Is a Truly Sustainable Indonesian Rubber Industry Possible?

Adapted from Zen Zahari's PhD Thesis by Tim Frodsham

Contents

Economic Issues
Environmental Issues
Social and Political Aspects
Conclusion
Study Questions
Relevant Links

This is a brief overview of capability for sustainability in the Indonesian rubber industry. It examines upstream components (extraction, collection, primary processing) and downstream components (secondary processing, transport and marketing). It explores a variety of approaches aimed at improving the longer term sustainability and efficiency of the role of the rubber industry in the presently somewhat troubled economy of this largest country of Southeast Asia. In particular, the question is asked:

Can a new approach to integrate an equation of solutions to upstream and downstream problems in such a way that political, socio-economic and environmental problems in the Indonesian natural rubber industry can be treated simultaneously?

As we shall see, a sustainable outcome cannot occur without substantial political change, both in the higher echelons of Government policy making and implementation and at grass roots village community levels. The following paper firstly examines the economic role of rubber to the national economy, then explores the impacts of the natural rubber industry on the environment. It then looks at the current social and political aspects of the industry as it has so far developed. Finally, it will focus on the critical need for a new approach in reducing poverty, while at the same time reducing environmental impacts of the industry.

1.0 Economic Issues

The Indonesian natural rubber industry has always had intertwining connections between the environment, the economy and the community.

The economic role of rubber in the Indonesian national economy and its problems in the social sphere cannot be overlooked. Indonesia is the second largest rubber producer in the world after Thailand.
In 1994 it produced 1.4 million metric tonnes, comprising 24 per cent of world production. 73 percent of the total production comes from smallholders, such as the ones pictured in the opposite photo of a 'mini-crepe' plant.
The rubber industry is a very important source of export production and provides direct revenue for up to 12 million people, including smallholders and companies (private and Government estates).

As the New Order Indonesian Government's industrialisation program has developed since 1966, natural rubber production methods have concurrently incurred great environmental and social costs; in the race to develop and diversify a wider manufacturing base in less labour intensive, sophisticated high technology industries, natural rubber and other agro-economic systems were neglected and subsequently lost competitiveness in regional and global markets.

This resonates with the share of rubber in the Gross Domestic Product (GDP), which has significantly decreased from 0.60 per cent in 1990 to 0.30 percent in 1993; although the value of the rubber product itself has increased 7.57 per cent per year. This may be explained in part by the increasingly skewed share of capital moving offshore and into fewer people's ownership. Another part of the explanation for the trend to lower competitiveness is that quality control within the industry is too low to compete with higher quality Thai rubber exports to the global economy; resulting in lowered access to a wider range of markets. The global economy for rubber is a competitive one, and international standards apply. Currently, no standard for grading unrefined rubber exists at the village level. This is also the level of the smallholders,who are at the top of the upstream end of the market, the collection end The imperative for smallholders is to organise themselves so as to meet international rubber standards. More efficient transport and effective marketing needs to be considered. Further, harmonisation of relationships between key players in the industry is a critical element in achieving this. Namely, the ways of improving equity through power sharing between those in smallholdings and those in companies, need to be more effectively addressed.

2.0 Environmental Issues

Most smallholders live on a subsistence income and their activities are mostly pre-occupied with surviving day to day life, making it difficult (but not impossible) for them to improve the sustainability of rubber farming practices.
Their actions, as well as other downstream activities not of their own making have led to land degradation and reduced resources (soil, forest, air and water).

Labour intensive and land extensive practices, such as the 'slash-and-burn' mode of tropical agro-ecology, have been practiced sustainably in tropical Southeast Asia for many hundreds of years. It is, however, a system which works well only at small population densities on nutrient poor and fragile soils of tropical rainforests.

Intensively practiced by economically marginalised subsistence farmers and unscrupulous plantation owners and managers, it has contributed to air pollution, deforestation and climate change, exacerbating already devastatingly high rates of deforestation seen throughout the region. (see photo, above)

This process is intensified each year during end-of-dry-season burn offs to expand plantation areas. Denuded forests are replaced by Alang-alang (Imperata cylindrica) grassland, which is difficult to turn into productive secondary forest, and is mostly useless for animal fodder. Untreated effluents from rubber processing plants also pollute rivers, often reducing water quality to undrinkable standards.

The impact of large scale slash and burn techniques practiced by both subsistence smallholders and large plantation owners on air pollution and human health was graphically portrayed in 1997's unprecedented forest fire and smoke haze disaster that systemically affected the entire Southeast Asian region.

The direct environmental and economic impacts were all pervasive: a large loss of biodiversity, loss of more than 90 per cent of the natural carbon stock and subsequent contribution to climate change, degradation of soil resources through erosion of treeless gradients, emergence of new pathogenic diseases previously encapsulated within isolated tracts of now burnt forest, drastic increases in respiratory diseases from smoke inhalation; consequent loss of human productivity through illness, and loss of revenues from a disheartened tourism sector was observed in the region during the uncontrollable plantation fires of 1997's dry season. Revision of traditional burning practices to clear land severely need to be re-evaluated.

Abuse of biocides and fertilisers compound the above environmental problems, as does the ever present issue of population pressure on all affected, and to be affected arable land areas within the archipeligo. Population growth and inadequate policy direction on Agro-forestry and other jurisdictions indicate that forest degradation will continue, and that these problems will be compounded by the continuation of the much criticised transmigation programs to outer islands, whose podsolic soil types are less suited to conventional rubber and palm-oil plantation style cultivation than those of the densely populated and far more arable areas of Java and Bali.

3.0 Social and Political Aspects

At present, subsistence level smallholders have little economic incentive to improve their product quality. Their bargaining power is very low. Intermediate traders who determine the smallholders' rubber quality and its relative price, also have a double role to provide basic food commodities for the continuation of the smallholders' often marginal existence. Smallholders often leave contaminants in unrefined crumb rubber so as to be paid more on the weight of their product. Hence a socio-economic power imbalance which affects rubber quality exists here. A key mechanism to the solution for this may be in providing low interest loans to allow smallholders to set up small companies, which could act as trading houses (with inbuilt quality assurance), thereby bypassing the need for intermediate traders. Another option is to provide a more regulated pricing system for rubber quality at the village level, with financial inducements such as tax concessions. Indonesian Government policymakers can take the lead with the appropriate action for this situation.

Scarcity of arable land other than that used for expanding rubber plantations triggers inflation of land prices, removing the possibility of ownership of arable land from all but an elite few. Trends indicate that much of the land area formerly given to food crops for villages has now been converted to cash crops (rubber and palm oil) for local and regional cliques. This hacienda style trend of geo-economic marginalisation is disturbing as an issue of sustainability; making local food production for village communities an emergently critical issue. Local self-sufficiency in food production is a sustainability criteria that is critically imperative to socio-economic cohesion. It is now evident that Indonesia has been experiencing some of its worst food shortages in decades. Many people in rural areas are living on diets only marginally meeting World Health Organisation (WHO) standards for adequate caloric intake, some are in grave danger of famine if 1998's unusually parched dry season is not relieved soon by sufficient rain. In most areas there are no reserve supplies of rice or other dietary staples. Riots occurring in Jakarta and other large Indonesian cities are not only attended by those with urban concerns. Also present are the empty stomachs of those transient sharecroppers and rubber tappers whose uprooted concerns are violently expressed in their demonstrations for change to help end the hunger. Genuine reforms in land and other resource tenure on the part of the Government may help to end much social unrest amongst the wider community of rubber tappers.

4.0 Conclusion

The critical need for a new approach in reducing poverty, while at the same time reducing environmental impacts of the industry, has hopefully been emphasised here. The inter-related issues of economic and environmental problems in Indonesia are nowhere more connected than in the political and social sphere. A bigger picture approach to situation is to link sustainably oriented strategies to both upstream and downstream activities. For example, the process towards sustainability cannot rely simply on how to reduce wastes at the source of the contamination, but also must depend on the need to increase productivity and quality of rubber and to fix market structures to provide needed equity for smallholders. A higher income above the subsistence level will allow smallholders to 'buy' time to consider better environmental options for their management practices. Partial and temporary subsidies from the Government to motivated smallholders and other impoverished stakeholders of the industry may be of benefit to help break the poverty cycle. Establishment of smallholders co-operatives may be also be useful to acquire enough funds for new training and capital required to overhaul the industry. Further, lessons may be learnt about quality control from the Thai market, where higher grade rubber earns appreciably more export dollars per hectare.

There can also be a wide range of potential benefits from new and appropriate technologies, both upstream and downstream. Improved efficiency in terms of arable land use for rubber cultivation, waste management and energy use will be net potential benefits. However, considerable resources need to be invested in training and educating smallholders and plantation employees in the use of practices and technology needed for change towards sustainability. Long term sustainablity of current slash and burn techniques need to be reviewed. More stringent regulations on the use of biocides and fertilizers is also essential. Legal frameworks have been set up to respond this problem in relation to pollution, but the rubber industry does not yet comply with the existing regulations. Moreover, a grass roots embrace of appropriate practices for sustainability in the Indonesian rubber industry will not occur unless self-sufficiency in local food production needs are not concurrently met with substantial re-balances of inequity in land distribution and tenure. A simultaneous 'top-down 'and 'bottom-up' approach is a key to success.

5.0 Study Questions

How are the downstream and upstream components of the Indonesian rubber industry linked? In particular how does the practical day to day activity of the smallholder relate to the quantity and quality of the final product and it's environmental impact?
What possible solution to this activity can be introduced so that environmental damage is reduced simultaneously with improved productivity and economic performance
How can this be achieved by social and political processes that will enable the development and support of traditional smallholders as well as the rest of the natural rubber industry?

Institute for Sustainability and Technology Policy