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Getting a good price on good wood

Study finds success with certified timber to be a matter of management
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Freshly cut timber outside a furniture shop in Gunungkidul, Indonesia. CIFOR Photo/Aulia Erlangga

Indonesia - The advantages of timber certification are not out of reach for small-scale growers — but success depends to a large extent on how entrepreneurial, connected and informed they are as managers, a new study suggests.

Looking at three case studies in the district of Gunungkidul in Java, Indonesia, the study finds that smallholders can achieve the promised access to global markets and higher prices on exports through certification, so long as the right management practices are in place.

“Managers are important because they need to have the capacity to understand markets and actively seek links to high-value markets for their certified timber. A good manager understands, for instance, what kind of timber is specified by industries, and when that kind of timber is needed,” says lead author Ahmad Maryudi from Gadjah Mada University (UGM).

Co-author Ani Adiwinata Nawir from the Center for International Forestry Research (CIFOR) adds that good management can make a significant difference for livelihoods and sustainability.

“Management is key, no matter what size the business, particularly in balancing the socioeconomics and commercial objectives under sustainable practices,” she says.

Their three case studies also draw contrasts between different certification schemes: those from the Forest Stewardship Council (FSC), the Indonesian Ecolabel Institute (Lembaga Ekolabel Indonesia, LEI) and the national timber legality verification (Sistem Verifikasi Legalitas Kayu, SVLK), which has recently been made compatible with the European Union’s Forest Law Enforcement, Governance and Trade (FLEGT) license, providing access to EU markets.

Developing a better understanding of the barriers to benefiting from timber certification can be a first step toward ensuring more smallholders adopt certification schemes, the researchers find, opening up opportunities for improved livelihoods, and for legal and sustainable timber supply chains.

A TALL ORDER

Most timber certification schemes were designed with industrial-scale plantations in mind. At this scale, they have been widely adopted — in 2015, as much as 450 million hectares of forest worldwide was covered by the two major certification schemes, the FSC and the Programme for the Endorsement of Forest Certification (PEFC).

Small-scale operators were initially skeptical of initiatives like these, seeing their own diverse interests as incompatible with the uniform standards of certification. But as demand continues to grow for guarantees on legal timber, smallholders are increasingly looking to certify as a way to enter new markets.

Pressure from consumers, governments and civil society have further pushed smallholders toward certification, with bodies like the FSC offering tailored schemes for small or low-intensity managed forests. Small-scale forestry now accounts for more than 22 percent of all forest management certificates from the FSC.

But even with the accommodations made for smallholders, obtaining certification still poses significant financial and bureaucratic challenges.

The research finds that smallholders bear direct and indirect costs for certification and audits, including several costs that are rarely documented.

In the case studies conducted in collaboration by UGM and CIFOR as part of the Kanoppi Project, indirect costs to smallholders were discovered in activities such as registering farmers’ cooperatives, drawing up management contracts, mapping forests, conducting environmental assessments and building capacity among workers.

With hidden costs like these, certification can become an expensive and time-consuming process for many small operators. And when the benefits are not found to outweigh the costs, smallholders are left asking whether certification is worth the trouble.

“Many smallholders are not receiving a premium price for their certified timber internationally,” Ani says. “Consumers in export markets are not paying premium price, and the benefits are not trickling down to growers.”

The study picked cases with different skills and networks to see if management made a difference to getting a better price on certified timber.

MANAGEMENT MATTERS

Case studies were chosen in Gunungkidul, a district regarded as something of a success story for community forestry, as the researchers were positive they would find lessons there for small-scale growers.

The three case studies each represented different management styles. Two were cooperatives – one run by a farmer with a high-school education, the other run by a non-farming university graduate. The third was a trading company run in partnership with smallholders by a former director of a state-owned forestry enterprise.

The first cooperative achieved LEI certification with the assistance of a civil society organization, and was later found to be eligible for SVLK, the national timber legality verification.

Run by a farmer who admitted to having low entrepreneurial skills and still had daily farming duties to attend to, the cooperative briefly lost its certified status during a dip in donor funding. Assuming that buyers would be drawn to good practice, but making no effort to seek out such buyers, the cooperative has made very few sales of certified timber, earning less than it would in a business-as-usual scenario.

The second cooperative also achieved certification with help from civil society, becoming eligible for both FSC and SVLK. However, unlike the farmer-run co-op, it appointed a full-time and highly qualified manager to establish networks and seek out buyers. The manager uses the FSC website to contact certified processing industries, and collaborates with a credit institution to provide micro-credit to members. It has made better sales of certified timber as a result.

The third case study, operated by well-connected professionals, performed best of all due to its networks and strategies. The cost of FSC certification was borne by the trading company, rather than the growers, with a premium price guaranteed for certified timber. Certification was achieved in collaboration with The Forest Trust (TFT), which is closely linked to FSC and buyers of FSC-certified timber, ensuring better access to markets.

“Smallholder farmers need to complement their farming culture with entrepreneurship skills. At the very least, they need to be better informed about markets. The Forest Service can play an important role, for instance by providing regular updates on industries seeking certified timber, and the timber specifications, quantities and scheduling,” lead author Maryudi says.

SMALLHOLDER SUCCESS

The research had two major conclusions: First, that several challenges remain for smallholders to achieve certification, enter certified timber markets, and receive a premium price for their products. Second, that certification alone is not enough — management skills, networks and contacts are essential elements of success.

Ani says that although the picture for smallholders is not all positive, the research does show how smallholders can be better supported in the certified timber market, for example by investing in their management and networking skills.

“There’s also a need to build the international market for smallholders’ certified timber,” she adds. “Do consumers want to pay a premium for good wood?”

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For more information on this topic, please contact Ani Adiwinata Nawir, Coordinator for Policy Research, Kanoppi Project at a.nawir@cgiar.org or Ahmad Maryudi, Research Coordinator at Gadjah Mada University at ahmad_maryudi@ugm.ac.id .
This research was supported by the Australian Centre for International Agricultural Research (ACIAR), with local partners in Gunungkidul from Universitas Gadjah Mada (UGM) and the Farm Forestry Working Group (Kelompok Kerja Hutan Rakyat Lestari).
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Topic(s) :   Timber legality Community forestry

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