In recent years, the prices for natural rubber have fallen sharply amid slowing demand. These depressed prices mean that smallholder farmers are struggling to pay rubber tappers anything close to a living wage. Hamish Galpin, Head of Small & Mid Cap Equities at Hermes Investment Management, looks at Hermes’ SDG-driven engagement with Swedish manufacturer Trelleborg, to encourage the company to develop a sustainable natural-rubber sourcing policy to reduce deforestation and improve the incomes and working conditions of farmers at the bottom of the value chain.
The natural-rubber industry has undergone rapid and fundamental changes in the last decade. In 2011, natural-rubber prices hit record highs as demand from China surged. This led to an unprecedented rush into the market by farmers, with many clearing forests with high conservation value to make way for rubber plantations.
Today, almost 85% of natural rubber is produced by approximately 6 million smallholder farmers and prices are depressed amid a supply glut. Smallholder farmers and companies are struggling to pay tappers a minimum wage, let alone a living wage. In addition, studies have revealed adverse working conditions and practices at rubber plantations, including inadequate safety standards, discrimination, long working hours and, in some cases, the use of child labour.