Societe des Matieres Premieres Tropicales Pte Ltd (SMPT)
is the global natural rubber hub for the Michelin Group. SMPT serves as a procurement hub for the Group: managing the Group’s natural rubber supply chains, providing in-house technical expertise, and conducting due diligence in the supply chain by implementing the Michelin Sustainable Natural Rubber Policy.
Natural rubber is an essential raw material for tyres, making it no surprise that the tyre industry consumes about 75% of the global natural rubber supply. Most of this supply comes from Southeast Asia, with Thailand, Indonesia, and Malaysia accounting for about 70% of global natural rubber production. The natural rubber industry also relies heavily on smallholder farms, with up to 85% of natural rubber originating from farms generally less than four hectares in size.
Rubber smallholders often face many challenges such as implementing good agricultural practices, livelihood and crop diversification, improving health and safety measures, and environmentally friendly farming practices. In addition, the ageing population of the industry combined with a bout of low rubber prices in recent years has impacted the income of these smallholders.
With 85% of the world’s production of natural rubber originating from smallholder farmers, the Group firmly believes that empowering smallholders to be resilient and responsible is a key part of the solution for a sustainable natural rubber value chain. In response, the Group has deployed holistic capacity-building programmes, supported by a digital training and impact measurement tool, that empowers farmers to adopt good practices. These projects aim to address income generation, workers’ rights, health and safety, and environmental practices. They also aim to create opportunities for livelihood diversification through intercropping and agroforestry models.
As intercropping and agroforestry practices are being established through the smallholder training programmes, SMPT has been looking to create new opportunities and maximise value from these climate-smart interventions. One potential opportunity is to tap into the carbon economy to fully value these interventions, which increase carbon sequestration in the land.
However, despite the great potential in the growing carbon economy, smallholders and smallholder development projects often face barriers in finding efficient mechanisms for carbon accounting and certification. Small farm sizes (between 1 and 3 hectares) and high barriers of entry to alternative income sources make it challenging for such projects to seize carbon economy opportunities like carbon credits as the costs of audits and certification often outweigh any value generation.
How can we enable smallholders to participate in the carbon economy, and therefore create new value for climate-smart development projects that benefit these farmers?
The voluntary carbon market is a mechanism where individuals and organisations voluntarily take actions to reduce or remove carbon emissions. Projects often include aspects like avoidance and/or reduction of deforestation or carbon sequestration through reforestation and improving soil health.
For credits to be issued, projects must:
- Be clearly defined;
- Adopt a methodology for determining emissions avoided or sequestered; and
- Follow a protocol to measure, manage, verify, and validate the claims.
Given these requirements, projects are typically conducted on larger plots/ farms for economies of scale. Part of the challenge for smallholder farms is that individual farmers’ plots in the project are typically scattered throughout the landscape. This makes on the ground accounting and verification highly resource-intensive.
It is important to note that for this project, the goal of any efforts are not primarily directed at carbon offsets, but instead to create more value for smallholders who adopt climate-smart practices.
SMPT is looking for a comprehensive end-to-end solution that supports the whole process of creating value from climate-smart practices (for example, certification of carbon credits) and bringing them to market. This includes:
- Identifying eligible farms for carbon projects;
- Selecting appropriate methodologies;
- Measuring emissions;
- Conducting audits;
- Certifying carbon credits; and
- Facilitating market entry.
Natural rubber supply chains are usually highly fragmented and dynamic, and it is common for natural rubber processing factories to source raw material through intermediary dealers three or more layers deep. The solution should simplify and overcome the challenges of data collection and monitoring which is in accordance with internationally recognised standards, for example, the Verified Carbon Standard (VCS) Program by Verra.
This all-in-one digital solution, which should be accessible through a dedicated app or a digital module, should:
- Enable cost-efficiency:
By simplifying the data collection and monitoring process, it should make the process of data collection and accreditation of carbon credits more cost-efficient, even if the project comprises multiple smallholder plots scattered around a landscape. This should result in tangible value generation which can be returned as additional capital to the capacity building programmes for new and existing activities.
- Be user-friendly for smallholders:
The app or digital module should be intuitive and simple enough for smallholders to use without requiring too much additional guidance. Having an “offline mode” version for data input should be considered as well.
- Be customised for smallholder farms:
The solution should focus on smallholder farmers, with farm sizes ranging from 1 to 3 hectares.
- Utilise existing data:
The solution should leverage existing online data sources to streamline verification processes. For example, existing databases on Global Forest Watch can be used to check for deforestation..
The first pilot should be launched by the end of 2024, targeting rubber growing regions in Southeast Asia (for example, Indonesia). This phase of the pilot should focus on identifying an eligible group of 500 to 1,000 farmers from a single district or village to trial the data collection and certification process. A comprehensive test of the solution that demonstrates all required data can be collected for the carbon credit verification process should be conducted by early 2025.
Resources and incentives
SMPT is providing funding of up to
for a trial.
Enterprise Singapore is augmenting this support with a
POC development grant. This POC development grant will be made available to solution providers, both local and foreign, provided that they engage in innovation development activities in Singapore.
Check out the recording from our Info Session, where SMPT shared more about their challenge statement.
Market Potential / Business Opportunity
There is a substantial market potential and big target user pool for this solution. With 85% of rubber production comes from smallholder farms, this translates to an estimated market of 6 million smallholder rubber farmers worldwide.
Besides supporting the Group’s goal to improve the livelihoods of 30,000 smallholders by 2030, if successful, this solution can be extended to other stakeholders in the rubber and tyre industries, potentially even to other commodities.
The cost of the product, including add-on implementation costs, should not exceed value that could be derived from current market carbon prices. It should also allow reasonable value return to the capacity building projects and the smallholder participants.
The solution provider should have technical expertise in the carbon economy domain, including familiarity with carbon crediting processes, and the capability to create a user-friendly app for smallholders.
Many smallholders are familiar with using simple digital tools as there is relatively high smartphone penetration in the rubber growing regions. For example:
- RubberWay, a digital risk mapping tool developed and used by multiple industry players to identify social and environmental risks at a jurisdictional level throughout the whole natural rubber supply chain; and
- Digital platforms used by SMPT to host e-learning content which supplements and supports their in-person training for smallholders.
These tools provide an existing source of data and importantly demonstrate smallholders’ capacity to utilise tools to collect data.
The revenue derived from participating in the carbon economy will be utilised to support the capacity building and income diversification programmes for rubber smallholder farmers.