Executive Summaries
Producing 80% of the world’s natural rubber, Southeast Asia dominates the market, with Thailand and Indonesia generating export values of $19.7B and $5.6B, showcasing the industry’s economic significance globally (ARC: 2023).
Smallholders in Southeast Asia face unique challenges under the EUDR, including limited compliance infrastructure and fragmented trade systems. In Indonesia, only 10,000 hectares of 3.2 million smallholder plantations are registered, while in Vietnam, mixed-origin rubber complicates traceability, risking market access (asia news: 2024).
In contrast, Thailand leads the region in readiness, with 95% of its producers registered on a national traceability platform, indicating that comprehensive digital solutions like centralized platforms can make compliance feasible for smallholders (Lesprom:2023).
Southeast Asia: The Global Powerhouse of Natural Rubber Production
Southeast Asia stands as the backbone of the global rubber industry. The region dominates the global stage, producing a whopping 80% of the world’s natural rubber supply. (ARC: 2022). Thailand, Indonesia, Vietnam, and Malaysia lead the charge, with Thailand exporting an impressive 4 million tons annually (35% of global output) and Indonesia following with 2.5 million tons. These figures aren’t just numbers; they represent a powerhouse industry driving export values of $19.7 billion in Thailand and $5.6 billion in Indonesia, firmly rooting rubber as a critical player in their economies and the global market (ARC: 2022).
However, in today’s context, rubber exports are no longer just about production volumes or economic contribution. Increasing global demand for compliance and transparency has placed mounting pressure on Southeast Asia’s rubber industry, particularly on smallholder producers who struggle to meet complex traceability requirements. This challenge is largely driven by the stringent regulation, i.e. EU Deforestation Regulation (EUDR), which introduces additional layers of complexity by requiring smallholders to adapt to strict traceability guidelines, potentially affecting their standing within the supply chain.
Under Regulation (EU) 2023/1115, Article 3 of the European Parliament emphasizes strict conditions for relevant commodities and products. They must be deforestation-free, comply with the production country’s legislation, and be accompanied by a due diligence statement before being placed on, made available in, or exported to the market. (Official Journal of European Union: 2023). Meeting these requirements necessitates stringent measures such as risk analysis, satellite monitoring, field audits, and supplier capacity building (SEI: 2024). These measures are vital for ensuring sustainable production and trade while providing essential support for smallholders to address compliance challenges effectively.
While this regulation provides clear environmental advantages, it remains uncertain how effectively it can address local needs in Southeast Asia in tackling a global issue. Indonesia's Coordinating Ministry of Economic Affairs has voiced serious concerns about the potential exclusion from the EU market, warning of the profound impact it could have on rural communities and the wider Indonesian economy (Jakarta Globe:2024). Similar concerns about the exclusion of smallholders have also been highlighted in Malaysia, Thailand, and Vietnam.
The main challenges faced by smallholders in Southeast Asia include:
Investment in Tracking and Monitoring System in EUDR Rubber Thailand
According to an article by Lesprom titled "Southeast Asian Rubber Producers Brace for New EU Deforestation Regulation," Jean-Christophe Diepart, a Cambodian geo-agronomist, highlights that stringent monitoring and tracking requirements could disproportionately impact smallholders, favoring larger corporations with greater resources (Lesprom: 2023). This issue affects several Southeast Asian countries, including Malaysia, Vietnam, Cambodia, and Indonesia. However, Thailand has positioned itself as one of the most prepared nations in the region. Regulators in Thailand have implemented a national platform that enables over 5 million producers to meet traceability requirements, with approximately 95% of industry players already registered and providing comprehensive supply chain data (Lesprom: 2023).
Policy and Market Access Challenges in Malaysia
Similar concerns regarding smallholder arise in Malaysia, where the $2 billion rubber export industry—accounting for 17% of rubber products shipped to the EU—faces significant risks under the EUDR. Malaysian rubber producer growers have raised objections, describing the regulation's demands as "unilateral and unrealistic (Lesprom: 2023). This reflects broader challenges related to policy imbalances, where smallholders and producers in developing countries struggle to comply with regulations that heavily favor larger corporations or more developed economies. These barriers could lead to restricted market access for Malaysian products, further marginalizing smallholders who already operate with limited resources.
Traceability and Cross-Border Trade Challenges in EUDR Rubber Cambodia
In Cambodia, where rubber is a key export to Vietnam, discrepancies in trade records underscore significant challenges in traceability and transparency. For instance, Cambodia reported $289 million worth of rubber exports to Vietnam in 2021, while Vietnam recorded imports valued at $1.5 billion. These discrepancies raise concerns about the effectiveness of tracking systems, which are critical under regulations like the EUDR (Lesprom: 2023). Such inconsistencies not only hinder compliance with traceability requirements but also result in potential economic losses for Cambodia’s local processors, who may face exclusion from international markets.
Challenges of Mixed-Origin Rubber in Cross-Border Trade in Vietnam
Vietnam, a major rubber exporter to the EU, encounters significant challenges in complying with EUDR traceability requirements. Rubber imported from Cambodia and Laos is often mixed with locally produced rubber, creating complexities that make ensuring traceability "almost impossible." These cross-border supply chain issues highlight the difficulties of meeting stringent regulations, particularly for countries reliant on regional trade and smallholder contributions. Without robust systems to separate and track the origins of rubber, Vietnam risks facing barriers to accessing regulated markets like the EU (Lesprom: 2023).
Geolocation Challenges in Indonesia
Indonesia faces significant challenges in complying with the EUDR’s geolocation requirements, which align with the Plantation Cultivation Permit (STDB) issued by the Agriculture Ministry’s Plantations Directorate General. According to the Jakarta Post, citing an interview with the executive director of the Indonesian Rubber Association (Gapkindo), only 10,000 hectares out of 3.2 million hectares of smallholder plantation land have obtained the STDB. This significant gap, driven by bureaucratic inefficiencies and limited awareness, jeopardizes 90% of Indonesia’s rubber production, which depends on smallholders. Non-compliance risks a $527 million loss in export value from the 300,000 tonnes of rubber shipped annually to EU markets. While the government is working to accelerate STDB registration, smallholders urgently require technical and financial assistance to meet these stringent requirements (Asia News: 2024).
Lack of Legal Land Ownership
Besides, many smallholders in Southeast Asia work on land without formal titles or legal acknowledgment, making it challenging to verify compliance with EUDR standards. This absence of secure land tenure limits their ability to prove that their rubber is not sourced from deforested areas. Clear land ownership is essential for meeting EUDR requirements, yet land insecurity remains a common issue for smallholders in Southeast Asia. Without legal documentation, they struggle to confirm that their practices do not involve deforestation (Sei:2024).
Power and decision-making processes
Smallholders often have few opportunities to take part in decision-making processes, this lack of involvement means they often have minimal say in the formulation of regulations, such as the EU Deforestation Regulation (EUDR), which can significantly affect their market access. Without proper tools or frameworks to address their challenges, smallholders are left vulnerable to policies that may not fully account for their unique circumstances, such as limited resources and difficulties in meeting stringent compliance requirements. Furthermore, because these smallholders lack representation in higher-level discussions, they struggle to advocate for support structures or policy adjustments that could ease their compliance burden (Sei: 2024). This disconnect not only limits their ability to influence decisions but also perpetuates a power imbalance that places smallholders at a disadvantage within the global supply chain.
How Koltiva Supports Southeast Asia Rubber Businesses in Achieving Regulatory Compliance
To support smallholder rubber producers in meeting the complex requirements of the EU Deforestation Regulation (EUDR), KoltiSkills offers a range of specialized services aimed at building capacity and ensuring compliance. To date, KoltiSkills has coached around 6,000 Rubber producers, providing them with the knowledge and tools needed to navigate regulatory demands. Here’s how KoltiSkills supports smallholders.
Supply Chain Mapping and Verification
KoltiSkills' field agents work closely with producers and suppliers to accurately map smallholders within the supply chain. This involves in-depth data gathering and risk assessments for each smallholder to ensure compliance with EUDR traceability requirements. Using the KoltiTrace application, they help smallholders understand and document their supply chain pathways, identifying risks related to deforestation and compliance gaps.
Training and Coaching
KoltiSkills provides tailored training sessions that raise awareness of sustainable practices and the importance of compliance. Group training covers general sustainability practices, while one-on-one coaching supports smallholder households with customized guidance to implement development plans. These sessions focus on empowering smallholders with the knowledge and skills needed to meet EUDR standards.
Land Legality and Certification
Many smallholders lack formal land documentation, which complicates compliance. Our Field Agent (FA) works with local governments to help producers obtain essential legal documents and certifications. This support includes guidance on certifications such as RA, FairTrade, and FSC, helping smallholders align with EUDR requirements and access international markets with certified, legally documented products.
Product Traceability
For precise traceability, KoltiSkills assists local operators in recording, monitoring, and verifying the journey of their products from seed to table. Through digitalization, KoltiSkills enables smallholders to maintain accurate records, ensuring product segregation and quality control across the supply chain. This tailored traceability solution supports EUDR compliance by helping smallholders track each step of production and avoid deforestation-linked risks.
If you’re part of the supply chain, now is the time to act. Ensure that our smallholder partners remain compliant, resilient, and active contributors to the global market. By connecting with our experts, you’ll discover tailored solutions that support your producers in meeting EUDR standards, protecting their livelihoods, and fostering sustainable growth for the entire supply chain.
Writer: Kumara Anggita, Content Writer
Editor: Boby Hermawan Arifin, Head of Digital Marketing
About Writer:
Kumara Anggita, serving as Koltiva's dedicated Content Writer, brings a wealth of experience from her six-year tenure in journalism in the fields of humanities and lifestyle, as well as her role as a writer in the tech industry. Her deep-rooted passion for gender equality and sustainability spurred her to enhance her reporting and storytelling skills through the EmPower Media Bootcamp by UN Women. Now, Kumara utilizes her platform to advocate for sustainable practices and gender equality through her compelling writing.
Resources
Stockholm Environment Institute. (n.d.). How will the EU Deforestation Regulation impact smallholder farmers? Retrieved from https://www.sei.org/publications/smallholder-farmers-eu-deforestation/
Swift Geospatial. (2024). How will the EU Deforestation Regulation impact smallholder farmers? Retrieved fromhttps://swiftgeospatial.solutions/2024/04/02/how-will-the-eu-deforestation-regulation-impact-smallholder-farmers/
RECOFTC. (n.d.). Implications of the EUDR on rubber, timber, and coffee smallholders: Case studies from Thailand and Indonesia. Retrieved from https://www.recoftc.org/stories/implications-eudr-rubber-timber-and-coffee-smallholders-case-studies-thailand-and-indonesia
Asia News Network. (2024). EU deforestation regulation may put Indonesia's rubber industry in jeopardy. Retrieved from https://asianews.network/eu-deforestation-regulation-may-put-indonesias-rubber-industry-in-jeopardy/
Lesprom. (2023). Southeast Asian rubber producers brace for new EU deforestation regulation. Retrieved from https://www.lesprom.com/en/news/Southeast_Asian_rubber_producers_brace_for_new_EU_deforestation_regulation_110393/
Stockholm Environment Institute. (2023). Smallholder farmers and the EU Deforestation Regulation: Context, challenges and pathways for support. Retrieved from https://www.sei.org/publications/smallholder-farmers-eu-deforestation/
European Union. (2023). Regulation (EU) 2023/1115 of the European Parliament and of the Council of 31 May 2023 on deforestation-free products. Retrieved from https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32023R1115
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