Thailand and RI Rubber Roads Face EUDR

If not postponed, the European Union's Deforestation-Free Products Act or EUDR will be fully implemented in January 2025. Starting from May 2024, that means there are only seven months left. Thailand has launched the Traceable Rubber Trading program. How about Indonesia?

Thailand is the world's leading producer of rubber and Indonesia is the second largest. In 2023, Thailand's natural or raw rubber production will be 4.63 million tons, while Indonesia's will be 2.65 million tons.

Thailand's rubber production fell 1.65 percent and Indonesia's 2.22 percent compared to 2022. Apart from a number of other factors, the decline in natural rubber production was also influenced by the long drought caused by El Nino in 2023.

Amidst various rubber issues in Thailand and Indonesia, the implementation of EUDR is becoming burdensome for both countries. Thailand does not want to lose the European Union (EU) as the second largest rubber export market after China.

The total non-oil and gas exports from Thailand to the EU in 2022 amounted to 22.63 billion US dollars. Of that amount, 7.65 percent or 1.73 billion US dollars were the value of rubber and derivative product exports. The value of rubber exports to the EU contributed about 2.2 percent to the total value of non-oil and gas exports to the world.

The value of Thailand's rubber exports is also the highest compared to other commodities affected by the EUDR. Wood and palm oil and its derivative products, for example, have export values to the EU of only 0.57% and 0.1% respectively of Thailand's total non-oil exports.

It is not surprising that Thailand is trying to maintain the EU as an export market for rubber and its derivative products. One policy that has been implemented to face the EUDR is the Traceable Rubber Trading (TRT) program. This program for traceable rubber trade, which can be traced back to its origins, was initiated by the Thai Government and the Thailand Rubber Authority (RAoT).

On April 27 2024, the Ministry of Agriculture and Cooperatives of Thailand together with RAoT launched the TRT program. This program also gave birth to the TRT digital platform which is integrated with the rubber commodity auction exchange which has been managed by RAoT.

Chairman of the RAoT Council, Nakorn Tangavirapat, stated that the development of the TRT system marks a significant step in Thailand's adherence to EUDR requirements. This also demonstrates Thailand's readiness to manage the information system for rubber traceability data.

The TRT system ensures that data on the origin of rubber from each RAoT member and rubber farmer is collected systematically and recorded in every rubber lot traded on the commodity exchange. The system also utilizes blockchain technology to make it more reliable, transparent and accurate, thus helping to strengthen the audit process.

"The implementation of the TRT system also increases rubber prices. In the first trade of traced rubber, the price of rubber auctioned jumped to 94.01 baht per kilogram. "The total transaction value reached 41.2 million baht," said Nakorn Tangavirapat (Malaysia Kini, 30/4/2024).

Thailand initiated the program by updating data on the distribution of rubber plantations and farmers. This was followed by a systematic registration process for farmer data to identify and differentiate rubber plantations, as well as ensuring traceability of rubber products from rubber farmer groups.

This step is a continuation of the rubber plant replacement or replanting program and the agrarian reform agenda in the agricultural and plantation sectors. The farmers who will be registered in the TRT system in stages already have land certificates and traceable rubber tree certificates.

For this reason, the Thai Government and RAoT hope that the EU can see the direct practice of implementing the TRT system which has already started running. They also hope that the EU will accommodate this system in the EUDR due diligence system.

Left behind

Then, what about Indonesia's rubber? Indonesia is still far behind Thailand. In fact, rubber has become the most lagging commodity compared to other Indonesian commodities in meeting EUDR requirements.

Until now, the rubber trade in Indonesia has been conventional despite implementing a spatial auction system in several regions. The rubber supply chain from upstream to downstream is also long, making it difficult to trace the origin of rubber.

The government has also echoed several times that Indonesia could have its own rubber exchange. However, that exchange has not been realized yet. In addition, the Indonesian government has launched the Sustainable Natural Rubber Platform of Indonesia (SNARPI) program in 2021. Until now, the program is still rolling slowly and has not covered all rubber plantations.

Currently, the Indonesian government is building the Indonesian National Commodity Dashboard, which focuses on several export commodities that are affected by the European Union's Delegated Regulation (EUDR) through the Integrated Electronic System for Crop Registration (E-STDB). In addition to rubber, other commodities are palm oil, cocoa, coffee, and wood along with their derivative products.

Amid the development of digital data mapping and traceability of commodities, the Indonesian Government, along with several other countries, is lobbying for the EU to accommodate commodities that have sustainable certificates within the EUDR's suitability testing system. These commodities are mainly palm oil with ISPO and RSPO certifications, and wood with the timber verification and legality system (SVLK).

Regarding rubber, Deputy Executive Director of the Association of Indonesian Rubber Companies (Gapkindo) Uhendi Haris said that only a handful of large private companies have sustainable rubber certificates, namely the Forest Stewardship Council (FSC). However, small private rubber companies and independent rubber farmers do not have this certificate at all.

“The cost to obtain the certificate is quite large. "At a time like this, if we take care of the ownership of the certificate, we are worried that the EU will not want to accommodate the certificate," he said in a limited discussion with Kompas some time ago.

This year, the Indonesian government has started implementing E-STDB, including for rubber. However, the program is still running slowly.

According to Uhendi, only 971 E-STDBs have been issued to rubber farmers. However, at least 491,106 E-STDBs are needed to fulfill the portion of rubber exports and its derivative products to the EU.

The European Union is the fourth largest rubber export market for Indonesia after Japan, the United States, and China in 2023. Out of the total export of 1.79 million tons of rubber and rubber products in 2023, 11 percent or 206,203 tons were exported to the European Union.

Executive Director of Gapkindo, Erwin Tunas, stated that even if Indonesia shifts its rubber market to countries outside of the EU region, problems will still arise. The countries importing raw or semi-processed rubber from Indonesia may also require EU quality requirements from Indonesia because they also export derivative rubber products to the EU.

"So, like it or not, Indonesia still needs to fulfill the EUDR requirements," he said.

This condition will further burden the upstream-downstream rubber industry in Indonesia, which is currently facing various challenges. These challenges include leaf fall disease and white root fungus attacks, as well as a decline in rubber productivity due to the fact that the rubber plants are already 20-30 years old.

National Chairman of the Indonesian Rubber Processing and Marketing Business (UPPB), Roizin, believes that if Indonesia wants to maintain its rubber market in the EU, it needs to accelerate the implementation of E-STDB. However, let us not forget the rejuvenation of plants and rubber price guarantees at the farmer level.

"Without these efforts and rubber still being neglected, Indonesia will be unable to compete with other rubber producing countries," he said.

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