Falcata (marketing) chain Falcata (marketing) chain tree grower tree grower lost? lost?

Ani Adiwinata NawirCenter for International Forestry Research

Presented at International Smallholder Timber WorkshopICRAF Nairobi, 29 November – 1 December 2004

(Case of Wonosobo, Central Java – Indonesia)(Case of Wonosobo, Central Java – Indonesia)

Where is Wonosobo, Central Java?Where is Wonosobo, Central Java?

Sumatra Kalimantan

Sulawesi

Maluku

Papua

Java Bali West and East Nusa Tenggara

Malaysia

Australia

About the study and methodologyAbout the study and methodology Part of the study on outgrower schemes in Indonesia &

Philippines To understand better the local initiatives of farm forestry in

comparison to outgrower schemes, and tree growers’ profit margin

Focused on selected three villages based on number of trees per ha, distance to the market (& seedling vendors), processing factory, and size of tree grower lands

Time of study: 2000 - 2001 In each village: interviewing 20-30 tree growers, timber

collectors, suppliers, company staff

Overview of Falcata farm forestry in WonosoboOverview of Falcata farm forestry in Wonosobo

Initially the planting initiative was started under government reforestation projects in 1970s

Typical intercropping tree species (with acacia, mahogany, teak, cassava, coffee and medicinal plants)

Widely planted on private lands (outside state forest) Size of tree grower lands, ranging from 0.6 to 4 ha Seedlings are available at the local market Management: individually managed, farmer groups, and

under partnerships However, there is no forest management plan and a lack of

serious attention from forestry agencies

Overview of Falcata farm forestry in WonosoboOverview of Falcata farm forestry in Wonosobo

Initially the planting initiative was started under government reforestation projects

Typical intercropping tree species (with acacia, mahogany, teak, cassava, coffee and medicinal plants)

Widely planted on private lands (outside state forest) Size of tree grower lands, ranging from 0.6 to 4 ha Seedlings are available at the local market Management: individually managed, farmer groups,

and under partnerships However, there is no forest management plan and a

lack of serious attention from forestry agencies

The importance of farm forestry in JavaThe importance of farm forestry in Java

Central Java is considered the main Falcata production area, also as a source of wood for West and East-Java

Falcata plantation in Wonosobo covers around 20,000 ha with the potential of producing 204,000 cum per year (2001)

Provinces Area (ha) State teak plantation area (ha)

West Java 45,000 552,066Central Java 180,000 571,182East Java 70,000 812,890Total 295,000 1,936,138

Markets: depend on particular kinds of Markets: depend on particular kinds of productsproducts

1. International market for end products

2. Local market aiming at international market

3. Local market

1. International market for end products1. International market for end products

a. Focused on high-value added productsb. Dominated by large-scale processing companiesc. Products: table tops, drawers, inner part of doors, bare core

and block boards (in which small pieces are laminated and finger-jointed)

d. Main destination until 1998: Japan (preference for white wood)

e. Since the Asian financial crisis, the destination diversified (involving many other Asian countries)

f. High processing costs – high prices of end-products(the technology was introduced by the Japanese)

2. Local market aiming at international market2. Local market aiming at international market

a. Aiming for high-value added productsb. Dominated by medium-scale processing

companiesc. For specific products: vertically traded among

small scale wood processing (e.g. sawn timber, bare core)

d. Provided outsourcing supplies for end-products processing company (company aimed to reduce the risks in the wood processing)

3. Local market 3. Local market

a. Involving medium to small-scale processing companies

b. Falcata lumber is one of the cheapest wood materials for local people

c. Used as consumable products (roof structural frames, concrete panels, window frames) or disposable products (pullets, boxes)

Key actors in Falcata marketing chainKey actors in Falcata marketing chain

Tree growers (individually)

Timber collectors

(>21)

Suppliers level 1 (10)

Sawn mills (20-30)

Processing comp. for high-value added products (3)

International consumers

Suppliers level 2 ( 10)

Tree grower groups

Has a contract with comp.

Processing comp. (100)

Prices (stumpage price) (in USD)Prices (stumpage price) (in USD)Diameters

(cm)Levels

Tree growers Collectors/ suppliers

Processing company

10 – 14 4.3 7.3 8.7

15 – 19 5.9 9.7 11

20 – 24 8.7 13.3 13.8

> 25 12.2 14.9 16

Tree growers tend to sell more at the smaller diameters at the cheaper prices

Profit and profit margins (based on 3 villages study)Profit and profit margins (based on 3 villages study)

Profit & wood volume

LevelsTree

growers Timber

collectorsSuppliers Processing

company Profits (USD/cum)(% profit margins)

1.91 (34%)

0.49(9%)

0.91 (16%)

2.24(40%)

Vol. being traded (cum/year)

358 4,200 5,467 13,500

Total profits (USD)(% profit margins)

686(1.8%)

2,052(5.4%)

4,955(13%)

30,284(79.7%)

Partnership arrangement in marketing chain Partnership arrangement in marketing chain stronger economic power of the brookersstronger economic power of the brookers

Timber collector and suppliers:Borrowing money scheme for timber collector to buy wood from tree growers

Suppliers and processing company:Based on trusts, loans provided by the company to the supplier as the initial capital to buy woodLog purchasing contract stating a quota and the price of purchased logs given by the company

Obstacles in Falcata marketing chainObstacles in Falcata marketing chain

Low quality of the wood due to limited technical knowledge of tree growers, while forestry extension has not been very effective

Rate of growth < rate of harvesting – increasing scarcity, the biggest company started to look for alternative supply

Low price received by tree growers Limited interests from processing company to

deal directly with tree growers, e.g. establishing plantation under partnership

Improving tree grower shares in the marketing chain:Improving tree grower shares in the marketing chain:

Cut the marketing chain, by encouraging processing companies to deal directly with tree growers and to develop plantation under partnership

Empowering the economic capacity of tree growers, through improving the market inteligence:

– Tree grower skills in timber valuation– Financial management of small-scale plantation

Improving the bargaining power through farmer groups

ConclusionsConclusions Falcata small-scale plantations have increasingly to become

important in supplying the woods for local industries and domestic uses

The future prospects will depend on:– Increasing support from the forestry agencies, mainly in

providing technical information (e.g. silviculture, pests and diseases)

– Market development strategy: creation of market information network, conducting market research to improve the efficiency of various marketing chains

– Influencing private sectors to engage more with the smallholders: convincing they will also get the benefits