1、Exploring Smallholder Solutions in the Rubber Sector FEASIBILITY STUDY: THE PROCESSING AND SALE OF RUBBERWOOD TO SUPPORT SMALLHOLDER FINANCING IN INDONESIA SEPTEMBER 2020 HeveaConnect, Target Corporation, and World Wildlife Fund are engaged in finding solutions to enhance the production and trade of

2、 sustainable natural rubber.The three organizations came together in 2019 around the shared interest in understanding how the processing and sale of rubberwood might incentivize the adoption of sustainable practices by natural rubber smallholders and enhance their livelihoods.We enlisted the service

3、s of Financial Access to analyze the potential of rubberwood to serve as a mechanism to support smallholder financing in Indonesia.Although the scope of the analysis was limited to two provinces in Sumatra, the findings of this study could be used there and elsewhere in Indonesia to inform the devel

4、opment of sustainable natural rubber initiatives that include the processing and trade of rubberwood as one of several strategies to support equity in natural rubber supply chains. WWF For more than 50 years, WWF has been protecting the future of nature. One of the worlds leading conservation organi

5、zations, WWF works in nearly 100 countries and is supported by more than 1.1 million members in the United States and 5 million supporters globally. WWFs unique way of working combines global reach with a foundation in science, involves action at every level from local to global, and ensures the del

6、ivery of innovative solutions that meet the needs of both people and nature. Visit worldwildlife.org to learn more. TARGET Minneapolis-based Target Corporation (NYSE: TGT) serves guests at nearly 1,900 stores and at Target. com. Since 1946, Target has given 5% of its profit to communities, which tod

7、ay equals millions of dollars a week. For the latest store count or for more information, visit T For a behind-the-scenes look at Target, visit T or follow TargetNews on Twitter. HEVEACONNECT HeveaConnect is a digital trading and data platform for the natural rubber supply chain. It is at the forefr

8、ont of using technology to transform rubber trading and tracing process. This digital transformation provides a simple and secure solution for trading while enabling deeper analysis of the supply chain to uncover environmental, social and financial risks. HeveaConnect plays a vital role in enabling

9、sustainable developments in each segment of the supply chain by adapting and utilising technological advancements. The company envisions a future where consumers are empowered to make smarter decisions through insights on their supply chain. FINANCIAL ACCESS Financial Access is a financial services

10、firm, focused exclusively on frontier and emerging markets. Financial Access provides consulting, financial advisory and financing services to diverse clients including (impact) investors, PE firms, banks, specialised non-bank or microfinance institutions, international donor organisations and NGOs,

11、 development finance institutions and private companies. SNV SNV is a not-for-profit international development organization and has a local presence in over 25 countries in Asia, Africa, and Latin America. SNV focuses on three sectors: Agriculture, Energy, and Water, Sanitation, and Hygiene (WASH).

12、To address global trends and challenges in agriculture, SNV has four products of interventions: inclusive value chains, climate and business, sustainable nutrition for all, and opportunities for youth employment. SNV also continue to use and develop gender approaches using balancing benefits. In Ind

13、onesia, SNV has been working in some agricultural programs since 2013, such as sustainable natural rubber, palm oil, coffee, and dairy programs, among others. EXECUTIVE SUMMARY 1 1. BACKGROUND STUDY 3 2. METHODOLOGY 3 3. PROBLEM ANALYSIS 4 3.1 Background Information on Rubber Production in Indonesia

14、 5 3.2 Challenges of Overaged Rubber Trees 6 3.3 Background Information on Rubberwood 7 3.4 Challenges in Access to Finance 10 4. RUBBERWOOD SUPPLY CHAIN ANALYSIS 13 4.1 Characteristics of Rubberwood 13 4.2 Rubberwood Utilization 13 4.3 Rubberwood Supply Chain 14 5. FINDINGS FIELD VISIT 15 5.1 Price

15、 Dynamics 16 6. BUSINESS CASE 21 6.1 Short-term 21 6.2 Replanting 22 6.3 Agroforestry Model 23 7. PROPOSED PROOF OF CONCEPT 27 8. CONCLUSION 28 REFERENCES 29 4 1 EXECUTIVE SUMMARY World Wildlife Fund (WWF), Target Corporation, and HeveaConnect engaged Financial Access Consulting Services (FACS), wit

16、h additional support from SNV, to investigate whether the processing and sale of rubberwood from over-aged rubber trees in Indonesia can serve as a viable financing mechanism for rubber smallholders. Low yields are one of the main issues plaguing rubber smallholders in Indonesia, who are often force

17、d to replace rubber with other commodities to improve their livelihoods. This has consequences for Indonesias dominant position in the rubber sector, and potentially drives deforestation as new land is often cleared to meet demand. These low yields are caused by a combination of poor management prac

18、tices and over-aged trees, which are naturally less productive. Low international rubber prices exacerbate these problems, trapping farmers in poverty. Though replanting rubber trees requires a significant investment from smallholders that can only be met with an appropriate financing scheme, sellin

19、g the rubberwood from their old trees can help lessen their financial need and financing costs over time. This report investigates the viability of selling rubberwood from the perspective of all stakeholders in the supply chain. We identify a financing scheme that has the potential to ensure that a

20、smallholder avoids a cash shortfall during or after replanting. While the sale of rubberwood can help lessen financing need, the current quality of rubberwood in Indonesia is sub-optimal due to poor tapping practices, which leads to low prices. This study finds that an agroforestry model, in which i

21、ntercrops generate income during the immaturity period of the new rubber trees, is a necessary condition for financing. Hence, for the sale of rubberwood to be optimal for smallholders and financial service providers (FSPs) alike, a replanting scheme must combine agroforestry and training in good ag

22、ricultural practices (GAP). Though such a scheme is analyzed in detail in this report, it should be refined and re-evaluated in the local context where it would be implemented, and discussed in more detail with FSPs. 2 3 1. BACKGROUND STUDY Rubber production is a key income stream for several millio

23、n smallholders in South East Asia. Ninety percent of Indonesian natural rubber raw material is sourced through smallholders cultivating less than two hectares of land each for a total of roughly 3.2 million hectares of farmed land (Directorate General of Estate Crop 2019). However, Indonesian smallh

24、olders are caught in a vicious cycle of low yield and low international prices. As smallholders try to increase their income to meet their family needs, they commonly use one of two strategies. They often clear their (jungle) rubber holdings in favor of other crops, most notably oil palm, or they in

25、crease the size of the land they cultivate with rubber trees. Both strategies have broad adverse consequences. The first strategy causes a decrease in rubber export and associated revenue for Indonesia. Both the first and second can cause a loss of forest ecosystems, biodiversity, and carbon storage

26、 capacity. One way to counter some of these adverse consequences is by replanting current plots with new, higher yielding rubber trees, and improving planting and tapping practices to generate higher yields per hectare. However, financing for replanting and extension services are scarcely available

27、for Indonesian smallholders. This study investigates if selling rubberwood is a viable mechanism to encourage smallholders to replant and to improve their income while their new rubber trees mature. This report is organized as follows. First, we explain our methodology and formalize the problem stat

28、ement. Next, we detail a supply chain analysis based on findings from a field visit. The financial model combines the previous information and analyzes smallholders finances in detail. Finally, we discuss the proof of concept and draw conclusions from the analysis. 2. METHODOLOGY This study consists

29、 of three interrelated steps. First, FACS, with support from SNV, conducted a desk study to identify the stakeholders in Jambi and South Sumatra based on data from the Central Bureau of Statistics (BPS) and FACSs previous engagements. FACS and SNV also studied the agronomic information of rubber and

30、 opportunities and conditions for financing rubber smallholders. Second, FACS, with SNVs assistance, conducted a scoping visit that included face-to-face interviews with several stakeholders in the rubberwood supply chain in Jambi and South Sumatra. The objective of the scoping visit was to understa

31、nd rubberwood farm and price dynamics, and to generate inputs for the financial model. Third, FACS combined the insights generated from the scoping visit with the desk study and agronomic data to build a financial model for rubberwood. The results are presented in this report. 4 3. PROBLEM ANALYSIS

32、This chapter contains a problem analysis, starting with background information on rubber and rubberwood, followed by the challenges of rubberwood and smallholder financing in general. Problem statement: Due to the combined effects of aging rubber trees, low yield, and low international prices, the i

33、ncome of smallholder rubber farmers in Indonesia is ever decreasing. Replanting new, high-quality rubber trees, combined with an agroforestry and intercropping scheme, has the potential to lead to higher yields and improved livelihoods. However, access to replanting finance and extension services ar

34、e scarcely available for small farmers in Indonesia. As a result, escaping poverty is a major challenge. Proposed solution: Develop an innovative financing scheme for the replanting of rubber that addresses the root causes of the poverty trap afflicting rubber smallholders in Indonesia. The financin

35、g scheme should focus on (i) increasing productivity/yield through training on good agricultural practices (GAP) and replanting methods, (ii) integrating replanting according to a staggered agroforestry model, and (iii) combining income from rubberwood with intercropping to replace the current monoc

36、ulture system, which does not build a viable business case. Finance as enabler: Affordable finance is vital for replanting to ensure smallholders have the means to replant optimally and sustainably, guaranteeing higher yields over their trees productive lives. Challenges with access to finance: Beca

37、use most traditional financing schemes require borrowers to pledge collateral to the institution, smallholders, who often lack land titles, are often unable to receive formal financing. This is especially true for long-term replanting loans, which are high-risk for financial institutions. However, e

38、ven when land titles are available, travel costs associated with visiting farmers at their dispersed locations are so high, institutions often find that engaging with them is unprofitable. Overcoming these two barriers is crucial for creating the scale and replicability required to make financing of

39、 smallholder replanting a profitable business. Conditions for success: A successful replanting scheme should (i) minimize the number and severity of lean years for farmers, (ii) be standardized and capable of being executed at scale, (iii) be tailored to the individual and household needs of a small

40、holder, and (iv) improve farmers skills and knowledge through technical assistance to ensure long-term profitability. Well-designed financing schemes are vital to ensure that these conditions can be met, and that the livelihoods and well being of smallholder rubber farmers can be improved. 5 3.1 Bac

41、kground Information on Rubber Production in Indonesia The production of rubberwood in Indonesia is dominated by the 2.25 million small- holders who account for about 83 percent of the cultivated rubber land (Directorate General of Estate Crop 2019). Indonesian exports of natural rubber totaled over

42、4 billion USD in 2018, constituting 30 percent of the worlds rubber export (Workman 2019), and over 2 percent of Indonesias total export value that year (World Bank 2020). Considering processed rubber as well, exports stand at 6.4 billion USD or 3.5 percent of total exports (Workman 2019). As of 201

43、7, the Government of Indonesia recorded around 3.7 million hectares of natural rubber plantations, generating an estimated 3.6 million tons of natural rubber. For the last 10 years, production has grown at 1.5 percent per year, driven by the five biggest provinces, which contribute to 66.5 percent o

44、f national production (i.e., South Sumatra, North Sumatra, Jambi, Riau, and West Kalimantan). A third of this rise can be explained by more land being dedicated to rubber production, and the other two thirds by increased yields (Directorate General of Estate Crop 2019). Even though Indonesia is the

45、worlds second largest producer of natural rubber, the downstream rubber industry is not well developed. The country exports about 85 percent of its raw rubber production. Lacking domestic processing facilities, Indonesia must import processed rubber products back into the country. In recent years, h

46、owever, there has been a slow increase in domestic processing capacity and consumption. About half of the natural rubber utilized domestically is for tire manufacturing, followed by rubber gloves, rubber threads, footwear, rethread tires, medical gloves, and tools. FIGURE 1: INDONESIAS NATURAL RUBBE

47、R PRODUCTION PROFILE IN 2017 6 3.2 Challenges of Over-aged Rubber Trees The productivity of rubber in Indonesia is low and stands at 0.96 ton per hectare. Other rubber producing countries such as Thailand, Vietnam and Malaysia reach levels of 1.80, 1.72 and 1.51 tons per hectare respectively. Karyud

48、i (2015) highlights two main causes of low productivity of smallholder farmers, namely poor maintenance and tree age. Though the latter is the focus for this study, a replanting program could address the former as well. During an interview on 14 June 2019, the Director of Annual Plants and Freshener

49、s of the Ministry of Agriculture (MoA), Irmiati Rachmi, stated that most rubber trees in Indonesia were developed in 19781991 via several schemes, namely the Perkebunan Inti Rakyat (PIR), Smallholder Rubber Development Project (SRDP), Sector Crop Development Project (SCDP), Tree Crop Smallholder Development Project (TCSDP), and Tree Crop Sector Development Project (TCSSP). International donors such as the World Bank and the Asian Development Bank funded these initiatives. Rubber trees only begin producing latex at around Year 5 until approximately Year 25. After that