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 SourcesAreas (ha)ProductionForestry households Perhutani2.5 million (1.6 m in production forest & 0.6 million in protection forests) 465,000 cum/year (illegal harvest: 900,000 cum/year  to USD 180 million) 21 m poor people live in the surrounding Perhutani areas Farm forestry (i.e. agroforestry system) 1.2 million (in Java: 443,908 ha, and in outer islands: 790,162 ha) 23.8 million cum (total) (in Java: 14.8 million cum and in outer island: 8.95 million cum 1.5 million HH (Java > outer islands)

Teak plantation management involving Perhutani & community Type of managementStakeholders involvedForest areas PerhutaniCompany staffProtection forest Collaborative Forest Management (PHBM – Pengelolaan Hutan Bersama Masyarakat Perhutani and community organisation ( KTH- Koperasi Tani Hutan – forest farmer group) Production forest (Perhutani concession areas) Community Forestry (HKM) KTH-Koperasi Tani Hutan – Forest farmer group Production forest (rights granted by the MoF in certain places) Farm forestryCommunity (individually and or KTH-Koperasi Tani Hutan ) On community private lands

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)

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 Project aims: to improve livelihoods of smallholders growing teak

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)