market. Since the s, the Indonesian rubber industry has been experiencing steady production growth. Most of the country&#;s rubber output &#; approximately percent &#; is produced by smallholder farmers. Government and private estates thus play a minor role in the domestic rubber industry.