Falcata (marketing) chain ? tree grower lost?

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Falcata (marketing) chain ? tree grower lost?
(Case of Wonosobo, Central Java Indonesia)
Ani Adiwinata Nawir Center for International
Forestry Research
Presented at International Smallholder Timber
Workshop ICRAF Nairobi, 29 November 1 December
2004
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Where is Wonosobo, Central Java?
Malaysia
Kalimantan
Sumatra
Maluku
Sulawesi
Papua
West and East Nusa Tenggara
Bali
Java
Australia
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About 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

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Overview 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

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Overview 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

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The importance of farm forestry in Java
Provinces Area (ha) State teak plantation area (ha)
West Java 45,000 552,066
Central Java 180,000 571,182
East Java 70,000 812,890
Total 295,000 1,936,138

• 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)

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Markets depend on particular kinds of products

• International market for end products
• Local market aiming at international market
• Local market

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1. International market for end products

• Focused on high-value added products
• Dominated by large-scale processing companies
• Products table tops, drawers, inner part of
  doors, bare core and block boards (in which small
  pieces are laminated and finger-jointed)
• Main destination until 1998 Japan (preference
  for white wood)
• Since the Asian financial crisis, the destination
  diversified (involving many other Asian
  countries)
• High processing costs high prices of
  end-products
• (the technology was introduced by the Japanese)
  

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2. Local market aiming at international market

• Aiming for high-value added products
• Dominated by medium-scale processing companies
• For specific products vertically traded among
  small scale wood processing (e.g. sawn timber,
  bare core)
• Provided outsourcing supplies for end-products
  processing company (company aimed to reduce the
  risks in the wood processing)

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3. Local market

1. Involving medium to small-scale processing
   companies
2. Falcata lumber is one of the cheapest wood
   materials for local people
3. Used as consumable products (roof structural
   frames, concrete panels, window frames) or
   disposable products (pullets, boxes)

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Key actors in Falcata marketing chain
Tree growers (individually)
Timber collectors (gt21)
Processing comp. (100)
Tree grower groups
Sawn mills (20-30)
Suppliers level 1 (10)
Suppliers level 2 ( 10)
Has a contract with comp.
Processing comp. for high-value added products (3)
International consumers
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Prices (stumpage price) (in USD)
Diameters (cm) Levels Levels Levels
Diameters (cm) 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
gt 25 12.2 14.9 16
Tree growers tend to sell more at the smaller
diameters at the cheaper prices
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Profit and profit margins (based on 3 villages
study)
Profit wood volume Levels Levels Levels Levels
Profit wood volume Tree growers Timber collectors Suppliers 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)
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Partnership arrangement in marketing chain
? stronger 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
  wood
• Log purchasing contract stating a quota and the
  price of purchased logs given by the company

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Obstacles 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 lt 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

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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

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Conclusions

• 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