Becoming the Best and

Largest

Outline

Challenges to Rubber Sustainability A Rubber Processor’s View in Indonesia

How Kirana Megatara

Respond to Challenges Smallholders Partnership Program

Kirana Megatara Group in Brief Role in the Indonesia Processor Industry

Conclusions and Suggestions

An Indonesian Rubber Processor View

CHALLENGES TO RUBBER SUSTAINABILITY

Sustainability Challenges for A Rubber Processor

Plant-ation

Collector/ Trader

Rubber Processor

TSR Merchant

Tire Maker

Continuous and consistent supply of raw materials • Price fluctuation • Climatic or seasonal swings

: low yield seedlings, inefficient tapping

Low and varying quality of raw materials • High contamination • Use of improper coagulants

New sources of rubber production

• Competition from other agribusiness, e.g. palm oil business

Low Productivity and Production Growth

Country

Production (000 tons)

Share

5 Yr Ave. Growth

Planted Areas (000 Ha)

5 Yr Ave. Growth

Productivity (kg/Ha/yr)

1. Thailand 3,625 34.47 % 4.12 % 2,785 1.01 % 1,725

2. Indonesia 3,040 28.91 % 2.96 % 3,466 0.31 % 1,099

3. Malaysia 956 9.09 % -2.11 % 1,075 -3.25 % 1,450

4. India 919 8.74 % 1.18 % 760 3.51 % 1,753

5. Vietnam 860 8.18 % 6.85 % 853 7.87 % 1,720

6. China 775 7.37 % 9.15 % 1,110 4.47 % 1,053

Total ANRPC 10,516 100.00 % 3.36 % 10,599 1.08 %

Association of Natural Rubber Producing Countries (ANRPC) (11 members), 2012

Despite having the largest area of rubber producing trees in the world, the productivity falls below those of Thailand, Malaysia and China.

Annual growth of planted areas is much less than other producing countries

*Source: Natural Rubber Trend Statistics ANRPC May 2012. Vol. 4, and Rubber Board of Indonesia.

Contamination of Natural Rubber

SOIL WATER

SAND

TWIGS, STRINGS,

ETC.

Smallholders firmly believe that overall weight is the key determinant of the transacted price – not the DRC (dry rubber content).

Traders can always find willing processors to accept low graded materials

2007 2008 2009 2010 2011 2012 Ave. growth

1. Damaged trees 59 46 112 82 79 84 19.47 %

2. Unripe trees 579 609 614 590 585 533 -1.53 %

3. Productive trees 2,775 2,768 2,708 2,773 2,792 2,884 0.79 %

Breakdown of Planted Areas (000 ha), 2007 – 2012*

* Indonesia Estate Statistics, Rubber 2010-2012 (Directorate General of Estates, Ministry of Agriculture

Replanting Rubber Trees

Replanting efforts for old and damaged trees are still below expected needs. In areas where palm oil plantations exist, smallholders are turning to palm oil

trees, particularly if they feel that will earn better

Position and Share in the Processor Industry

KIRANA MEGATARA IN BRIEF

KIRANA MEGATARA

Nusira Pantja Surya

Kirana Sapta

Tirta Sari Surya

Djambi Waras

Kirana Windu

Kirana Musi

Persada Kirana Permata

Komering Jaya

Perdana

Karini Utama

New Kalbar

Processor

Kirana Prima

Kirana Putra Karya

Anugerah Bungo Lestari

Kirana Megatara Group

Vision: To be the Most

Preferred Rubber Solution in

the World

Mission: Sustainable Green

Rubber Solution that Prospers

with the Nation

Has 15 rubber processors with more than 4,000 employees, and five plantation subsidiaries with 5,000 employees

Oldest processor was founded in 1968. Newest processor came on line in 2012

Thailand Indonesia

No. of Rubber Processors 47 130

Top 10 Processors 64 % 34 %

Top 20 Processors > 70 % 57 %

Market Concentration

KIRANA MEGATARA

18%

TL, 4%

LR, 11%

NF, 3%

SOE, 1% AS, 3%

IT, 5%

ST, 4%

BS,2%

SR, 1%

MK, 2% PS, 3%

OTHERS 43%

Rubber processor industry is relatively more fragmented than that in Thailand.

The industry is very competitive , yet it still attract new entrants to this day.

Kirana Megatara Group is the market leader commanding 18 percent market share of crumb rubber exports

C. Kalimantan 219,153

W. Kalimantan 293,741

Aceh 112, 604 N. Sumatra

508,925

Sumbar 120,204

Bengkulu 63,973

Ba-Bel 26,132

Lampung 82.894

S. Kalimantan 120,073

E. Kalmtn 32,039

Riau 446,447

Jambi 383,217

S. Sumatra 676,117

Kirana Megatara Processors

Rubber Sources (tons) and Our Processors’ Locations

Kirana Megatara’s Response to Sustainability Challenges

SMALLHOLDERS PARTNERSHIP PROGRAM

Smallholder Partnership Program was launched a few years ago in a concerted fashion across the KM Group • Developed into a corporate wide program out of separate CSR activities

managed independently by member plants

• Inspired by the successful continuous partnership forged between and its groups of smallholders for over 15 years

13

Today the group has partnerships with more than 150 smallholder groups • Each group consists of an average of 20 farmers

has the largest number of working partnership with smallholder groups, contributing more than 7% of its raw material needs

Origin of the Program

KIRANA MEGATARA

Small-holder

Small=holder

s

Small-holder

s Small-holder

Lead small-holder

Technical Assistance

Supply Coagulated Latex

Smallholders Partnership Framework

3 PHASE ENGAGEMENT

Link and Setup

Capability Enhancement

Empowerment

PHASE ACTIVITIES AIMS

Link and Setup

1. Outreach activity – Group Gathering Establishment of KM

Partnership 2. On-site counseling

3. Purchase trials and MOU

Capability Enhancement

4. High-yield seedlings Increased productivity, quality improvement,

and good business practice

5. On-site technical training

6. Technical assistance

7. Aids for fertilizers, tools, etc.

Empowerment 8. Managerial assistance Establishment of local

cooperatives 9. Mutual business development

Phases of Engagement

Lessons Learned and Suggestions

DIRECTIONS FOR RUBBER SUSTAINABILITY

Suggestions

Need a that involves the whole rubber value chain : tire maker, rubber processor, intermediate trader, and rubber producer

Approach should be Must be demanded by tire makers TSR Traders Rubber

processors Traders Rubber producers

is necessary in shaping the

business environment Establishing standards for sustainability Develop suitable supervisory mechanisms and/or incentives for rubber

producers and processors

Thank You