Features

Rubber out growing: Michelin’s success story

13 Aug 2014 - {{hitsCtrl.values.hits}}

In an era of market liberalization, globalisation and expanding agribusiness, there is a danger that small-scale farmers face in participating in the market economy. Such farmers could therefore, become marginalized as large-scale farming becomes increasingly necessary for a profitable operation. As a consequence, there will be a continuation of the drift of populations to urban areas.

Attempts by government and developmental agencies to arrest this drift through the stimulation of out-grower system production, emphasized more on the awareness and introduction than on the actual management and operation of out-grower systems.

Background information on the existing developmental and production hiccups for the rural farmers is often overlooked. This includes information on the availability of reliable and cost-efficient inputs such as extension advice, mechanization services, seeds and credit and guaranteed and profitable markets. Well-organised out-grower systems do take such hiccups into consideration and could offer an opportunity for smaller producers to farm in a commercial manner. Similarly, it also provides a reliable source of supply to the investors, from the perspective of both quantity and quality.

Sri Lankan story

Although the Government of Sri Lanka and the rubber industry of Sri Lanka are very keen to extend rubber growing to non-traditional rubber growing areas in the Uva, Northern and Eastern provinces, where land and labour are assumed to be non-limiting factors, there are several constraints to successful implementation of such plans.

The non-traditional rubber growing areas have been focused in many development projects with the aim of uplifting the rural poor but with very little success. The Uva Province is still the poorest with poverty Head Count Index1 (HCI) of 27 percent, while the Moneragala and Badulla districts have HCIs of 33.2 percent and 23.7 percent, respectively and being ranked as second and fourth districts based on this index. Many development programmes have failed due to insufficient attention on the needs and thoughts of the community, in the planning process.

Michelin’s success story

Out-grower schemes have proven to be successful in other countries. Good example in rubber is Rubber Out-grower scheme in Brazil by Michelin.

At the end of 2005, Michelin was confronted with a combination of crucial issues surrounding its hevea tree plantation in the state of Bahia, on the northeast coast of Brazil: poor productivity due to structural factors, the decreasing price of natural rubber, playing a key local role as an employer in a low economically developed region and holding unique ecological wealth in the presence of endangered primary Atlantic forest.

The Sri Lankan rubber industry should develop its own home-grown models that would be suitable to the local conditions, depending on the socio-economic status of the areas and also based on the demand-driven approach, if such schemes are to succeed

In grappling with how it could cope with these issues in a positive manner, Michelin decided to stay and implement a new business model and organisational structure. By creating a programme that generates strategic social, environmental and economic results for the local community, Michelin guarantees a source of rubber supplies for its operations, enhances its reputation with consumers and environmental stakeholders and experience keeps the competition at bay.

Natural rubber is a renewable raw material produced by the hevea tree. Its unique characteristics include malleability, elasticity, waterproofing, mechanical and thermal resistance, insulation from electricity and grip on all types of surfaces. Natural rubber accounts for 10 to 20 percent of the weight of a passenger car tyre and 30 to 40 percent of a truck tyre. World production of natural rubber reached nearly 12.0 million tonnes in 2013, with Asia/Oceania producing the bulk at nearly 11.1 million tonnes.
The current rubber demand in Brazil amounts to 290,000 tonnes per year but only 110,000 tonnes are produced in the country.

Michelin’s Bahia rubber plantation is located in a coastal area of southern Bahia State, roughly 200 kilometres from Salvador de Bahia in the northeast part of the country. Encompassing some 9,800 hectares, including 5,500 hectares of cultivated areas and 3,000 hectares of forest (1,500 Atlantic Forest), it produces some 3,000 tonnes of natural rubber annually. The rubber factory, which also processes the rubber of local farmers, produces 10 percent of total Brazilian output. It is ISO 14001 certified and employs some 600 people.

At the end of 2001, several factors pushed Michelin to take dramatic steps. In light of the sharp decline in rubber prices and the yield of the site’s 2.5 million trees as they reached the end of their productive lives, the need to invest in replanting to ensure production levels, the low productivity in the area due to its topography and the mountainous nature of the terrain and the dissemination of the Microcyclus Ulei leaf disease and as the main employer in the region, Michelin was forced to decide if it should stay and suffer the consequences or leave and suffer the consequences.

What Michelin did

Michelin took the bold decision of staying in the area but under different circumstances. To protect the health of the rubber tree crop in Brazil, Michelin is investing in a sustainable agriculture programme, which will generate strategic social, environmental and economic results.

The basic idea was to divide the original plantation in 12 medium-sized plantations of 400 hectares each and sell them to Brazilian Michelin managers, enabling them to replant with the new varieties of rubber tree resistant to Microcyclus and to develop other types of culture between the lines of hevea, such as cocoa and banana.
At the same time, it created the supporting infrastructure, governance and systems required for the rehabilitation of the local community and the management and sale of these farms’ cocoa production.

In effect, Michelin decided to maintain 1,800 hectares of land as well as the basic infrastructure (processing units, roads, logistics, etc.), the research laboratory looking into combating the Microcyclus Ulei leaf disease and to buy the rubber from the 12 new plantations.

The company also created ‘ecological corridors’ that link the three patches of Atlantic forest in order to create continuity from the ocean coast to the inland areas covering some 3,000 hectares. Michelin is working closely with the local government and biodiversity groups to develop these corridors. The rubber tree plantations that flourish in this area will be temporarily exploited, while efforts of replanting forest in the corridor will be continuous.

In addition to these actions, the company has developed family-owned rubber plantations by providing small neighbouring farms (1,000 families) with resistant varieties of hevea produced by the breeding research programme led by Michelin and Centre International pour la Recherche Agronomique et le Développement (CIRAD).

Michelin also decided to donate 18 hectares of land for the construction of a new village, named NovaIgrapiuna, mainly for the tappers and their families.

The construction was financed by a federal loan organisation and is managed as a partnership by Michelin and the municipal government. The village is equipped with modern water processing units and includes green open spaces, medical facilities and schools. In the plantation, more than 200 kilometres of paths and road infrastructure were renovated or constructed.

These investments and projects were made possible by the many partnerships forged by Michelin with local officials, non-governmental organisations, regional associations, unions, banks and public authorities, such as the State of Bahia and Banco Nordeste do Brasil for the loans granted to the new owners to buy the land and invest in replanting.

After a survey of the territory and its species, a reforestation programme was also initiated. The project has also reintroduced animals and encouraged eco-tourism in the area surrounding the waterfall to better protect the environment.

Results

The 12 medium-sized plantations are in operation, there are 500 hectares of cocoa plantation, the original 600 employees are still working and 150 new jobs have been created. Moreover, natural rubber production has increased by 11 percent.

The plantation had a total turnover of US $ 3.1 million in 2006, beating the forecasted US $ 2.5 million. It aims to increase that to US $ 10 million in 2023, with US $ 8 million of that coming from rubber and the rest from cocoa. The project aims to bring in about US $ 40,000 a year for a medium-sized landowner.

Michelin is continuing its research into Microcyclus ulei with CIRAD, which is now part of a research programme led by the International Rubber Research and Development Board (IRRDB). Several Asian institutes are to receive 14 resistant varieties of rubber tree selected for testing on experimental plots of land in 2008. The station, which is still on site, continues to develop family-run rubber cultivation by supplying neighbouring small-scale farmers with resistant young rubber trees. After having donated 20,000 plants in 2005, 200,000 plants per year have been supplied at cost since 2006.

By empowering the people who depend on it for their livelihoods, the plantation is now in better condition than when Michelin was in charge. And with prices climbing along with other commodities, the local community sees that it makes sense to be a producer, giving a guaranteed source of supply.

Michelin expects to buy the rubber from the mid-sized plantations but the project is under no obligation to sell its output back to the company.

As well as helping to secure its future rubber requirements, the project serves to enhance its reputation with consumers and environmental stakeholders.

Although this case should be replicated, every situation is different. The liability risk for a company leaving a facility/plant where natural resources have been depleted could stimulate others, particularly in the extraction industries, to replicate Michelin’s experience.

Conclusion

The Sri Lankan rubber industry should develop its own home-grown models that would be suitable to the local conditions, depending on the socio-economic status of the areas and also based on the demand-driven approach, if such schemes are to succeed.

(N. Yogaratnam can be contacted at [email protected])

Features

Rubber out growing: Michelin’s success story

Sri Lankan story

Michelin’s success story

The Sri Lankan rubber industry should develop its own home-grown models that would be suitable to the local conditions, depending on the socio-economic status of the areas and also based on the demand-driven approach, if such schemes are to succeed

What Michelin did

Results

Conclusion

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