A vital ingredient in car tyres and surgical gloves, natural rubber is irreplaceable, but can the industry face up to its “looming crisis”?
We are far closer to replacing the driver in a car than the natural rubber in its tyres,” says Robert Meyer, CEO of the world’s largest rubber processing company, Halcyon Agri, a subsidiary of Chinese state-owned enterprise Sinochem. Natural rubber makes up around 40% to 45% of the rubber compound in car tyres – with the rest made up of synthetic rubber – while aircraft and Formula One cars use tyres containing pure natural rubber, due to the ability of its elasticity and flexibility to absorb the impact of the runway or speed of the track. “The unicorns are out of business tomorrow if there’s no rubber, because Amazon can’t deliver its parcels, Uber can’t drive its cars and Tesla goes broke immediately because it can’t move cars.”
While natural rubber is more in demand than ever – global consumption has risen from 10m tonnes in 2010 to 14m tonnes today (think artificial hearts, washing machines, trainers, balloons, welly boots, fibre-optic cables, plasters, condoms and PVA glue) – there is, says Meyer, a “looming crisis” in the rubber industry as its supply becomes less and less sustainable and its market economy remains trapped in a boom and bust cycle.
Ulrich Antoni, head of natural rubber purchasing at Pirelli, the world’s fifth-largest tyre manufacturer, points out that a major challenge for the industry when sourcing natural rubber is its complex supply chain. “This is mainly due to the fragmented nature of production which, at its origin, is mainly smallholder driven. At the same time, it generates income for millions of farming families in the natural rubber-producing countries where Pirelli sources its natural rubber.”
But it’s these farming communities who are at risk, warns Meyer. A vocal critic of the traditional rubber-market pricing model, he believes only a move away from the current speculation driven futures-market-based pricing model will put the value back into the natural product, and ensure a livelihood for the thousands of smallholder farmers who produce 84% of the world’s rubber; while ensuring the world retains access to the ever-increasing tonnage of rubber it demands per year.
“We have to move to a pricing model that assures farmers a living wage, while at the same time making sure the world doesn’t run out of this stuff,” says Meyer. But, for now, there’s an oversupply of rubber, which means prices are low and farmers are increasingly chopping down their trees because there is no economic incentive for them to persevere with rubber. Therefore, the tree population is shrinking and the industry is not investing in replanting because prices are so low that losses are being made.
However, when demand once again outstrips supply, Meyer predicts a “cataclysmic point” – a high-price scenario leading to deforestation of fresh land for use as rubber plantation. “The last time we had super-high prices, from 2008 to 2011, land the size of Belgium was deforested by smallholder farmers and planted with rubber trees, so that’s the most recent lesson history has taught us, which we should not forget.”
Breaking the cycle
Of course, it’s those rubber trees, planted in haste in expectation of a highly profitable crop, that are now contributing to oversupply and low prices. “And that is the looming crisis,” says Meyer, “the fact that we, because of the pricing methodology that’s been around for a century in this business, go from boom, to bust to bust to bust.”
To address the issues, 2018 saw the industry establish the Global Platform for Sustainable Natural Rubber (GPSNR), which counts Halcyon Agri, Bridgestone, Goodyear, Michelin and Pirelli among its 57 members. With sign-up from producers, processors, traders, tyre and car makers, other rubber users, financial institutions, and organisations including the WWF and Mighty Earth, the platform’s mission is “to lead improvements in the socioeconomic and environmental performance of the natural rubber chain”. GPSNR has deployed two working groups; the first to encourage smallholders’ representatives to join the platform and the second to investigate the equitable distribution of the supply chain.
Stefano Savi, GPSNR director, spoke to SM from Cote d’Ivoire, where he was meeting smallholder rubber suppliers. He explained that the platform is working on setting up standards for sustainable agricultural production according to the Accountability Framework Initiative, which aims to support companies in how to make supply chain sustainability commitments operational.
“We’re mapping out key risks in different countries and identifying who are the players that are already working on the ground to mitigate these risks and understanding how the platform can support these organisations,” said Savi.
GPSNR is also developing a traceability and transparency strategy for risk mapping using tools such as earth observation. The platform aims to deliver strategic approaches by the first quarter of 2020, in order to gain approval from its general assembly in March, when groundwork can begin. However, Savi points out that a key element is collaboration. “This is something that no single company can fix. Understanding that people are coming from different places in the supply chain, and to work synergistically in finding solutions; that’s where the platform is strongest,” Savi says.
Pirelli, a founder member of the GPSNR, also counts low commodity pricing as “a major concern” explains Antoni, as this impacts the livelihood of smallholders. This, he says, is one of the reasons why these industry-driven initiatives are so important.
And Pirelli has its own sustainability policy, which has been communicated to tier-one suppliers via face-to-face meetings with management; meetings at supplier factories; and a number of three-day workshops in all the countries where Pirelli sources its rubber, conducted in local languages and supported by specialists familiar with local needs. “The aim is to make sure all suppliers commit to cascading Pirelli’s policy along supply chains and start to organise corrective actions whenever there is a gap with respect to our policy,” says Antoni. “Those gaps can only be identified when you have a good understanding of your supply chain. We prefer to work on traceability and risk mapping through an on-site approach rather than supplier self-assessment.”
Fixing the system
For Meyer, a solution is to stop exposing farmers to a market price and instead agree a minimum price that farmers will benefit from, providing they adhere to guidelines such as the UN’s Sustainable Development Goals (SDGs) and provide data on their production. Meyer suggests “a new pricing paradigm, allowing producers to determine prices in relation to sustainability and other qualitative criteria that enables them to produce a product the world needs, in quantities that are sufficient, at prices which are workable for the farmer and the consumer. That being the case, I think we have a starting point to reboot the system,” he says.
Halcyon is keen for full traceability in the supply chain, which is increasingly of interest to its end consumers, such as Volkswagen, which has “stringent supply chain stewardship policies” and wants to document not just where the tyre comes from, but also where the tyre inputs come from. “That data doesn’t exist yet,” says Meyer. “At least not at the level of granularity they want.”
Of course, Meyer is keen to promote his own company’s HeveaConnect, the digital marketplace for its HeveaPRO-certified sustainable brand of rubber, which launched in April 2019. The digital marketplace aims to engender greater price transparency in the natural rubber market, and to move away from price fixing, which it sees as unrepresentative of sustainable pricing requirements. The platform has so far traded in excess of 28,000 tonnes of rubber, or $38m worth.
Unlike synthetic rubber – which has its own issues being a crude oil refining derivative and contributing to increasing emissions – commentators agree that natural rubber is, at its roots, a sustainable natural product. Though there has to be the “original sin” of deforesting land to plant the tree, this has already been done to the extent of 13m hectares worldwide, and rubber gets bonus points for sequestering large amounts of carbon. However, with a growing proportion of sick trees, many rubber plantations need overhauling.
Diseases, says Antoni, have been a challenge in some of the major rubber producing countries, again affecting the income of smallholders. He explains that Pirelli has been creating awareness within farming communities on disease identification, along with know-how and tools needed to overcome them. “An industry-wide initiative is needed to spread know-how within the large number of smallholder communities,” he says.
But Meyer argues that it’s not just education that’s needed: it’s cash. “This is why the price needs to be sufficiently remunerative; we need to invest and replant rubber with higher yielding, more disease-resistant clones. These are available, it’s just a matter of money,” explains Meyer, who points out that the new clone trees would produce double the crop of existing trees, meaning the industry could cater for double the demand, or alternatively “rehabilitate long tracts of rubber land back to forest”.
Commitment to sustainability is especially vital for Halcyon Agri, which came under fire in recent years after one of its subsidiaries, Corrie MacColl, was found clearing thousands of hectares of forest for rubber trees on its Sudcam plantation in Cameroon. In response, the company issued a “cease and desist” order on logging in Sudcam, developed a sustainable natural rubber supply chain policy, and has actively sought to open a dialogue with NGOs.
Conservation groups that had been critical of the plantation, such as Greenpeace, Mighty Earth and Rainforest Foundation UK were reported to be “pleased” with Halcyon Agri’s response and hopeful the company will continue to improve conditions at its Sudcam plantation. According to reports, satellite imagery indicates no further clearing has happened since the deforestation ban was issued in December 2018.
“No one is happy with the status quo in natural rubber,” says Savi. “I see that as an opportunity to start working on ensuring natural rubber is sustainable and that this product becomes an example of how we can utilise a natural commodity in a good way: not only supportive of the environment and the economy, but also of the people that produce it, and the millions of farmers that we rely on.”
If they are serious about rebooting the industry, it seems that producers and buyers of rubber need to be as committed to their supply chains as they are to their branding. Transparency in supply chains and adherence to SDGs would be a start: perhaps then the market can bounce back.
Rubber falls into two broad types: natural rubber, derived from the rubber tree, and synthetic rubber, made with chemicals sourced from petroleum refining. Commercially, the most important synthetic rubbers are styrene butadiene (SBR), polyacrylics and polyvinyl acetate (PVA); other kinds include polyvinyl chloride (PVC), polychloroprene (better known as neoprene), and various types of polyurethane. There are more than 200 different types of synthetic rubber, each having its own qualities. Compared with natural rubber, synthetic rubber is usually cheaper to produce but weaker, less flexible and less resistant to vibration.
Natural rubber is extracted from Hevea brasiliensis – the rubber tree – which can only be grown in areas with similar conditions to the Amazon rainforest, effectively restricting production to 15-20 degrees north or south of the equator. It takes around seven years for a rubber tree to grow to a girth at which it can be ‘tapped’, its economic life will then be 20-30 years. Rubber tapping collects latex in the form of a white milky fluid which is stored in the bark of the trees.
VEJA goes wild
One company hoping to get its rubber sourcing right is trainer maker Veja, which uses wild rubber purchased directly from seringueiro (rubber tapper) communities. Since the Amazon is the only place where rubber trees grow in the wild, the seringueiros live in the forest and depend on it for survival. With official authorisation, they tap the rubber trees following paths only they know. Varying their circuits allows the trees to regenerate.
Veja founders Sébastien Kopp and François-Ghislain Morillion say this process helps create value within the supply chain and generates more revenue for the rubber producers, who sell a semi-finished product thanks to a process invented and developed with the University of Brasilia. After extraction, farmers transform the latex into rubber sheets by drying it in their own houses, which makes the rubber purer and also more elastic by avoiding oxidation. The material is used in the sole of every Veja trainer, each of which is made of 18% to 22% natural rubber. Veja says its goal is to “enhance the economic value of the forest in order to protect it”.