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Improving economic outcomes

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					Ani Adiwinata Nawir, CIFOR
 Jakarta, 22 February 2007
              FST/2005/177
       Improving economic outcomes
for smallholders growing teak in Indonesia
     (Proposed by CIFOR and ICRAF)
Background issues
 Teak production & its furniture manufacture is a major
  industry in Java

 Logs & sawn timber sales: more than 680,000 m3 valued
  AUD 115 million (2001)

 In Jepara (Central Java): more than 15,000 factories
  depend on teak to survive

 Production from the parastatal plantations is in decline

 Approximately 1.5 million households in Java growing
  teak (mostly on degraded land)
Major sources of teak wood supplies
  Sources          Areas (ha)        Production         Forestry
                                                       households
Perhutani      2.5 million         465,000 cum/year 21 m poor
                                                     people live in
               (1.6 m in           (illegal harvest: the surrounding
               production forest 900,000 cum/year Perhutani areas
               & 0.6 million in     to USD 180
               protection forests) million)
Farm forestry 1.2 million        23.8 million cum    1.5 million HH
                                 (total)
(i.e.          (in Java: 443,908                    (Java > outer
agroforestry   ha, and in outer (in Java: 14.8      islands)
system)        islands: 790,162 million cum and in
               ha)               outer island: 8.95
                                 million cum
Teak plantation management involving Perhutani & community
    Type of management      Stakeholders involved        Forest areas

   Perhutani              Company staff              Protection forest

   Collaborative Forest   Perhutani and community    Production forest
   Management (PHBM       organisation (KTH-         (Perhutani
   – Pengelolaan Hutan    Koperasi Tani Hutan –      concession areas)
   Bersama Masyarakat     forest farmer group)

   Community Forestry     KTH-Koperasi Tani Hutan    Production forest
   (HKM)                  – Forest farmer group      (rights granted by the
                                                     MoF in certain
                                                     places)
   Farm forestry          Community (individually    On community private
                          and or KTH-Koperasi Tani   lands
                          Hutan)
Small home industries have preferred to buy logs
sourced from community, because:

 The difficulty in bargaining with Perhutani

 The wood price is set based on negotiation and no
  standardised price applied

 Administration procedure is less complicated and shorter
  distance to the source of the trees and to their market place

 Larger sales processing companies are not interested in the
  smaller market segment
Impediments to profitable smallholder teak plantations:
1.   Poor silvicultural
   techniques
 low quality timber
 lack of capital to invest in teak planting
 limited ability to wait the duration of a teak rotation before
2. Limited market knowledge, access to markets & market inf.
 smallholders are price takers
 prices are often well below market rates
 inability to overcome transaction costs faced by timber
  buyers
3. Restrictive timber regulation policies to smallholders
Regulations designed for large-scale production are applied
(e.g. cutting and transportation permits, registration procedures)
Project aims:
to improve livelihoods of smallholders growing teak

Objectives of the project:

 1. Introduce and adapt silvicultural technologies
    that improve returns for smallholder teak
    producers
 2. Identify and design financing schemes
    providing incentives for smallholder
    participation in profitable teak production
 3. Enhance market access by smallholder teak
    producers
Expected outcomes & outputs include:
1. Improved silvicultural technologies:
   Evaluations of current practices & intervention on
   silvicultural treatments; manuals/guidelines for improved
   practices

2. Financing schemes identified & designed;discussed and
   evaluated with key stakeholders

3. Improved market access & greater market awareness :
   Production to consumption chain evaluated (RMA);
   improved market linkages; best practice marketing
   guidelines developed; policy disincentives reviewed;
   policy briefs produced; and associated dialogues related to
   the regulatory framework implemented
Potential impacts: ex-ante impact assessment

Through better silvicultural treatments combined with
   innovative financing schemes and improved marketing:

    the project can potentially generate
   AUD $112 million of benefits over 30 years
Other relevant activities:
 1. EU Project (September 2003-August 2007):
    Levelling the playing field: fair partnership for local development
    to improve the forest sustainability in Southeast Asia
2. WWF & LEI Certification Program ( as part of Global
   Forest Trade Network in linking community-based plantation to
   international consumer buyer group)

3. National Movement for Forest and Land Rehabilitation
   (GN RHL/GERHAN - Gerakan Nasional Rehabilitasi Hutan dan
   Lahan)
4. Hutan Tanaman Rakyat (Community-based Plantation):
    Ministerial decree is being finalised (MoF is planning to launch
    the decree within this week)

				
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