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

Where is Wonosobo, Central Java? Malaysia Kalimantan Sumatra Maluku Sulawesi Papua Bali West and East Nusa Tenggara Java Australia

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

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

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

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)

Markets: depend on particular kinds of products International market for end products Local market aiming at international market Local market

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)

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)

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

Key actors in Falcata marketing chain Tree growers (individually) Timber collectors (>21) 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

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 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 & wood volume Levels 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) 686 (1.8%) 2,052 (5.4%) 4,955 (13%) 30,284 (79.7%)

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

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 < 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: 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

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