JÄGER Busi­ness Blog

How does the Sup­ply Chain Act affect the rub­ber industry?

07.07.2022   | Ralf Aumann

WHITEPAPER

Rub­ber and plas­tics in mod­ern agri­cul­tur­al technology 

Learn how agri­cul­tur­al engi­neer­ing can meet most of the cur­rent challenges

On June 11, 2021, the Ger­man par­lia­ment passed the Ger­man Sup­ply Chain Due Dili­gence Act (col­lo­qui­al­ly Sup­ply Chain Act — SCA). It reg­u­lates the respon­si­bil­i­ties of com­pa­nies for human rights vio­la­tions and envi­ron­men­tal dam­age along their sup­ply chain. The law will come into force on Jan­u­ary 1, 2023, fol­lowed by a tight­en­ing of require­ments on Jan­u­ary 1, 2024.

Deci­sion-mak­ers in numer­ous indus­tries are cur­rent­ly devel­op­ing strate­gies to meet the require­ments of the SCA as effi­cient­ly as pos­si­ble while min­i­miz­ing the impact on their eco­nom­ic activ­i­ties. This also affects the rub­ber industry.

To which com­pa­nies does the Sup­ply Chain Act apply?

The SCA applies to all com­pa­nies that have their head­quar­ters in Ger­many and employ at least 3,000 peo­ple there. From Jan­u­ary 1, 2024, this thresh­old will drop to 1,000 employ­ees. At first glance, this means that the law only applies to large com­pa­nies, as small and medi­um-sized enter­pris­es usu­al­ly do not reach the min­i­mum num­ber of employ­ees. At this point, how­ev­er, there are two fac­tors to consider.

The Euro­pean ini­tia­tive is to apply to all com­pa­nies that earn the major­i­ty of their rev­enue in the EU and employ at least 500 peo­ple. In indus­tries with a high risk of harm to peo­ple and the envi­ron­ment (e.g. min­ing or tex­tiles), this thresh­old drops to 250 employ­ees. As soon as the law is passed, com­pa­nies that were pre­vi­ous­ly exempt under Ger­man law will fall with­in its scope.

Pro­duc­tion com­pa­nies that source rub­ber and plas­tic com­po­nents exter­nal­ly should there­fore expect to come into direct or indi­rect con­tact with the Sup­ply Chain Sourc­ing Oblig­a­tions Act.

Human rights form the basis of the Sup­ply Chain Act

What are the con­se­quences of the SCA for the rub­ber industry?

Accord­ing to the Sup­ply Chain Act, com­pa­nies must anchor appro­pri­ate pre­ven­tive mea­sures toward their direct sup­pli­ers. These include con­trac­tu­al require­ments for human rights com­pli­ance as well as con­sul­ta­tion, train­ing and mon­i­tor­ing. In con­trast, they only have to respond to rights vio­la­tions by indi­rect sup­pli­ers along their sup­ply chain if there is a con­crete suspicion.

Direct sup­pli­ers of rub­ber pro­cess­ing com­pa­nies are pri­mar­i­ly raw mate­r­i­al traders from whom they pur­chase raw rub­ber and addi­tives such as sul­fur. As a rule, small and medi­um-sized com­pa­nies do not buy direct­ly from pro­duc­ers in South­east Asia, but from raw mate­r­i­al exchanges that aggre­gate intermediaries.

For tech­ni­cal rea­sons, trac­ing the goods back to the rub­ber extrac­tion site involves a great deal of effort. There­fore, this part of the rub­ber sup­ply chain is cur­rent­ly still exempt from the require­ments of the Sup­ply Chain Act. How­ev­er, this will change in the fore­see­able future. As soon as tech­nol­o­gy has caught up and effi­cient trac­ing of raw mate­ri­als is pos­si­ble, rub­ber pro­cess­ing com­pa­nies will have to deal with the work­ing con­di­tions on rub­ber plantations.

Risk fac­tors in rub­ber cul­ti­va­tion are pri­mar­i­ly forced and child labor as well as envi­ron­men­tal dam­age caused by over­ex­ploita­tion, soil ero­sion, slash-and-burn clear­ing of vir­gin forests or care­less use of pes­ti­cides. For the most part, Euro­pean rub­ber pro­duc­ers already out­law such prac­tices. How­ev­er, as the Sup­ply Chain Act pro­vides for cor­po­rate respon­si­bil­i­ty for eth­i­cal­ly ques­tion­able busi­ness prac­tices along the sup­ply chain, it becomes nec­es­sary to struc­tural­ly record and reg­u­lar­ly review these risks.

Notice 

Rub­ber is not the only com­po­nent of an elas­tomer. Depend­ing on the desired prop­er­ties of the prod­uct, fillers, plas­ti­ciz­ers and pro­cess­ing aids are also added, among oth­er things. Rub­ber pro­duc­ers and their cus­tomers must also keep an eye on the extrac­tion and trade of these mate­ri­als as part of their sup­ply chain monitoring. 

What mea­sures is the indus­try tak­ing to trans­form its sup­ply chains?

The SCA pre­scribes a num­ber of mea­sures to pre­vent eth­i­cal­ly ques­tion­able busi­ness prac­tices along the sup­ply chain. These essen­tial­ly include the issuance of a pol­i­cy state­ment, inter­nal risk analy­ses, sys­tem­at­ic risk man­age­ment, the estab­lish­ment of a com­plaints pro­ce­dure, and doc­u­men­ta­tion and report­ing to third-par­ty bodies.

Imple­ment­ing pre­ven­tion and doc­u­men­ta­tion mea­sures on an inter­nal lev­el is read­i­ly achiev­able for most large and medi­um-sized rub­ber pro­duc­ers as well as their cus­tomers. They can also man­age the mon­i­tor­ing of direct sup­pli­ers with man­age­able effort, espe­cial­ly if they are based in the EU and thus oper­ate with­in the same legal framework.

The real chal­lenge is the mon­i­tor­ing of indi­rect sup­pli­ers, i.e. Tier 2 and high­er. The most impor­tant grow­ing areas for rub­ber are in Thai­land, Indone­sia and Viet­nam. In most cas­es, the har­vest is done by hand by small farm­ers who sell their goods to local mid­dle­men. These struc­tures pre­vent Euro­pean com­pa­nies from exert­ing direct influ­ence on rub­ber min­ing. There are no cen­tral actors with whom they can inter­act. Main­tain­ing con­tact with a large num­ber of small farm­ers over such a long dis­tance is sim­ply not practical.

Under such con­di­tions, mon­i­tor­ing the entire sup­ply chain is hard­ly pos­si­ble for small and medi­um-sized rub­ber pro­duc­ers. Instead, it is con­ceiv­able that inter­na­tion­al indus­try asso­ci­a­tions could inspect sup­pli­ers on site and issue cer­tifi­cates that com­pa­nies could refer to. In this way, Euro­pean pro­duc­ers could out­source part of their super­vi­so­ry duties and thus reduce their expens­es. The extent to which this approach sat­is­fies the require­ments of the SCA remains to be seen.

Con­clu­sion

Both the Ger­man Sup­ply Chain Act and the EU draft pose chal­lenges for the logis­tics of rub­ber pro­cess­ing pro­duc­tion com­pa­nies. On the one hand, the oblig­a­tion to pro­vide infor­ma­tion to author­i­ties and cus­tomers increas­es the admin­is­tra­tive bur­den. On the oth­er hand, mon­i­tor­ing indi­rect sup­pli­ers in South­east Asia is cur­rent­ly dif­fi­cult for small and medi­um-sized organizations.

How­ev­er, these prob­lems can be solved. New tech­nolo­gies and coop­er­a­tion with inter­est groups will, over time, ensure that Euro­pean com­pa­nies can inter­act bet­ter with inter­na­tion­al busi­ness part­ners and more eas­i­ly meet their due dili­gence oblig­a­tions. The rub­ber indus­try is there­fore well pre­pared to assume its respon­si­bil­i­ties and com­bat human rights vio­la­tions and envi­ron­men­tal degra­da­tion around the world.

Whitepa­per:
Rub­ber and plas­tics in mod­ern agri­cul­tur­al technology 

Learn how agri­cul­tur­al engi­neer­ing can meet most of the cur­rent challenges

Ralf Aumann /blog/supplier-integration-in-the-rubber-and-plastics-sector-working-together-is-key/

Author: Ralf Aumann

Ralf Aumann heads the Sup­ply Chain Man­age­ment divi­sion at Jäger. As a grad­u­ate in pro­duc­tion engi­neer­ing and mechan­i­cal engi­neer­ing, he joined the com­pa­ny in 2010 after hold­ing sev­er­al posi­tions in the auto­mo­tive industry.

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